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Journal of Adult and Continuing

Education
Are we ready? Labour 2022, Vol. 28(1) 7 3­–97
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digital economy DOI: 10.1177/1477971420983347
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Nicolás Didier
Arizona State University, USA

Abstract
Industrialised countries are currently facing the knowledge-to-digital economy transi-
tion. That transition is strictly defined by how the labour market is organised and
operates in the national economy. Some old to new phenomena are determinants of
those dimensions, such as educational mismatch, credential inflation, and job polar-
isation. These phenomena affect the relationship between schooling and earnings, car-
rying consequences for social mobility, household welfare, and an individual’s social
progression perspective. Those phenomena remain understudied in the context of
Latin America. Chile’s case has gained relevance in the region due to the highly deregu-
lated organisation of its educational market, the quality increase in its higher education
institutions, and its funding policies for higher education. This work attempts to provide
an extended diagnosis of the Chilean labour market, considering the impact of these
emerging issues on the educational market and policymaking. The results show that
83.6% of Chilean employees experience an educational mismatch (overeducation and
undereducation); credential inflation has depreciated the value of education over five of
the six occupational categories – besides the polarisation index for industrialised coun-
tries such as the United Kingdom.

Keywords
Educational mismatch, job polarisation, credential inflations, fourth industrial revolution

Corresponding author:
Nicolás Didier, Arizona State University, 411 N Central, Tempe, AZ 85287, USA.
Email: ndidier@asu.edu
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Introduction
The world is experiencing a change process in that national and globalised econ-
omies frame the value of knowledge and technology. The literature on the knowl-
edge economy and the value of knowledge-based activities has encountered its limit
on the fourth industrial revolution (4IR) and digital transformation (Schwab &
Davis, 2018). As an academic shift, the fourth industrial revolution has implied a
change in the focus of competitive advantages from the workforce (Giju et al.,
2010) to process design and automation (Mrugalska & Wyrwicka, 2017; Scarpetta,
2019).
Even though the discussion about the real scope and dynamics of the fourth
industrial revolution is currently running in the economic and academic forums
(Pollitzer, 2019; Stock et al., 2018), the shift between knowledge-based to digital
economies has several implications in the policy arena. From social protection
agendas and educational policies to health policies, the organizations’ digital trans-
formation changes the delivery of services, quality, and opportunity. Those
changes also carry significant challenges for labour market policies and how
people understand career development paths in their economic system.
For individuals and their careers, the fourth industrial revolution implies
changes in how organisations understand and implement their production process.
While organisations cope with the digital transformation management and its six
major topics such as digital strategy, digital innovation, Industry 4.0, digital busi-
ness models, analytics, and blockchain (Lambrou et al., 2019), individuals face a
substantive transformation of the jobs due to digitalisation and automation (Fuei,
2017). Those transformations on jobs’ nature lead to the continuing differentiation
between those tasks that are routines performed by human beings and can be easily
replaced by machines and those that do not allow that replacement or even com-
plementarity (Balsmeier & Woerter, 2019), displacing the knowledge and human
action as sources of value in the whole process. That displacement of the value of
knowledge would affect individuals’ preferences for educational investment, job
creation and destruction rates in more traditional economic activity clusters, and
technological unemployment problems.
From the government perspective, advancing the fourth industrial revolution
implies coping with technological unemployment and balancing the educational
policy’s need with the economic competitiveness policy. That balance between
policies will mean a shift from traditional agendas of a high priority on higher
education investment – at undergraduate and graduate levels – to subsidies or
supporting policies for digital transformation adoption. The change in priorities
requires developing new policy tools that could effectively deal with the challenges
derived from organisational and social transformation derived from the increasing
influence of technology on populations’ daily lives.
The problem of dealing with this change on the agenda and policy
priorities does not occur separately from the previous policy outcomes on both
sides: educational policies and competitiveness policies. In that sense, the
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knowledge-to-digital-economy transition will be determined by the national econ-

omy realm and the governments’ policy traditions. At this point, it is self-evident
that industrialised countries with the older process of higher education expansion,
structured active labour market policies, and economical promotion policies have
paid more attention to the mentioned phenomena. That, indeed, is not the case of
less developed countries such as Latin-American ones.
This work addresses the workforce configuration problem and the lack of diag-
nostics in Latin America by analysing the presence and evolution in Chile of three
critical problems derived from the expansion of higher education and the lack of
coordination between education and labour markets regarding the economic com-
petitiveness strategy: overeducation, credential inflation, and job polarisation. This
paper has three distinctive features: (a) it addresses the relation between education
and labour markets from a longitudinal point of view; (b) it analyses the educa-
tional mismatch, credential inflation, and job polarisation at the same time; and (c)
it offers some insights about the transitions between extractive economic activities
to service economic activities in the context of the fourth industrial revolution. As
a diagnostic effort, this work analyses the Chilean household survey between 1994
and 2015 to describe and estimate those phenomena in the Chilean labour market.
This longitudinal approach represents a contribution from previous evidence avail-
able for other Latin American countries (Diaz & Machado, 2008; Mehta et al.,
2011; Mora, 2008).
The remainder of this work is organised as follows: The upcoming section
discusses the higher education policies and the labour market configuration fea-
tures. In Section ‘Methods’, variable selection, methodological approach, data,
and econometric procedures are discussed. The estimation results are presented
in the penultimate section. The discussion is developed in the final section.

