Abstract
Exploring a rich matched employer-employee data set over the 1998-2012 period and a novel measure of educational mismatch based on the flows of newly hired workers, this study analyses the short and medium-term effects of over- and undereducation on individual wages. The results reveal the wage differential between adequately matched workers and mismatched workers decreases substantially once worker and establishment unobserved heterogeneity is considered. Based on the omitted variable bias formula proposed by Gelbach, we found worker unobserved heterogeneity explains a large fraction (around two-thirds) of the overeducated wage penalty and of the undereducated wage premium. Heterogeneity in firm paying policies also seems to play an important role in explaining the wage gap of newly hired mismatched workers. Finally, the results reveal that wages of individuals in the beginning of their labour market career are the most affected by a job mismatch.