Impact of Overeducation on Wages in China

The rapid expansion of China's higher education system in recent years has exceeded China's high rate of economic growth and produced a problem of overeducation and undereducation, defined respectively as whether graduates obtain jobs whose educational requirements are commensurate with their highest degree qualification on graduation. A pecking order model of employment offers is used to analyze the factors determining the overeducation of graduates across China. These include significant factors not found in other countries. The predictive hypothesis of a strong form of the pecking order model was tested under conditions of perfect wage flexibility dependent only on individual characteristics and not on the job obtained by the graduate. The hypothesis was rejected because the evidence showed that the Chinese labor market is imperfectly competitive due to the continued functioning of traditional bureaucratic norms. Instead, the analysis found that job level can have a significant effect on a graduate's wages, alongside other factors. The determinants of the probability of obtaining a higher-level job on graduation therefore remain important as factors influencing the graduate's expected wages, incentives, and risk of being overeducated for available employment.