The Impact of Overeducation on Wage in Vietnam

By Dang Nguyen Minh Duy (VNP 28)

Supervisor: Dr. Tran My Minh Chau

Abstract:

The study uses data from the 2018 Vietnam Household Living Standard survey and the Vietnam Labor Force survey to examine the effect of overeducation on wage in Vietnam. The findings implies that overeducation is negatively correlated to wage and is statistically significant. Using available data from both datasets mentioned above, this study check for robustness of OLS coefficient. Employing one instrumental variable relating to childhood neighborhood level of education, the study tries to address the endogenous relationship between wage and overeducation. The two stage least square estimate and test results indicates that the instrument is strong and exogenous, and the endogeneity between wage and overeducation leads to underestimating of the true causal effect of overeducation on wage. The study also tests for omitted variable bias, and the result shows that there are unobserved variables that also affect wage which leads to overeducation to be overestimated. Although the solution to solve the bias is not discussed within the scope of this study, it is among the first in this field of literature to address the omitted variable bias and empirically try to test for the existence of the bias.