Academic Literature

Overeducation in Europe – Wide variations across countries and not rising rapidly over time in all countries

Overeducation is known to be costly to workers and it also has negative implications for firms and the wider macro economy. To date, the vast body of research in the area has focused on examining the incidence and impacts of overeducation within countries. This paper attempts to examine patterns in overeducation between countries using a specifically designed panel dataset constructed from the quarterly Labour Force Surveys (LFS) of EU 28 countries over a twelve to fifteen year period. The descriptive evidence shows that there are wide variations in overeducation rates throughout Europe with rates generally highest in peripheral countries and lowest in eastern European states. It is not the case that overeducation is rising rapidly over time in all countries, where overeducation has been seen to be growing the trend has been very gradual; furthermore, overeducation rates were found to be static or falling in around in approximately fifty percent of EU 28 countries.

Nevertheless, the evidence does point towards convergence in overeducation rates with countries exhibiting the lowest incidences of overeducation in 2002 experiencing the highest growth rates in overeducation over the 2003 to 2012 period. We estimate the overeducation rates in Europe converged at a rate of 3.3 percent per annum over the period with a similar result emerging when convergence in male and female rates was assessed. Further analysis revealed that convergence appears strongest within central and Peripheral EU countries and most modest among the Eastern Group. In terms of the factors that potentially drive cross- country variations in overeducation, a number of key variables emerged from our analysis. We found that overeducation was lower in central European countries with a higher female employment share which is suggestive of the important role of policies designed to facilitate females remaining in the labour market without having to occupationally downgrade. This hypothesis was strengthened by the finding that females are less likely to be overeducated in Nordic countries and in Luxembourg and the Netherlands that have a strong tradition of equality legislation and childcare provision. Interestingly, we found that increased female participation lowers the male and female incidences, suggesting the existence of strong spill- over effects from equality legislation and / or childcare provision. Labour market flexibility was found to be an important mediating factor but only for male rates of overeducation in central European countries. There was also some evidence that overeducation and unemployment were treated as substitutes by female workers, however, the finding was restricted to Eastern Europe. The composition of labour demand also appears to be important with countries employing larger shares of labour in sectors reliant on vocational skills, manufacturing in central Europe and sales and hospitality in peripheral countries, experiencing lower rates of overeducation. Finally the nature of education provision appears to be important, particularly in peripheral and central European countries. There was strong evidence to suggest that overeducation tends to be lower the higher the availability of vocational educational options for young persons seeking post-secondary education and training in Eastern and Periphery country groupings. This reinforces the conclusions of McGuinness et Al. (2016) who found evidence to support the view that the acquisition of vocational and work related skills is an important determining factor in avoiding mismatch among university graduates.

The findings suggest that while overeducation may respond to policy variables, the impact of particular policies will tend to vary depending on specific labour market contexts. Nevertheless, the work does point to a number of areas where policy could play a role. The results regarding the balance between vocational and academic pathways suggests that workers with skills and competencies that are more directly identifiable as job related will be less likely to become overeducated. Therefore, a combined approach of improving the availability of vocational programmes to school leavers and increasing the practical aspects of more academic postsecondary courses is likely to yield positive results in most countries. The finding with respect to female participation is unique and suggests that the expansion of policies that allow females to remain active in the labour market without having to occupationally downgrade benefits both males and females in terms of lowering the rate of overeducation. Enhancing labour market flexibility and the capacity of the labour market to respond to shocks is another policy option for which there is some evidence here, however, there is also a risk that beyond a certain level, increased deregulation will reduce job quality in a way that actually stimulates overeducation. Finally, there are a number of policy levers that could not be considered here that are also open to government including removing information asymmetries between job seekers and employers (McGuinness et al. 2016; McGuinness & Pouliakas, forthcoming) and examining ways to enhance the flexibility of firms to more effectively accommodate shifts in the educational composition of labour supply.

Chosen excerpts by Job Market Monitor. Read the whole story at IZA – Institute of Labor Economics

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