Related literature
The knowledge to digital economy transition: A brief problematisation of human
capital stock
From a historical perspective, the knowledge economy appeared as opposed to the
manufacturing and agriculture economic activities, placing greater importance on
services and knowledge than on tangible products as sources of wealth creation
(Bastalich, 2010; Drucker, 1969). Consequently, while the role of knowledge
increased its participation in the wealth creation, governments’ agendas began to
support that asset as a source of competitive strategy: investing growingly on
human capital accumulation for its contribution to workers’ productivity
(Mincer, 1962), financing research and development, and promoting innovation
through relevant industries (Gopinathana & Lee, 2011; Mendez & Moral, 2011;
Reischauer, 2018).
The evolution of those pieces of knowledge brought the fourth revolution. In
this stream of economic and social phenomena, the digital economy concepts
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appear to summarise a series of different themes and specifications of production

chains, including data economy, service economy, platform economy, Internet of
Things economy, sharing economy, prosumer economy, long tail economy, inclu-
sive economy, collaborative economy, and smart economy (Zhu, 2019). The digital
economy has transformed the production process by extending the range and
influence of companies (Peitz & Waldfogel, 2012) and modifying the environments
where consumers and producers set their transactions using the internet as a driver.
In broad terms, the transition between those kinds of economic strategies could
be defined by the source of value accumulation or wealth creation. From the third
industrial revolution, innovation and knowledge provided strategic capabilities to
organisations to survive, adapt, and grow in the changing context of the post-war
to the globalisation era (Mowery, 2009) and increasing the rewards of specific
varieties of human capital investment (Liu & Grusky, 2013). In the digital setting,
this is guided by a digital Fordism approach represented in the current overem-
phasis on automation and human workers’ replacement by machine process
(Dengler & Matthes, 2018). This transition has been included in the fourth indus-
trial revolution’s narratives as the theme of ‘the future of work’ (Madgavkar et al.,
2019; Manyika et al., 2017).
However, what is not precisely part of the main concerns of the knowledge-to-
digital economy transition is the legacy of knowledge economy policies on the
labour market. The adoption of the knowledge economy – as a correlate of indus-
trialised countries’ experience – led to an increase of public and private expenditure
in education in less developed countries reshaping the balance and configuration of
labour markets worldwide by influencing economic development, reducing pover-
ty, improving social mobility levels, improving income, increasing productivity,
and the health of the workforce (Brown & Hunter, 2004; Mendolicchio et al.,
2012; Sugawara, 2010).
The knowledge-to-digital economy transition’s current problem is to face the
fourth industrial revolution features with the stocks of human capital developed
during the knowledge economy phase. However, the higher education expansion
also carried consequences at the labour market level, creating changes in the con-
figuration of the labour market, as job polarisation; changing the relative value of
educational investment, as in credential inflation; and misinterpreting the relation
between educational investing and the labour’s market behaviour, known as edu-
cational mismatch.

Educational mismatch
Educational mismatch characterises a situation where an individual gets a job that
is not according to their education level. This general formulation allows us to
think about educational mismatch by the lack or excess of educational investment,
generating categories such as undereducation and overeducation. As a policy prob-
lem, undereducation appears to be an easy one. That is supported by underedu-
cation nature. When someone is undereducated for their current job, policy
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intervention has two main options: change the job (and support the process) or
invest in training (subsidising). However, overeducation is more complicated for
policy analysis, especially because overeducation has significant consequences for
less developed countries with growth strategies based on educational investment
(Schady, 2003). Furthermore, precisely one of the main policy prescriptions in the
knowledge economy era was to invest heavily in higher education and research
institutions (Leydesdorff, 2012). That combination makes overeducation a severe
challenge to economic development.
From a neoclassical approach, overeducation represents the misallocation of the
workforce into employment categories. In a competitive economic setting, the
labour market can efficiently use the workforce’s skills, taking advantage of work-
ers’ knowledge and skills. Conversely, in economies with low competitiveness
levels, employers could not be pressed to manage their own employees’ skills effi-
ciently. Consequently, if the labour market cannot assign workers efficiently to
jobs, it will decrease national economic performance.
As a labour market configuration problem, overeducation is an underemploy-
ment problem (Fine, 2007; Maynard et al., 2006), related to underpayment and
instability in labour relations (Feldman, 1996). That last implied that overeducated
workers would only get suboptimal work hours because their most complex abil-
ities are not required. In this sense, workers have more competencies than required
by the labour market (Fine, 2007) and are underpaid by their relevant skills set.
Finally, and related to the lack of coordination between supply and demand
sides of the labour market, overeducation carries the question about the quality of
the credentials or education in the workforce. As in the classic notion of the signal
theory (Spence, 1973), overeducated workers would signal a confusing stance or
future productivity to possible employers. Since employers’ preferences could be
mixed with prejudices or subjective valuations (Didier, 2019), overeducation
affects the capacity of representation of educational credentials (Brooks &
Waters, 2009; Didier, 2014a). That issue would lead to credential inflation. Even
if the worker has the proper educational investment to get the job, the employer’s
valuation of the degree or diploma plays a significant role in the pay-setting.

