The effects of ability on returns to over‐ and under‐education: Evidence from Malaysia

• Author: Chung‐Khain WYE,Rahmah ISMAIL
• Published date: 01 September 2019
• DOI: http://doi.org/10.1111/ilr.12094
• Date: 01 September 2019

International Labour Review, Vol. 158 (2019), No. 3

Copyright © The authors 2019

Journal compilation © International Labour Organization 2019

* Center of Value Creation and Human Well-being (INSAN), Faculty of Economics

and Management, Universiti Kebangsaan Malaysia, email: wyeck@ukm.edu.my. ** Faculty of

Economics and Management, Universiti Kebangsaan Malaysia, email: rahisismail@gmail.com.

This research was funded by the Ministry of Higher Education of Malaysia under project

FRGS/1/2014/SS07/UKM/01/2. The authors would like to thank the Ministry for its support.

Responsibility for opinions expressed in signed articles rests solely with their authors,

and publication does not constitute an endorsement by the ILO.

The effects of ability on returns

to over- and under-education:

Evidence from Malaysia

Chung-Khain WYE* and Rahmah ISMAIL**

Abstract. In Malaysia, skilled-job creation does not match the rising number of

tertiary-educated workers. The resultant accumulation of skill and ability compe-

tencies and work experience raises the question of the extent to which this enhances

(mitigates) the wage premium (penalty) of over-education (under-education).

Using data collected in Peninsular Malaysia in 2015, the authors estimate the ef-

fects of ability on returns to education. Their ndings suggest that improving spe-

cic types of ability may be a means of rectifying wage deciencies resulting from

over- and under-education. On this basis, human resource development in schools

and in the workplace should focus on developing job-specic workplace abilities.

One of the key areas of the development agenda in Malaysia is the cre-

ation of a strategy to produce knowledgeable and skilled workers, in an

effort to achieve a high-income status as a country. The democratization of sec-

ondary-school education in the early 1990s, especially at the upper-secondary

level, enabled Malaysians to access a higher level of education. Human cap-

ital investment in education and skills training has been identied as the main

channel through which educated and highly skilled labour can be developed.

As such, the proportion of employed persons holding the Malaysian Certi-

cate of Education and the Malaysian Higher School Certicate or equivalents

(e.g. GCSEs or A-levels in Commonwealth countries) increased from 20.16 and

2.20 per cent, respectively, in 1990 , to 36.66 and 2.91 per cent, respectively, in

2015 (Department of Statistics, 2016a). However, Sua (2012) argues that such

an educational reform has resulted in a “massication” of education, which

has consequently compromised the quality of education and desired labour

market outcomes in Malaysia.

International Labour Review536

The issue of the massication of education is also raised in relation to

higher education institutions as the demand for tertiary education increases.

Gaining momentum through the development of various higher education

programmes, such as the “twinning” and “studying abroad” programmes, the

opportunities to attain a higher level of education have increased. While the

choice of these programmes makes no signicant difference to labour mar-

ket outcomes, their existence does encourage Malaysians to obtain additional

levels of education in the current Malaysian labour market context, where

postgraduate studies are found to be important for employment (Koda and

Yuki, 201 3). As a result, the proportion of those employed who hold a uni-

versity degree increased from 2.48 per cent in 1990 to 11.94 per cent in 2015

(Department of Statistics, 2016a).

With educational reform, the level of educational attainment has risen

out of proportion with the number of skilled jobs in Malaysia. Within the Tenth

Malaysia Plan period (2011–15), the proportion of semi-skilled employment

increased from 61 to 62 per cent, while the proportion of skilled employment

declined from 27.6 to 25.2 per cent. From 2010 to 2014, only 121,000 new

skilled jobs were created, whereas there were 245,0 00 new graduates in 2013

alone, resulting in 553,40 0 workers with at least the pre-university qualica-

tion being employed in the semi-skilled category. In fact, a study by Yunus and

Hamid (2016) points to over-education among workers with university degree

qualications who, despite enjoying higher private returns, are mismatched into

semi-skilled employment. Although the proportion of skilled employment is

expected to increase from 28 per cent in 2015 to 35 per cent in 2020 under

the Eleventh Malaysia Plan (2016–20), the issue of insufcient job creation

for skilled labour continues to be a challenge for the Malaysian labour mar-

ket (Economic Planning Unit, 2015).

The over-supply of job candidates with higher education qualications

has formed a pool of potential labour from which employers can take their

pick. However, job vacancies available in the skilled category may not neces-

sarily match the demand, in terms of both the quantities and qualications

required. As a result, many tertiary-educated workers are expected to accept

jobs that require an educational level lower than their own, giving rise to a

growing incidence of over-education. While it takes time and experience for

fresh graduates to move up the job ladder in skilled occupations, as managers,

professionals, technicians and associate professionals, the imbalance between

demand for and supply of skilled occupations has drawn researchers’ atten-

tion to the incidence of over-education at the initial stages of employment.

Facing stiff competition in the labour market and fearing that the skills

that they have acquired will lose value, some people compensate for their

perceived skill decit with surplus education in order to remain competitive.

Employers may view this as a job market signal sent by candidates hoping to

secure jobs in a tight labour market, warranting them to hire workers whose

educational attainment is higher than required. Consequently, the effects of

over-education seem to be a persistent feature of the current labour market.