Facilitation or Inhibition? Exploring the Influence of Social Capital on (Genuine) Overeducation in China

ABSTRACT This study examines the effect of social capital on the incidence of genuine overeducation among employees in mainland China. Utilising unbalanced panel data from the 2012–2018 China Labor‐force Dynamics Survey (CLDS) and employing an instrumental variable (IV) approach, we find that social capital has a significant negative effect on genuine overeducation—a dual mismatch of schooling and skills with occupational requirements. This impact remains robust across various tests. Further analysis shows that social capital primarily improves skill allocation rather than educational matching, with social networks and trust serving as the main driving components. Mechanism analysis suggests this effect is driven by an information channel, which outweighs a statistically weak favouritism channel. Additionally, the benefits of social capital are more pronounced for vulnerable groups facing greater information barriers. Our findings underscore the importance of social capital in improving labour market outcomes in developing countries.