Credential inflation
The second concept of credential inflation attempts to describe a relatively new
phenomenon. Industrialised countries have experienced a trend towards increasing
the educational requirements for job access, without a substantive change in the
complexity of those jobs (Glott & Paul, 2003). That promotes scenarios where
individuals invest more in education than the economic return obtained
(Werfhorst, 2007). Said situation shows the change in employers’ preferences con-
cerning educational level, being credentials indicators of skills or abilities, or social
markers.1
According to Heath and Sullivan (2011), credential inflation has two meanings.
First, credential inflation decreases certification standards resulting from the
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demand for enrolment for courses and certificates. Second, credential inflation
represents the notion that the payments to the certification of skill are smaller
products of the offer’s massification in the labour market (Brooks & Everett,
2009). Research in the area has bifurcated towards concepts such as the depreci-
ation of human capital (Didier, 2013, 2018c) and career development logic through
the achievement of positional advantages (Arthur & Rousseau, 1996; Waters &
Brooks, 2010).
Both educational mismatch and credential inflation have enormous implications
for social mobility and education investment (Crawford & Bethell, 2012). That is
mainly because the expansion of enrolment in higher education has a strong influ-
ence on the labour market supply, but not with the demand for it by workers and
their skill profiles (Collins, 2002). As a consequence, the patterns of investment in
workers’ education will depend both on economic factors (such as post-investment
employment expectations) (Brooks & Everett, 2008; Brooks & Waters, 2009) and
on social factors (social status perceived or achievement of social mobility).
From a broader perspective of the labour market, educational credentials will
be exchanged in the labour market due to two forces: the scarcity of competencies
and some ability profiles and the credential capacity to represent those profiles
effectively. By the pressure of those economic forces, labour markets have reached
new configurations. Those structures have positioned the credential inflation play-
ing a significant role in the knowledge economy (Iannelli & Paterson, 2007).
In terms of the labour market, credential inflation would reflect a distortion in
the information available for hiring decision-making. The preceding statement
would be of great importance for educational systems where qualifications func-
tion as signal mechanisms and not productivity indicators (Werfhorst, 2007). That
situation would bring back the question regarding the quality of education and
how the tertiary education system can sustain students’ qualification levels.
For public expenditure on higher education or post-secondary education in
general, credential inflation is a significant risk in every strategy based on
human capital. A labour market with high credential inflation rates will reduce
the skill premium and diminish educational investment’s economic returns. That
implies that credentials, degrees, certifications, or qualifications in white- and blue-
collar markets lose their labour market value.

Labour market polarisation

The third concept refers to an extended configuration of the labour market: job
polarisation. Job polarisation is the result of the aggregated mismatches between
labour market supply and demand. This last statement refers to changes in the
composition of demand, where job positions that require high levels of education
increase systematically, as do low-skilled positions, but not jobs of medium com-
plexity (Goos & Manning, 2007; Kim, 2010; Lene, 2011).
In the fourth industrial revolution, the notion of labour market polarisation is
one of the critical antecedents to understanding its effects in the workforce. The
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literature has defined occupational ranges related to the type of performed task:
high-skill occupations that require cognitive tasks, middle-skill occupations that
require routine tasks, and low-skill occupations that require manual tasks (Shim &
Yang, 2014). From that classification, medium and low-skill occupations have the
highest chance to be replaced by automation replacing assembly-line and clerical
jobs with machines, computers, and other technological devices (e.g., A.I.) (Foote
& Ryan, 2015).
Evidence in this matter has signalled that the polarisation situation is related to
an investment choice in education (Regini, 1997) and the technology sector’s devel-
opment (Echeverri-Carroll et al., 2018; Harrigan et al., 2016). Moreover, it also has
effects on the quality of labour relations and income (Kalleberg, 2007; Kalleberg
et al., 2000), generating problems of labour mobility, inequality of income distri-
bution, and labour discrimination (Hudson, 2007), and modifying the returns of
human capital accumulation (Fonseca et al., 2018; Heyman, 2016).

