Education Mismatch and Wages in Mauritius: Premium or Penalty

Abstract The paper investigates into the link between education mismatch and wages in Mauritius. It adds to the existing literature on education mismatch and labour market outcomes by using Mauritius as a case study in Africa, where overeducation is a growing concern, with graduates struggling to find jobs corresponding to their education level and field, the so-called vertical and horizontal mismatches. This supply-demand inadequacy ascends from a mix of factors and one of them can be termed as the ‘diploma disease’. Using the Continuous Multi-Purpose Household Surveys from 2013 to 2017, the pooled estimation results find evidence for a wage penalty of 1.3% for overeducated individuals compared to perfectly matched workers. A wage penalty of around 9.6% is also noted for undereducated workers compared to their perfectly matched counterparts. Heckman two step estimation approach is adopted to account for sample selection bias whilst the instrumental variable two stage least squares is applied to cater for the endogeneity of overeducation. The wage penalty for overeducation and undereducation under Heckman estimation method compares to ordinary least squares estimates with slight differences in the magnitude of the wage penalty. Once we account for endogeneity, the wage penalty for overeducated workers rose to 11% while that of overeducation did not change.