Brains without borders: how productivity loss from education mismatch locks the Philippines in the middle-income trap
Date
2025-12-14
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Abstract
This study investigates education-employment mismatch in the Philippines and its structural contribution to the country’s middle-income trap conditions. Using harmonized FIES-LFS microdata from the pre-pandemic baseline (2018) and post-pandemic recovery period (2023), the analysis applies an augmented Mincer wage equation and pseudo-panel cohort analysis to document mismatch patterns, persistence, and associated productivity implications. Results indicate a stable aggregate mismatch incidence of approximately 59%, masking a post-pandemic compositional shift toward overeducation. Required schooling is associated with high wage returns (+15.1%), while undereducation corresponds to a substantial and persistent wage penalty (-7.4%). Returns to overeducation declined markedly in 2023 relative to 2018, consistent with a post-pandemic scarring effect. Pseudo-panel estimates show strong persistence, with the majority of mismatched cohorts in 2018 remaining mismatched in 2023. When scaled, the estimated wage gaps associated with undereducation correspond to aggregate productivity shortfalls of roughly $1.76 billion, or 0.40% of GDP in 2023. Comparative benchmarking places the Philippines’ mismatch incidence above the ASEAN average. Collectively, these findings characterize education employment mismatch as a persistent structural feature of the Philippine labor market that aligns with observed limitations in effective human-capital utilization under the conditions of the middle-income trap.
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Productivity loss, Education mismatch, Middle-income