Higher education expansion in Chile

Chile is the southern country in Latin America, the sixth economy, and the second
higher GDP per capita in South America (World Bank, 2020). In its recent eco-
nomic history, the country’s economic development has been heavily determined
by the political process in the last 40 years. During the dictatorship regime back in
the eighties, Chile suffered a series of transformations in its institutional design
that shaped the possibilities of competitiveness, economic dynamism, space for
social policy, etc. Those transformations were part of implementing a neoliberal
agenda in each aspect of the economy and social life, transforming its economic
and educational matrix through a series of reforms named ‘the labour plan’. The
package of reforms included the liberalisation of highly regulated markets as the
educational one (decentralisation of primary and secondary education, expansion
of higher education market) (Valiente et al., 2020), the restriction of labour rights
(unions and collective bargaining) (Alvarez, 2012; Barrera, 1994; Mi~ no, 2000), a
change on the retirement system (almost only private), and an emphasis on the
subsidiary role of the State in the economy and every aspect of social life.
The neoliberal agenda also produced higher degrees of concentration in almost
all the relevant markets, concentrating the most significant economic activities in
commodities production and export such as mining (mainly copper), silviculture
(salmon farming), and wine production (Banco Central de Chile, 2020). Even
though the most significant portion of the GDP is attributable to commodities
production, the employment on the system relies mainly on the service sector
(Ministerio de Desarrollo Social, 2018), creating an imbalance between the allo-
cation of resources in the labour relations system consistent with the descriptions
present in the literature of varieties of capitalism for Latin America (Schneider,
2009, 2016).
From an educational perspective, the Chilean economy’s evolution has been
accompanied by an explicit neoliberal agenda to prepare and manage the
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workforce. Since the early years of the 1980’s decade, Chile experienced a process
of liberalisation and deregulation of its educational system (L� opez & Moreno,
2016; Reyes & Akkari, 2017) in terms of administration and funding. In higher
education, this deregulation had two significant landmarks: the massive creation of
higher education private institutions and a credit system’s development to ensure
higher education access (Credito con aval del Estado [CAE] in Spanish). The first
reform was implemented into the Chilean dictatorship process during the eighties.
That liberalisation agenda implied an increasing number of educational institu-
tions entering the educational market, thereby diminishing the access barriers to
the educational market (regulations, capital required, norms of surveillance, dis-
mantle the more complex University of that time separating its units by geograph-
ical regions without securing funding (University of Chile), diminishing the
funding support to public universities) (Amestoy, 2013; Espinoza, 2017; Landoni
& Romero, 2006). At the same time, the education ministry aimed not to have
audit power on those institutions. That allowed a vast expansion in higher educa-
tion enrolment without having – or even showing – concerns about the quality of
education provided by those institutions.
The second landmark was a law in 2005 that created a new funding mechanism
for the higher education system. That mechanism was private loans for students
with the State operating as the guarantee. The whole country’s enrolment rate
increased faster than the previous reform period by securing students’ funding
access. However, that reform did not include any estimate of the targeted popu-
lation’s payment capacity about the future demand for the labour market or a
policy framework to smooth transitions between education and labour markets
(Didier, n.d.; Guastavino & Miranda, 2019; World Bank, 2011). Considering the
expansion in higher education enrolment, Chile has reached a scenario with similar
dilemmas faced by industrialised countries. Therefore, overeducation in profes-
sional workers has increased through time, raising educated unemployment.
Currently, the Chilean labour market configuration is characterised by the low
protection against arbitrary discrimination (Didier, 2014b; Undurraga, 2019) and a
significant tradition of educational credentialism. Even though higher education’s
liberalisation has brought more competence and diversity of institutions in the
system, institutions’ social markers have not changed. Evidence about social mobil-
ity signals educational provenance as an explanatory variable of socioeconomic
status (N� ~ez & Miranda, 2011; N�
un ~ez & P�erez, 2007; N�
un un~ez & Tartakowsky,
2007). Without proper legislation against discrimination, arbitrary decision-
making still possesses a considerable influence on labour market outcomes.
This work attempts to describe and summarise the presence of phenomena such
as educational mismatch, credential inflation, and job polarisation in the context
of a less developed country such as Chile in an intent to define a baseline for the
adoptions of fourth industrial revolution-related policies. Its systematic approach
allows comparison to other countries in the region by using available public infor-
mation about household income, wages, and education.
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Methods
Data
The data were extracted from the Socioeconomic Characterization Survey
(CASEN). This survey uses a cross-sectional approach to represent the national
population through a probabilistic and stratified design according to geographical
distribution and population size for rural and urban areas. The household selec-
tion follows a two-stage selection methodology, following in the final selection of
the sampling units a systematic and equiprobable strategy with a sampling error of
3.4% (Ministerio de Desarrollo Social de Chile, 2016). This instrument has a great
variety of purposes. The Chilean government implements it to have information
for policy design and evaluation, including critical areas as housing, education,
employment, health, and income.
The measures of education and occupations were used for the analysis, weighted
in their results to the population of 1994, 1996, 1998, 2000, 2003, 2006, 2009, 2011,
2013, and 2015. Given the coverage and sample indicators, the CASEN survey
allows a robust estimate for statistical inference. Since the analysis used descriptive
and inferential statistics and considering the use of different versions of the CASEN
survey, Table 1 is presented with the technical characteristics of these versions.

Analysis and data preparation

As most of the information will be presented for the first time, the general
approach to the variables will provide descriptive information about their current
behaviour and elaborate more sophisticated estimates on the variables of interest.
Regarding this point, the description of the relationship between the education-
al levels of workers and occupational categories has been conceived from the
evolution of research in the skills market (Beerepoot & Hendriks, 2013; Dolton
& Vignoles, 2000; Heyes, 2013). For instance, workforce analysis considered the

Table 1. The sample size of CASEN (household and persons).

Year Sample size (household) Sample size (persons)

1994 45.379 178.057

1996 33.636 134.262
1998 48.107 188.360
2000 65.036 252.748
2003 68.153 257.077
2006 73.720 268.873
2009 71.460 246.924
2011 59.084 200.302
2013 66.725 218.419
2015 83.887 266.887
Source: Own elaboration based on CASEN Survey.
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traditional categorisation associated with different training levels, considering

white-collar jobs as those that require higher education and blue-collar jobs as
occupations that are not linked with formal education or training (Christensen
et al., 2014; N€ aswall & De Witte, 2003). The distinctions between the different
qualification levels are consistent with assessing the job polarisation phenomena
(Tailby & Pollert, 2011; Trampusch, 2010).
Initially, the results are presented in terms of the average years of schooling per
type of occupation. The longitudinal perspective of the data allows establishing the
generalised tendency concerning investment patterns in education and its relation-
ship with the labour demand for this type of profile. To present a complete diag-
nostic of the prevalence of the overeducation in the workforce, three approaches
will be presented: the trend analysis to the average of years of education required
by a particular type of work; the comparison of the educational composition of the
types of work; and finally, the distribution of the educational mismatch among the
labour market.
Regarding CASEN’s data preparation, the native occupational measures are
consistent with International Labor Organization (ILO) classifications for occu-
pation, the branch of activity, and employment definition. Concerning educational
measures, the self-reported measures were customised to the presentation, accord-
ing to the Chilean educational system’s particularities and international standards.
That means that educational level was collapsed into four categories for presen-
tation: primary and secondary education (labelled as secondary), Medium-level
Vocational education (technical education at secondary level), Vocational
Education at tertiary level (equivalent with associate degrees of US), and tertiary
education (only university-related education).

