CEB Working Paper

The second explanatory variable is the extent of overeducation. It is calculated by summing
up the years of education in firm j and year t that exceed prevailing norms. Put differently, we
make the sum over all workers i employed in firm j at time t of Oi,j,t, with Oi,j,t = Attained
educationi,j,t – Ni,j,t (where Attained educationi,j,t is the number of years of schooling attained
by worker i and Ni,j,t the normal years of education associated to workers’ i job). For example,
a worker with 10 years of education working in a job whose norm equals 8 years of education
will add 2 years of “overeducation”. Firms who place workers in occupations whose
educational norms they exceed will therefore increase the extent of overeducation in their
workforce.
The third explanatory variable reflects undereducation. It sums up the schooling that falls
short of educational norms, i.e. Ui,j,t = Ni,j,t - Attained educationi,j,t. For example, a worker with
10 years of education in a job with an educational norm of 12 years adds 2 years of
“undereducation”. The more workers of this type a firm employs, the higher will be the
extend of undereducation in its workforce.
To render these sums comparable across firms, the years of normal, over and undereducation
(Ni,j,t, Oi,j,t,Ui,j,t) are divided by mj,t,which is the number of workers employed in firm j at year
t.
To examine the impact of these explanatory variables on firm productivity, wages and the
productivity-wage gap, we use three specifications aggregated at firm level. More precisely,
we estimate the following equations:
VA
ln
m
j,
t
j,
t
VA
j,
t 1
0
1
ln
m
j,
t 1
X Z
j,
t
5
j,
t
6
t
j,
t
O
m j , t
i,
j,
t
2
i1 m
j,
t
N
m j , t
i,
j,
t
3
i 1 m
j,
t
U
m j , t
i,
j,
t
4
i 1 m
j,
t
(1)
w
ln
m
j,
t
j,
t
* *
w
0
1
ln
m
X
j,
t
Z
*
5
j,
t 1
j,
t 1
j,
t
*
*
6
*
t
m j , t
* i,
j,
t
2
i1 m
j,
t
j , t
O
N
m j , t
* i,
j,
t
3
i1 m
j,
t
U
m j , t
* i,
j,
t
4
i1 m
j,
t
(2)
9