The roles of informality and labor mismatch on returns to education in Thailand

Abstract

Thailand has experienced rapid economic development and significant investments in education. Despite these trends, many Thai workers remain informally employed or cannot find jobs commensurate with their education level or university major in the labor market. Given these issues, this dissertation examines three interrelated questions: 1) What are the returns to education among the informally employed in Thailand? 2) What is the incidence of vertical education - occupation mismatch and its accompanying wage penalties among Thailand’s informally employed? 3) What is the incidence of horizontal degree field - occupation mismatch and its penalties among Thailand’s post-secondary school graduates?

The first study uses data from the 2011, 2013, and 2015 Thailand Household Socio-economic Surveys (SES) to estimate wage returns to years of education for informal workers using an instrumental variable (IV) approach to correct for ability bias. The results indicate that the return to an additional year of education for the informally employed is 11-12 percent, compared to 14 percent for formally employed private firm workers. Using the same data, the second study examines the incidence and implications of vertical mismatch among formal and informal workers in Thailand. Consistent with structural changes in the economy and increases in the supply of education, overeducation is most prevalent among the youngest cohort of workers across every employment sector. Despite increasing formalization of the economy, the incidence of informality remains high among the youngest cohort of workers, with overeducation prevalent among the informally employed. The overeducation wage penalties are highest in older cohorts, suggesting that penalties increase over one’s career.

The final study examines horizontal mismatch in Thailand and its associated wage penalties. Using the 2011 to 2016 Thai Labor Force Surveys (LFS), this study finds that 40.7 percent of postsecondary graduates are horizontally mismatched. Bachelor’s degree graduates face the largest penalties, at 15.6 percent on average, whereas mismatched workers with upper vocational degree credentials are penalized the least at 11.6 percent.