Educational mismatch. In terms of the substantive phenomena presented previously,

the educational mismatch was measured in its traditional definition as a standard
deviation from the national average of schooling for specific occupations (Barone
& Ortiz, 2011; Groot & Maassen Van Den Brink, 2000; Rubb, 2003). The school-
ing average among the occupations was calculated, and then the standard devia-
tion to estimate educational mismatch. With that procedure, the market–anchored
value of the educational mismatch was considered.

Credential inflation. Two approaches were used to analyse credential inflation. The
first approach was a descriptive intent to characterise the growth of educational
requirements for performing specific jobs. In contrast, a second approach was
based on estimating the Intergeneration Inflation Factor (IIF), which analyses
the change of credential value between generations. For this last factor, the IIF
(Werfhorst & Andersen, 2005) was estimated based on the CASEN survey sam-
ples, using the following formula
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xk�1j
IIFjk ¼
xk�2j

where xk represents the value of education for a given generation. The inflation
factor operates as a rate between younger generation credentials and the precedent
generation’s value.
This rate can provide both approaches. Using the share of a specific type of
education between generations can represent the generational transition and the
variance of the exchange value between generations by performing similar occu-
pations. As a requirement for the IIF calculation, a Mincer equation had to be
estimated using the following specification

Lnw ¼ b1 Sch þ b2 Tenure þ b3 Tenure2 þ b4 EM þ cX þ e

where Sch represents the schooling years for the individual, Tenure represents the
labour tenure, Tenure2 reflects the nonlinear effects of tenure on income, EM
implies educational mismatch, and X represents the covariable matrix, including
sociodemographic characteristics and occupational-related variables. This specifi-
cation on the Mincer equation was the same as Didier (2018b), who focused his
attention on the rates of returns on education investment at the different occupa-
tional categories.

Job polarisation. There are different approaches regarding the labour market’s polar-
isation, such as those developed by Wolfson (1994) or Esteban and Ray (1994).
However, both conceptualisations are highly sensitive to occupations’ heterogene-
ity, diminishing their usefulness if they seek to make temporal or cross-country
comparisons. Another mechanism for the evaluation of polarisation is the one
proposed by Sparreboom and Tarvid (2016), which through an index, can capture
the polarisation of the market, making it comparable between markets. For its
evaluation, the following formula was used

1  þ h
 Þ � ð1 þ h
 þ l
 Þ � 100
p ¼ � ðl
2

where the operator   represents the average variation in the time series of the
share of a specific type of occupation (low level [l] or high level [h]), and the first
term in the parenthesis represents the evolution of the composition of medium-
level jobs. In contrast, the second refers to devaluing between occupational cate-
gories; this index gives values ranging between –100 and 100. Its interpretation
being simple in those terms, where the higher the index, the more polarised the
labour market.
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Table 2. Labour market composition by occupation.

Var
Occupation* 1994 1996 1998 2000 2003 2006 2009 2011 2013 2015 1994–2015

Manager 0.01 0.05 0.06 0.01 0.06 0.05 0.03 0.05 0.04 0.05 0.04
Professional 0.08 0.08 0.09 0.09 0.1 0.09 0.11 0.1 0.12 0.12 0.04
Technician 0.11 0.07 0.08 0.13 0.09 0.08 0.1 0.07 0.09 0.1 –0.01
Skilled jobs 0.19 0.07 0.06 0.18 0.07 0.05 0.04 0.07 0.05 0.05 –0.14
Semi-skilled jobs 0.49 0.49 0.48 0.48 0.48 0.5 0.49 0.45 0.51 0.49 0
Unskilled jobs 0.13 0.24 0.23 0.12 0.21 0.23 0.24 0.26 0.2 0.2 0.08
Note: Share of each occupation in the workforce by year.
Source: Own elaboration.

Results
Occupation-education evolution
At a general level, there are significant changes in the labour market and employ-
ment composition. Those changes are given in Table 2, where there is a rise in
occupations as managers, professionals, and unskilled jobs. On the other hand, the
semi-skilled jobs sustain a stable share through time, while skilled and technical
jobs have tended to diminish its share on the labour market.
The dynamic of the last 25 years can be described in the logics of job polar-
isation: white-collar job increases its overall share of the labour market (þ4%),
skilled jobs and technician ones diminish their share on the labour market (–14%
and –1% respectively), semi-skilled jobs sustained its share on 49%, and unskilled
job increased its share in 7%. That situation is assimilated to job polarisation,
while medium complexity jobs diminish their share in the labour market in favour
of more complex (white-collar jobs) and less skill demanding jobs (unskilled jobs in
the blue-collar market).
Those changes in the composition of the labour market’s demand-side could
result from the different process: the migration to a service-economy of the Chilean
economy where the professionalisation process replaces skilled jobs with profes-
sional jobs (depending on credentials system and the advance of automation), the
reforms in the educational market (secondary and tertiary education were modified
in during the studied period, reducing the variability of educational attainment on
white-collar and blue-collar markets), and focalised policies on economic develop-
ment (represented in the case of managerial jobs, where the survey classify in the
same level managers of big and small companies, including entrepreneurship and
self-employment endeavours).
As shown in Figure 1 and as part of labour market reconfiguration, each occu-
pational category has experienced an increase in workers’ human capital. Twenty
years’ analysis appears shocks in the labour market that influence the occupational
market’s composition. That is the case of the year 2000, where the unskilled and
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18

16
Schooling years

14

12

10

6
1994 1996 1998 2000 2003 2006 2009 2011 2013 2015
Managerial 12.1 11.9 11.9 12.7 12.0 11.8 14.3 11.3 12.6 12.7
Professional 16.3 16.5 16.6 16.6 16.9 17.0 16.8 16.8 17.1 17.1
Technicians 11.4 13.4 13.4 11.5 13.8 13.9 13.8 14.0 14.4 14.5
Skilled 10.2 10.2 10.5 10.8 10.8 10.9 11.0 11.0 11.2 11.4
Semi 9.5 7.6 7.7 10.1 8.4 8.6 8.8 9.0 9.2 9.5
Unskilled 10.0 6.4 6.5 10.7 7.1 7.6 7.7 7.8 8.0 8.2

Figure 1. Evolution of average schooling years by occupation.

