Immigrant Over- and Under-Education: The Role of Home Country Labour Market Experience

The cause of immigrant education mismatch in the host country labour market might not necessarily be discrimination or imperfect transferability of human capital, as argued in previous studies. Immigrants who have gained professional experience in the home country in jobs below their education level might be assessed by host country employers as having lower abilities and skills than those expected from their educational qualifications. Using the Longitudinal Survey of Immigrants to Australia we show that a significant part of the variation in the immigrants' probability to be over-/under-educated in the Australian labour market can be explained by having been over-/under-educated in the last job in the home country.


Introduction
Migration is typically viewed as a way to best allocate human capital when labour markets work. Evidence on education mismatch suggests, however, that human resources are not always used efficiently: both natives and immigrants often work below their education level, and studies have repeatedly found that up to a third of a country's employed is over-educated.
The information about formal qualifications is not the only aspect considered by employers to assess the skills and abilities of applicants. The skills used and/or developed in previous jobs are an equally (or sometimes even more) important aspect.
Skills gained through professional experience might be from jobs that do not match the individual's education level and, thus, might affect future job prospects in a diverging way. For example, having accumulated experience and skills below the education level may result in a lower probability of getting job offers that match the formal educational qualifications. Conversely, having advanced in a previous job to a position involving more knowledge and skills than the ones matching formal education may result in getting subsequent offers for jobs that require a relatively higher education level as well.
Recent research on immigrants' over/under-education has typically focused only on the post-migration job market experience of migrants and has compared the possible labour market mismatch of immigrants or ethnic minorities (i.e., second/third generation migrants) with natives. There is an almost universal consensus in the literature that immigrants are more often over-educated than their native counterparts and the authors forward different, and very plausible, arguments for this disparity. These range from imperfect international transferability of human capital to discrimination in the labour market to, perhaps, a combination of language and country of origin effect.
However, the extant literature on the education mismatch of immigrants has not explored the possible existence of education-occupation mismatch prior to migration.
We attempt to fill this gap by assessing the role of home country over-/under-education in explaining the immigrants' over-/under-education in the host country labour market. This analysis, therefore, will provide some evidence towards the role of the level of skills accumulated in previous jobs in the home country (i.e., below, at or above the education level) in explaining the incidence of subsequent mismatch in the host country, instead of, or in addition to those typically inferred to in the existing literature.
In order to conduct the analysis, we exploit the Longitudinal Survey of Immigrants in Australia (LSIA), which contains detailed information about immigrants' education level, their occupation in Australia since arrival as well as their occupation in the home country in the 12 months prior to migration. Australia has a selective immigration policy favouring immigrants who are young, highly educated and with prior work experience that is likely to be immediately transferable to the Australian labour market. Still, several studies have shown that immigrants are often employed below their education level and argued that immigrants' skills are not fully utilised in the Australian labour market (see for example Green et al. 2007).
Our results show that immigrants' education-occupation mismatch in the host country is, to a large extent, explained by their mismatch at home. Between 11 and 16 percent of the variation in the immigrants' probability to be over-educated in the Australian labour market can be explained by having been over-educated in the last job in the home country. Home country mismatch has an even higher impact in the case of under-education -between 42 and 67 percent of the variation in the immigrants' probability to be under-educated can be explained by having been under-educated in the last job in the home country. After spending a few months in Australia the impact of home country labour market outcome diminishes for all migrants. Nevertheless, the home country mismatch effect remains significant.
The rest of the paper is organised as follows. Section 2 discusses previous literature and outlines theoretical motivations while Section 3 presents the data. The empirical model used in the paper is presented in Section 4 and the discussion of results appears in Section 5. Section 6 concludes the paper.

Previous Literature and Theoretical Motivations
We carry out our analysis within the perspectives of the existing over-and under-education literature. 2 This literature typically proposes that there is a reference level of education that is required for a particular job, and when a worker is hired with an education level which diverges from the required level, a mismatch occurs. This could be a level higher than needed for the job, in which case the worker is overeducated, or lower than the required level, in which case the worker is under-educated. 3 2 See for instance, Chevalier and Lindley (2009), McGuinness (2006), Voon and Miller (2005), Battu and Sloane (2004), Gottschalk and Hansen (2003), Bauer (2002), Dolton and Vignoles (2000), Hartog (2000) and McGoldrick and Robst (1996). 3 It has become a stylised fact now that over-educated employees earn less than those with the required education level. This conclusion of course rests on the assumption that the returns to human capital are mostly affected by formal education rather than training and learning on the job (e.g., Ben-Porah 1967, Heckman 1976, and Mincer 1997 or career interruptions or switches (e.g., Mincer and Ofek 1982).
