Vertical education–job mismatch and worker welfare: Evidence from secondary school graduates in Indonesia

Vollständiger Abstract

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Education–job mismatch is an important labor market concern in developing countries, particularly among upper-secondary graduates navigating heterogeneous urban and rural employment opportunities. This study examines the factors associated with vertical education–job mismatch and the associations between mismatch and worker welfare among graduates of general and vocational upper-secondary schools in Indonesia, with particular attention to urban–rural differences. Using the August 2023 National Labor Force Survey (SAKERNAS), we estimate multinomial logit models for mismatch status and weighted linear regression models for worker welfare outcomes. Results indicate that only 49.3% of workers are well matched; 40.4% are educationally overqualified, and 10.3% are educationally underqualified. Age, gender, training participation, and urban residence are systematically associated with mismatch status. Educational underqualification is positively associated with the Job Quality Index in the baseline model, whereas educational overqualification is not statistically significant. The associations between mismatch and earnings vary across spatial contexts. Educational overqualification is positively associated with earnings in the rural reference group, although this association is offset in urban areas, whereas educational underqualification is negatively associated with rural earnings but positively associated with earnings in urban areas. Multinomial probit estimates are broadly consistent with the multinomial logit results, whereas selection-corrected analyses indicate that the welfare associations are sensitive to non-random sorting across mismatch categories. Favorable outcomes among some mismatched workers may therefore reflect unobserved skills, selective retention, and labor market adaptation rather than efficient initial allocation. The findings suggest that policies should combine locally differentiated worker–job matching systems with measures to improve job quality and expand productive employment opportunities.