Informality, education-occupation mismatch, and wages: evidence from India

ABSTRACT This article examines the intertwining relationship between informality and education-occupation mismatch (EOM) and the consequent impact on the workers’ wages. In particular, we discuss two issues — first, the relative importance of informality and EOM in determining wages; and second, the relevance of EOM for formal and informal workers. The analysis reveals that although both informality and EOM are significant determinants of wages, the former is more crucial for a developing country like India. Further, we find that EOM is one of the crucial determinants of wages for formal workers, but it is not critical for informal workers. The study highlights the need for considering the bifurcation of formal-informal workers to understand the complete dynamics of EOM especially for developing countries where informality is predominant.