These models have been extended to consider the mismatch of immigrants compared to those of natives. All studies show that immigrants are much more likely to be mismatched (generally over-educated) than their native counterparts. There are several arguments put forward for that. For instance, Miller (2008, 2009), for analyses of Australia and the US, argue that the main reason for immigrant education mismatch is the less than perfect human capital transferability across borders, especially for those who migrate from less developed countries and/or those who have low host country language skills. Similarly, Green et al (2007) use the LSIA to show that immigrants in Australia are much more likely to be over-educated than the natives and the difference is more pronounced for those coming from non-English speaking backgrounds. One other explanation put forward by Battu and Sloane (2004) is the possible discrimination against non-whites in the UK labour market, where they compare mismatch for ethnic minorities with those for white natives. 4 Education-occupation mismatch is a dynamic process that is theorised to be affected by the individual's experience in the labour market. For example, the searchand-match theory hypothesises that mismatch originates from imperfect information about the labour market. Workers, thus, might take up jobs for which they are overeducated when they enter the labour market. However, they would continue to search for higher job levels and eventually move up the occupational ladder to positions that match or even exceed their formal qualifications (see Groot and Maassen van den Brink 2000;Hartog 2000). As argued by Chiswick and Miller (2009), this search and adjustment process can be particularly relevant for immigrants, especially for those from countries with labour markets that differ appreciably from those of the destination country. With residence length and the accumulation of information about the host They argue that ethnic minorities possibly find it difficult to acquire jobs and therefore are likely to work in an occupation that is not fully commensurate with their qualification. Hence, on average more non-whites end up being over-educated. In other words, one can argue that to be able to send a stronger signal of ability, immigrants acquire more education, compared to natives, for the same job. Finally, some unobservable factors like motivation and innate abilities might be the reasons behind the results obtained in all studies analysing the labour market mismatch for immigrants (see Chiswick and Miller 2009). 4 Possible discrimination against immigrants in the US is also suggested by Chiswick and Miller (2010). country labour market, the incidence of over-education is expected to fall while the incidence of under-education could rise.
The human capital theory suggests that experience and skills acquired through on-the-job training could be often substitutes to formal schooling (see Sicherman 1991).
Therefore, individuals may, at the start of their career, accept jobs below their education level with the intention of accumulating experience and skills for the benefit of an expected upward job mobility. Similar to the search and matching, the human capital theory predicts that with job experience over-education decreases, while undereducation increases.
One of the few studies that considered the role of job experience accumulated in the home country in explaining the immigrants' education mismatch in the host country labour market is Chiswick and Miller (2009). They found that a greater amount of home country experience is associated with poorer job matches in the US and argued the imperfect international transferability of human capital is the main driving force for that outcome. The authors, however, implicitly assume no education mismatch in the immigrants' country of origin labour market. In other words, they suppose that the professional experience gained prior to immigration was in jobs requiring exactly the education level obtained from formal schooling.
Our contribution to the literature consists in relaxing this assumption and allowing immigrants to enter the host country labour market with experience gained in the home country at different occupational levels. We expect the level of professional experience at origin (i.e., below, at or above the education level) to significantly determine the immigrants' education mismatch incidence in the host country. For example, immigrants who have gained professional experience in the home country in jobs below their education level might be assessed by host country employers as having lower abilities and skills than those expected from their formal education. That might lead to employment below the education level in the host country as well. Therefore, if someone with tertiary education worked in the home country in a job that required only secondary education and is facing the same outcome in the host country, then it is less likely that the mismatch is due to imperfect transferability of skills and more likely due the lower on the jobs skills accumulated and/or some other unobservable factors (e.g., ability, motivation, ambition, and/or energy). If, however, the individual was properly matched in the home labour market but is over-educated in the host country, then perhaps the existing explanations of imperfect skill transferability and/or discrimination could be put forward for such an outcome.
Three broad approaches have been used in the literature to measure the incidence of under-/over-education. One approach, which is typically based on survey data, uses the workers' self assessment about the minimum education level needed for the job they perform or their understanding of the average education level for a particular job and whether they possess that or not (e.g., see Sicherman 1991;Dolton and Vignoles 2000). A second approach, developed by Verdugo and Verdugo (1989), uses the mean education level required across a range of occupations. Under this approach an individual is considered over-or under-educated if his education level is, respectively, one standard deviation above or below the mean education level required for that particular job. A third way to analyse the level of over-/under-education is the "objective" measure based on methods used by different countries/labour organizations to assess the average required education for a particular job (e.g., Rumberger 1987 andGreen et al. 2007). We adopt the last approach in this paper. (http://www.immi.gov.au/employers/_pdf/ansco-anzsco-differences.pdf).