Source: Own elaboration based on CASEN estimates.

semi-skilled job market increased in a meaningful way the average of schooling

years, returning to a more stable level in the measurement of 2003 and later. That
transition in the first years represent the response of the labour market institutions
to the effects of the Asian financial crisis, the changes in the educational policies,
the discouraged worker effect on employment, and the active labour market pol-
icies that seek to increase schooling in vulnerable population and educational
leavers (Caputo, 2001; Cowan et al., 2003; Daher, 2003; Rodriguez, 2007). At
the same time, the peak of managerial positions can be related to the explosive
increase of professional degrees on the labour market and the interaction with
entrepreneurship policies and self-employment strategies of that supply of
professionals.
Some variations and changes are observed in the educational requirements of
occupations. When the statistical analysis is performed, all the variations are sig-
nificant between 1994 and 2015.
As is shown in Table 3, the increase in educational requirements varies between
27.1% for technical jobs and –17.9% for unskilled labour in percentage terms. This
last result could be explained by the country’s economic growth conditions in the
first years of the nineties and its high poverty rate. Therefore, working was rela-
tively more important than the possessed occupation, which is fulfilled for semi-
skilled and unskilled workers who presented schooling averages equal to or higher
than those registered in 2015. According to these data, Chile in 1994–2015 would
have reached a polarisation indicator of 22.37. When comparing this indicator
with European countries, it is found that Chile finds a polarisation equivalent to
that of Latvia and Sweden, only surpassed by Malta, Ireland, Iceland, and
Lithuania. At the same time, Chile has higher polarisation levels than countries
such as Portugal, Italy, Switzerland, Denmark, France, the Netherlands,
Germany, and the United Kingdom, among others (Sparreboom & Tarvid, 2016).
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Table 3. Evolution of educational requirements.

Indicator Managerial Professional Technical Skilled Semi Unskilled

Var % 1994–2015 .054 .049 .271 .116 0 –.179

Average Var 1994–2015 0.6 0.8 3.1 1.2 0 –1.8
Cumulated average Var 0.3 0.5 2 0.6 –0.7 –2
T-value 2015–1994 29.65 254.85 521.32 200.99 –200.02 –200.02
Sig. 0.000 0. 000 0. 000 0. 000 0. 000 0. 000
Source: Own elaboration based on CASEN estimates.

The most substantial rise in schooling years occurs in the technical stratum,
including the secondary education cycle levels, technical training centers, and pro-
fessional institutes. From an economic point of view, this increase would occur in
response to technological changes and the increase in complexity in these applied
areas’ level of knowledge.
Isolating these two conditions – preliminarily – the assumption of credentialism
inflation would be fulfilled. That implies that even considering technological var-
iables, the educational requirements’ increase is verified across occupational
categories.
However, the counterpart that comes from the economy would be to establish
the educational level’s effects on the occupation to which they access certain
employment types. Table 4 shows the relationship between education and occu-
pation during the 1994–2015 period.
Table 4 allows a descriptive analysis of apparent educational mismatch by
showing each occupational category’s educational attainment distribution. First,
as mentioned earlier, entrepreneurship and self-employment match different levels
of education at the managerial level. The observable effect is the increase in the
population’s average education, where the participation of higher educational
profiles increases within management positions (variation of 14.1% between
1994 and 2015).
Second, in the case of occupations typical of the professional level, it is obtained
that the average composition yields 11.7% of sub-education in the 1994–2015
period, represented by the presence of educational levels not corresponding with
access to the University. It is only possible to attribute to the increase in workers
who have university studies in the same thought line. By 2015, 98.5% of the
subjects in this occupational category would have studies according to the posi-
tion’s profile.
Third, when carrying out the analysis of consistency between a technician’s
occupation at a higher or middle level regarding the educational level, an average
education rate of 31.7% in the 1994–2015 period is observed, including people with
university studies. In comparison, the undereducation rate would be 30.7%. As it
appears in Table 3, the participation of profiles with educational levels lower than
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Table 4. Educational Composition by Occupation and Year.

Occupation Education 1994 1996 1998 2000 2003 2006 2009 2011 2013 2015
Manager Secondary 0.69 0.53 0.54 0.61 0.53 0.55 0.28 0.64 0.48 0.49
Vocational-M 0.08 0.1 0.09 0.1 0.1 0.09 0.09 0.07 0.07 0.1
Vocational-H 0.03 0.07 0.16 0.24 0.09 0.09 0.13 0.09 0.11 0.11
Tertiary 0.21 0.31 0.22 0.06 0.28 0.27 0.49 0.2 0.34 0.31

Professional Secondary 0.06 0.04 0.04 0.04 0.02 0.01 0.01 0.02 0.01 0
Vocational-M 0.03 0.05 0.04 0.04 0.03 0 0.01 0.01 0.01 0
Vocational-H 0.06 0.06 0.11 0.06 0.06 0.1 0.09 0.13 0.03 0.01
Tertiary 0.85 0.86 0.81 0.85 0.9 0.89 0.89 0.85 0.96 0.99

Technician Secondary 0.63 0.34 0.34 0.58 0.24 0.21 0.25 0.18 0.16 0.14
Vocational-M 0.06 0.14 0.14 0.08 0.18 0.16 0.19 0.13 0.08 0.08
Vocational-H 0.05 0.25 0.39 0.08 0.3 0.21 0.18 0.2 0.39 0.46
Tertiary 0.26 0.27 0.14 0.27 0.27 0.42 0.38 0.48 0.37 0.32

Skilled Secondary 0.79 0.94 0.9 0.72 0.91 0.89 0.88 0.9 0.89 0.87
Vocational-M 0.09 0.04 0.06 0.14 0.06 0.07 0.08 0.07 0.08 0.08
Vocational-H 0.06 0.01 0.02 0.08 0.01 0.02 0.01 0.02 0.02 0.03
Tertiary 0.05 0.01 0.02 0.06 0.02 0.02 0.03 0.02 0.02 0.03

Semi-Skilled Secondary 0.73 0.74 0.68 0.58 0.65 0.64 0.68 0.67 0.68 0.58
Vocational-M 0.14 0.13 0.16 0.18 0.19 0.19 0.16 0.16 0.19 0.19
Vocational-H 0.04 0.08 0.14 0.14 0.1 0.08 0.08 0.07 0.05 0.13
Tertiary 0.09 0.04 0.02 0.1 0.06 0.09 0.08 0.09 0.09 0.11

Unskilled Secondary 0.86 0.93 0.91 0.77 0.88 0.87 0.86 0.88 0.85 0.83
Vocational-M 0.08 0.05 0.07 0.15 0.09 0.09 0.09 0.07 0.09 0.09
Vocational-H 0.03 0.01 0.03 0.05 0.02 0.03 0.03 0.03 0.03 0.03
Tertiary 0.03 0.01 0 0.03 0.01 0.02 0.02 0.02 0.03 0.05
Note: Share of educational attainment categories over occupations. Vocational education has two levels:
those M for those who have a vocational education at secondary; and H for those who hold a tertiary
education degree on vocational education tracking (Associate Degrees).

the requirements of the work is gradually decreasing as well as the rate of people
who have more education than the one required in 2015 is modulated.
Finally, in the skilled workforce, semi or unqualified, the average overeducation
rates in the 1994–2015 period rise from 5.6%, 16.7%, and 13.6%, respectively,
wherein semi-skilled and unskilled rates are stable over time, as opposed to skilled
labour.
The presence of this on education, evidenced nominally in Table 4, would serve
as an indicator that supports the idea that there is credential inflation. As time
progresses, there is an increasingly sophisticated level of training expressed with
the pursuit of higher level studies.
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Educational mismatch
The third sample of educational mismatch conditions on the workforce corre-
sponds to the estimate based on the proper distribution of schooling years.
Based on the distribution, workers were classified into three categories: overedu-
cation, match, and undereducation. The results for the population distribution are
presented in Table 5.
The analysis of the workforce’s educational composition shows a pattern that
tends to increase educational mismatch. These variations would account for the
workforce’s adjustments to market conditions. At that point, the labour market is
receiving the pressure of credential inflation; 17.2% of the workforce – on average –
appears with a higher educational level than required by the charges they exercise. As
a counterpart, on average, 56.7% of the workforce has lower levels of education than
required, and 26.1% would correspond to a situation of adjustment to the position.
These results point that the relation between occupational markets and education has
been tensioned by the educational reforms and the expansion of tertiary education,
increasing the variability in the distribution of schooling years across the population.

Credential inflation
Interpreting the data provided, what can be observed is that as the population’s
levels of schooling increase, they are not distributed evenly among occupations. As
shown in Table 5, the previous would generate increasing levels of mismatch of
skills due to lack and excess investment in education. This point would indicate
that credential inflation would increase workers’ propensity to acquire higher edu-
cational levels and the same pressure towards the labour market, resulting in sub-
optimal investment in qualifications’ access.
Finally, two approaches to credential inflation are added, the first expressed in
Table 6 corresponding to a compact transition matrix and then the computation of
the credential inflation factor adjusted to Werfhorst’s (2007) approaches data on

Table 5. Educational Mismatch estimates for the workforce.

Year Undereducation Match Overeducation

2015 67.8% 16.4% 15.8%

2013 70.6% 15.7% 13.7%
2011 55.7% 25.7% 18.6%
2009 64.3% 14.3% 21.4%
2006 51.3% 30.8% 17.9%
2003 57.9% 20.2% 21.9%
2000 39.4% 47.9% 12.7%
1998 58.7% 21.3% 20,00%
1996 60.3% 20.9% 18.9%
1994 41,00% 47.7% 11.3%
Source: Own elaboration based on Didier (2018b) estimates.
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parents’ schooling. That last approach is taken because there is a more significant
historical propensity towards investment in men’s human capital in Latin America.
In general terms – as expressed in Table 5 – when reaching higher vocational
education, parents successfully achieve higher education levels for their children.
While having a university education, reaching a higher educational level decreases
and focuses on maintaining the previous generation’s human capital accumulation.
Finally, regarding the intergenerational inflation factor, the versions of indica-
tor IIF were estimated considering their possible definitions according to the
country’s data quality. The return rates to educational investment resulted from
applying the mincer equation for 1994 and 2015, considering the methodology’s
specifications. These estimates resulted in IFF estimates showing a significant
decrease in education value through time in five of the six categories. The summary
of the estimates is shown in Table 7.
Additionally, when comparing the parents’ years of education to their children,
the inflation rate reaches 96.25%, which implies a tendency to double the parents’
education. While at a general level, the return on investment in education has
decreased between 1994 and 2015 by 30.25%. This pattern would imply verifica-
tion of credential inflation by increasing the level of general education and dimin-
ishing the return obtained in the face of such a situation.
Table 6. Matrix of intergenerational education transitions.