Those who have surplus education to that required by DIAC are considered overeducated, while those who have less are considered under-educated. The related education levels for each categories and further explanation is provided in section 3 below.

Data
The The LSIA was commissioned in the early 1990s to fulfil the need to have better information on the settlement of new migrants than those available through censuses. It is based on a representative sample of 5 percent of migrants/refugees from successive cohorts of migrants. LSIA 1 and LSIA 2 contain more than 300 questions about the settlement process and conditions experienced pre-emigration in the home country and after relocating to Australia. The LSIA is carried out separately on primary applicants and migrating-unit spouses. 6 Australian immigration policy became more restrictive for all migrants who entered after 1995 (i.e., Cohort 2 in our paper), except for those in the humanitarian stream.
There are 5,192 primary applicants and 1,838 spouses in Cohort 1, while 3,124 primary applicants and 1,094 spouses were interviewed as part of The policy restrictions, intended to favour migrants with skills immediately usable in the labour market, included higher language proficiency requirements as well as higher weight attached to other employability factors namely occupational skills, education and age. As a result, migrants in Cohort 2 have a higher average level of education, higher participation rates (see Cobb-Clark 2003;Chiswick and Miller 2006), and lower durations to access their first job (Thapa and Goergens 2006) than those in Cohort 1, though they appear to have lower quality initial jobs (Junankar and Mahuteau 2005). 5 Migrants interviewed in LSIA 1 will be referred to as Cohort 1 and those in LSIA 2 will be referred to as Cohort 2 in the rest of the paper. 6 Migrating unit is this context includes all members of the family migrating to Australia under the same visa application. The term spouses is used for husband/wife, civil partners, fiancé(e)s and de facto partners. 7 There are three broad visa categories used to enter Australia: independent skills and employer nomination schemes, family reunification and refugee. See Green et al (2007) for a discussion.
clerks, salespersons and personal service workers, and plant and machine operators and drivers (ASCO 4-7) the educational requirement is a "diploma or vocational degree".
For labourers and related workers (ASCO 8-9) it is "secondary or less" education.
We consider as over-educated all those respondents who have a level of education that is above what is required by DIAC to perform the tasks of the occupation held. This includes individuals who have a tertiary education but have an occupation that requires only secondary or vocational education, and individuals who have vocational education but have an occupation that requires secondary education.
Conversely, the under-educated include individuals who have an education level lower than the one required for their job.  Table 2 presents the education mismatch transitions between the occupational status in the job held in the home country during the last 12 months before migration and the occupational status at 5 months after arrival in Australia. Perhaps unsurprisingly, many of those who had a job in the home country prior to migration were unemployed in the first months after migrating to Australia. On average 35 percent of Cohort 1 was unemployed at 5 months after migrating (top section of Table 2), with the highest incidence of unemployment among those who were over-educated at home (about 43 percent). The incidence of unemployment drops in Cohort 2 (bottom part of Table 2) to about 20 percent, and less for those who held a job matched with their formal educational qualifications at home (about 13 percent). There is also substantial persistence in the educational mismatch between home and host countries among those who were employed both prior and after migration: 38 percent of the over-educated at home in Cohort 1 were over-educated in their job in Australia (53 percent for Cohort 2); 53 percent were correctly matched (69 percent in Cohort 2); and 40 percent were undereducated (60 percent in Cohort 2). Table 3 shows that such educational mismatch persistence remains during the time of residence in Australia. Among Cohort 1 (top section of Table 3), 52 percent of those over-educated in the initial jobs at arrival continued to work in positions that required a lower level of formal education even after 41 months of residence (though 39 percent became correctly matched), and 74 percent of those who were initially undereducated remained in jobs that required a higher level of formal education. The persistence in educational mismatch is stronger in Cohort 2, where 63 percent and 80 percent of the over-and under-educated, respectively, continued to be similarly mismatched at 17 months after arrival.

Empirical Methodology
The primary concern of this paper is to model the determinants of matching of educational level to the occupational attainment (i.e., over-education, correct match, and under-education) among immigrants in the Australian labour market. Given the fact that an eventual match or mismatch is observed only for the employed individuals, an exclusive focus on those immigrants who have an occupation may overlook the fact that they might constitute a self-selected sub-sample (see for instance Dolton and Vignoles 2000). Bauer (2002) and Cutillo and DePietro (2006)  The occurrence of one of the three match/mismatch alternatives { } over-education;correct match;under-education j = may be illustrated by the following two linear latent dependent variable equations: if the individual has attained the respective match/mismatch ( 0 Equation (2) is fully observed and can be estimated separately. However, separate estimation of match/mismatch attainment (Eqn. 1) may be subject to selection bias given the potential for correlation between the two error terms i u and i v . The model can be estimated stepwise (i.e., the inverse Mill's ratio of the selection equation is introduced as a covariate in the outcome probit equation) or by maximum likelihood.