Educational attainment Second Generation

Lower Equal Higher

Parents’ Educational Without Formal 0 0 1

Attainment Education
Primary 0 0.31 0.69
Secondary 0.08 0.39 0.53
Vocational-M 0.38 0.16 0.46
Vocational-H 0.31 0.22 0.48
Professional 0.36 0.55 0.1
Graduate 0.59 0.41 0

Table 7. Credential inflation factor 1994–2015 by

occupation.

Occupation IFF

Manager 0.853
Professional 1.147
Technical 0.679
Skilled jobs 0.236
Semi-skilled jobs 0.585
Unskilled jobs 0.551
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Discussion
At the beginning of this paper, we argued that the knowledge-to-digital economy
transition requires a complete diagnostic about how the labour market is behaving
after the period of knowledge economy policy implementation. That included
analysing the stock of human capital, its distribution, and how the agents are
rewarded regarding their abilities and previous investments. When the trends
observed in industrialised countries are translated to the Chilean context, it is
possible to observe a clear picture about the transformations and configuration
of the labour market: (a) there is a labour market with a severe problem of right
allocation of the workforce in the labour market; (b) the only educational invest-
ment that worth is at the university level and in the white-collar job market; and (c)
the labour market is severely polarised after the process of expansion of higher
education (4% of the labour market in 20 years). From here, we will discuss the
implications for the fourth industrial revolution scenario.
First, workforce composition is heterogeneous across occupational categories. The
analysis shows that nearly 70% of the workforce is undereducated regarding the
average schooling for those jobs. That opens tough questions about labour market
competitiveness and the economic performance of the national economy. If under-
education represents a real threat to productivity and a firm’s competitiveness, com-
panies should develop policies or actions to solve those productivity gaps. However,
the evidence shows that training participation is scarce and detached from quality
concerns (Didier, 2018a). That opens two main possibilities: (a) the workforce is not a
relevant source of competitiveness; and (b) due to the lack of competitiveness in
internal markets, the workforce’s contribution to the value chain is not relevant.
Both possibilities create an extreme scenario for digital transformation.
Second, the intergenerational inflation factor showed that each occupation’s
human capital decreased its value, except for the professional market. That is
presented because of the higher education expansion and the progressive profes-
sionalisation of public and private sector organisations. In the long run, in the
context of increasing the labour market’s polarisation, any job that does not
require university education is rewarded at a worse rate the human capital than
those jobs in the professional job market. A consequence deriving from the pre-
vious situation is that certifications or training have little value over time (Didier,
2020), making it challenging to translate other certification and occupational
licensing experiences used in industrialised countries.
Third, a distinctive feature of the time analysed is the increase in jobs with
professional requirements and the decline in vocational level jobs.
Simultaneously, the labour market based on qualification decreases the demand
for skilled labour and pronounces an increase in unskilled labour. The described
phenomena could be related to the decrease in the country’s processing industry,
followed by a migration to a service economy. This transit has been carried out
gradually, without great government attention, increasing sectors that do not
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require higher qualifications such as retail, which absorbs this workforce in pro-
duction chains with a low added value level. Simultaneously, as commodity-based
industries, they have not established value chains that consider their workforce
part of their market positioning strategy. In both cases, the unskilled labour force
is easily absorbed by the demand generated by its growth without generating jobs
that require higher levels of training and qualification.
Finally, what regards the fourth industrial revolution and the digital economy,
the current configuration of the labour market and the workforce characteristics
make the Chilean economy vulnerable to the significant social impacts of automa-
tion. While automation menaces semi and unskilled jobs, 69% of the workforce
would be directly affected by the digital transformation changes. Simultaneously,
the labour market’s low competitiveness would diminish the utility of workers’
reconversion by not recognising in terms of skills and certification their contribu-
tion to the value built in the company. If the current logic prevails in the firm’s
management, the automation and digital transformation will destroy a considerable
portion of the human capital accumulated by the previous generation, eliminating
occupations and displacing workers between economic sectors of the national econ-
omies massively. With that scenario in mind, the government should develop edu-
cational and labour policies to prepare the transition workforce, such as
implementing the coordination of critical sectors of the economy with the work-
force institutions to diminish the impact of technological unemployment, develop-
ing alternatives of training and certifications contingent to the labour market
evolution, defining occupations endangered by technological advance and offering
alternatives for career shifts, among others. At least, the government’s intervention
could smooth the economic changes in welfare for many of the workforces.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, author-
ship, and/or publication of this article.

Funding
The author(s) received no financial support for the research, authorship, and/or publication
of this article.

ORCID iD
Nicolás Didier https://orcid.org/0000-0002-8904-5111

Note
1. This last element has some practical problems related to the quality of data sources and
the specifications of job complexity in comparison with the trend to rise in the educa-
tional requirements for more sophisticated credentials (Gangl, 2004).
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