Relative to the maximum likelihood approach, the two-step method is often perceived to give inconsistent results, in particular in the case when there is strong multicollinearity between covariates in the outcome and the selection equations (e.g., when using a joint set of covariates; see Lahiri and Song 2000).
For each (mis)match alternative, the log-likelihood function to be evaluated is: where ρ denotes the correlation coefficient between the error terms i u and i v ; ) ( 2 ⋅ Φ denotes the bivariate standard normal cumulative distribution function; and ) (⋅ Φ the univariate standard normal cumulative distribution function. The parameters of Eqns. (1) and (2)  Having not worked during the last 12 months prior to immigration is the reference group for the dummy set. Moreover, immigrants enter Australia with qualifications from a large variety of educational systems. In order to capture differences in the quality of education received, we include a control for the country where the highest formal qualification was received as well.

Empirical results
The home country experience in education-occupation (mis)match explains a large part of the variation in the immigrants' education (mis)match in Australia (see Figures 1 and 2). Using the education-occupation mismatch of the male immigrant employees in Australia as dependent variable 9 and the education mismatch dummies relative to the last job held in the home country 10 variables (e.g., age, age squared, a dummy for having the qualification assessed in Australia, dummies for the regions of origin where the highest formal qualification was obtained, dummies for the entry visa type, a dummy for school age children present, a dummy for having financial funds at time of entry, and regional dummies) increases the explanatory power of the MNL models by only 8 percentage points. That means that the education mismatch incidence in the last job held in the home country alone explains between 76 and 83 percent of the variation in the education mismatch in Australia covered by all observables. Unsurprisingly, the education mismatch in the home country can explain the variation in the immigrants' education mismatch at 17 months (and 41 months) after arrival relatively less accurately, since more recent professional experience (i.e., after arrival in Australia) is likely to be more important.
When distinguishing between different types of mismatch, we note that under- Similar to findings in previous studies, the selection into employment is positively related to host country language proficiency, knowledge of the Australian labour market over previous country visits, having obtained the entry visa after 11 Due to the small sample size of Cohort 2, some education mismatch sub-groups are quite small (e.g., 88 over-educated males for Wave 1 and 101 under-educated males for Wave 2). That caused some of the maximum likelihood estimations not to converge, while in the cases a maximum was found the standard errors were high and barely any coefficients were significant. We, therefore, present estimations of Cohort 2 only as pooled with Cohort 1 and with a control for immigrants belonging to it. 12 Due to the very small sub-samples of immigrants in the Australian Capital Territory (ACT), Tasmania and Northern Australia, we merged these with New South Wales, South Australia and Western Australia respectively. The pairing was made on the basis of geographical proximity as well as labour market similarities in terms of average unemployment rates and average weekly earnings of employees. Hence, our five regional dummies are: screening for labour market and/or business skills, having a car, and having dependent children in the household (see Green et.al. 2007). Moreover, the probability of being employed is negatively affected by having entered Australia on a humanitarian visa, which could be evidence of having relatively less skills, and the presence of other adults in the household that might contribute to the household income.
The error term of the selection equation is positively correlated with the error term of the over-education equation, indicating that there are unobservable factors that affect similarly the likelihood of both employment and over-education. One example of this could be innate ability. Following Spence (1973) signalling model, it could be argued that those with higher ability will acquire more education than those with lower ability in order to correctly signal their type. However, this does not necessarily preclude the incidence of over-education in the labour market, at least at the start of one's career. On the other hand, the incidence of a correct match and that of undereducation are affected divergently by unobservable, resulting in a negative sign for the correlation coefficients of the respective error terms. 13 The education (mis)match incidence in the last job in the home country has a strong effect on the education (mis)match in Australia. At 5 months after immigration and conditional on being employed, immigrants in the first cohort who have been over- under-educated being increased by 51 percent. This shows that with integration more and more immigrants who worked above their education level before leaving their home country find jobs above their education level in the host country labour market as well.
The positive relationship between the over-/under-education at 5 months after arrival and over-/under-education at 17 and 41 months after arrival confirms the state dependency in education mismatch.
From Tables 7 and 8 we note that at 5 months after arrival immigrants from Cohort 2 are about 14 percent more likely to be in employment compared to immigrants in the first cohort -probably due to stricter access to unemployment benefits -but there are no significant differences in education mismatch. At 17 months after arrival, the difference in employment gets close to zero. However, Cohort 2 immigrants become 8 percent more likely to be under-educated and 8 percent less likely to be correctly matched, providing evidence of an eventual better selection with regard to unobservable skills.
Compared to previous studies in which the estimated models included a control for the migrants' region of origin, we use covariates for the geographic region in which the immigrant has obtained his highest formal qualification. This should capture eventual differences in the values assigned by Australian employers to diplomas obtained from different education systems. Compared to having obtained the last degree in Australia or New Zealand, those who gained their qualifications in a country in Asia, Africa, Eastern Europe, Central America or South America, had a lower probability of being correctly matched at 5 months after arrival (i.e., -20 percent for Cohort 1, and -10 to -14 percent for Cohort 1 and 2 combined), whereas having obtained the last degree in an EU/EEA country, Canada or the US has no significant effect on the mismatch incidence. This shows that degrees from (mainly) OECD countries are assigned a higher value than those from less developed countries.
After a longer period of residence (17 to 41 months) all immigrants with degrees from outside Australia and New Zealand seem to accede to jobs in which they are relatively less over-educated and more under-educated. We have to note that the result might be driven by immigrants who have obtained a higher degree after arrival in Australia, but who had not sufficient time to find a job that matches their newly acquired qualification. Nonetheless, degrees obtained in a EU/EEA country (excluding UK and Ireland) seem to be valued most in the Australian labour market, decreasing over-education by about 8 percent and increasing under-education by 16 to 22 percent.
As found also by Green et al. (2007), having entered Australia with a visa that required the proof of business or professional skills significantly decreases the likelihood of over-education and increases that of being correctly matched. Surprisingly possessing Australian citizenship is positively correlated with being over-educated. 14 This could be evidence that working below the education level motivates immigrants to increase efforts to take up Australian citizenship, in the hope that that would improve their job market situation. Similarly, having an overseas qualification assessed in Australia seems to be more common among those immigrants that fail to find a job in which they can fully use their qualifications: at 41 months after arrival having the qualification assessed is positively related to working below the education level and negatively related to working above it.

Conclusions
Our results suggest that the under-utilisation of the immigrant human capital pool due to imperfect transferability of human capital and discrimination is less severe than implied by previous studies. Many immigrants have already before migration work experience in jobs below (or above) their education level, with a negative (or positive) effect on their average skill level. Therefore, taking into account the level of professional experience achieved before migration along with the formal education qualifications provides a more accurate estimate of the immigrants' human capital.
We used the Longitudinal Survey of Immigrants in Australia for two cohorts of immigrants who entered the country in 1993-1995 and 1999/2000 respectively and showed that the (mis)match already experienced in the home country has an important explanatory power, as it can explain between 25 to 40 percent of the total variation in the education-occupation mismatch incidence in Australia (depending on the migrant cohort) and between 76 and 83 percent of the variation explained by all observables.
After controlling for selection into employment and the effect of various socioeconomic characteristics, over-and under-education in the home country continue to have the strongest effect among all covariates: having been over-educated in the last job held in the home country increases the likelihood of over-education after arrival in Australia by about 45 percent, while having been over-educated at home increases the probability of over-education in Australia by more than 60 percent. The importance of state dependency in over-/under-education is also confirmed by the fact that the education-occupation mismatch after 17 and 41 months of residence is significantly dependent on the education-occupation mismatch immediately after arrival in Australia.
The more stringent rules on access to social security payments faced by the second immigrant cohort increased their employment probability relative to the first cohort. However in contradiction to Green et al. (2007), we found that the poorer matching incidence for the second cohort eventually resulted in a better utilisation of skills, in jobs above the education level; this being probably the effect of the tighter selection criteria under the points-based system.     20547] Standard errors in brackets * significant at 10%; ** significant at 5%; *** significant at 1%     Notes: The education mismatch variables in the mlogit estimations include three categories: overeducated, correctly matched, and under-educated. Socio-economic characteristics include: age, age squared, a dummy for having the qualification assessed in Australia, dummies for the world region where the highest formal qualification was obtained, dummies for the entry visa type, a dummy for school age children present, a dummy for having financial funds at time of entry, and regional dummies. Notes: The education mismatch variables in the mlogit estimations include three categories: overeducated, correctly matched, and under-educated. Socio-economic characteristics include: age, age squared, a dummy for having the qualification assessed in Australia, dummies for the world region where the highest formal qualification was obtained, dummies for the entry visa type, a dummy for school age children present, a dummy for having financial funds at time of entry, and regional dummies.