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Deconstructing Theories of Overeducation in Europe: A Wage Decomposition Approach

Author

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  • McGuinness, Seamus

    (Economic and Social Research Institute, Dublin)

  • Pouliakas, Konstantinos

    (European Centre for the Development of Vocational Training (Cedefop))

Abstract

This paper uses data from the Cedefop European Skills and Jobs (ESJ) survey, a new international dataset of adult workers in 28 EU countries, to decompose the wage penalty of overeducated workers. The ESJ survey allows for integration of a rich, previously unavailable, set of factors in the estimation of the effect of overeducation on earnings. Oaxaca decomposition techniques are employed to uncover the extent to which the overeducation wage penalty can be attributed to either (i) human capital attributes, (ii) job characteristics, (iii) information asymmetries, (iv) compensating job attributes or (v) skill needs of jobs. Differences in human capital and job-skill requirements are important factors in explaining the wage premium. It is found that asymmetry of information accounts for a significant part of the overeducation wage penalty for tertiary education graduates, whereas job characteristics and low skill content of jobs explain most of the wage gap for medium-qualified employees. Little evidence is found in favour of equilibrium theories of skills matching and compensating wage differentials. The paper thus highlights the need for customised policy responses (e.g. career guidance; policies to raise job quality) to tackle overeducation.

Suggested Citation

  • McGuinness, Seamus & Pouliakas, Konstantinos, 2016. "Deconstructing Theories of Overeducation in Europe: A Wage Decomposition Approach," IZA Discussion Papers 9698, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp9698
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    References listed on IDEAS

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    1. Hartog, Joop, 2000. "Over-education and earnings: where are we, where should we go?," Economics of Education Review, Elsevier, vol. 19(2), pages 131-147, April.
    2. Kostas Mavromaras & St�phane Mahuteau & Peter Sloane & Zhang Wei, 2013. "The effect of overskilling dynamics on wages," Education Economics, Taylor & Francis Journals, vol. 21(3), pages 281-303, July.
    3. Sattinger, Michael & Hartog, Joop, 2013. "Nash bargaining and the wage consequences of educational mismatches," Labour Economics, Elsevier, vol. 23(C), pages 50-56.
    4. S. Mcguinness, 2003. "Graduate overeducation as a sheepskin effect: evidence from Northern Ireland," Applied Economics, Taylor & Francis Journals, vol. 35(5), pages 597-608.
    5. Duncan, Greg J. & Hoffman, Saul D., 1981. "The incidence and wage effects of overeducation," Economics of Education Review, Elsevier, vol. 1(1), pages 75-86, February.
    6. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-880, June.
    7. Mavromaras, Kostas & McGuinness, Seamus & O?Leary, Nigel & Sloane, Peter & Fok, Yin King, 2009. "Job Mismatches and Labour Market Outcomes," Papers WP314, Economic and Social Research Institute (ESRI).
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    Citations

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    Cited by:

    1. Seamus McGuinness & Adele Bergin & Adele Whelan, 2018. "Overeducation in Europe: trends, convergence, and drivers," Oxford Economic Papers, Oxford University Press, vol. 70(4), pages 994-1015.
    2. Guillermo Montt, 2017. "Field-of-study mismatch and overqualification: labour market correlates and their wage penalty," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 6(1), pages 1-20, December.
    3. Seamus McGuinness & Konstantinos Pouliakas & Paul Redmond, 2018. "Skills Mismatch: Concepts, Measurement And Policy Approaches," Journal of Economic Surveys, Wiley Blackwell, vol. 32(4), pages 985-1015, September.
    4. Варшавская Е. Я. & Котырло Е. С., 2019. "Выпускники Инженерно-Технических И Экономических Специальностей: Между Спросом И Предложением," Вопросы образования // Educational Studies Moscow, National Research University Higher School of Economics, issue 2, pages 98-128.
    5. Elena Varshavskaya & Elena Kotyrlo, 2019. "Engineering and Economics Graduates: Between Demand and Supply," Voprosy obrazovaniya / Educational Studies Moscow, National Research University Higher School of Economics, issue 2, pages 98-128.

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    More about this item

    Keywords

    decomposition; wages; mismatch; skills; overeducation;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J70 - Labor and Demographic Economics - - Labor Discrimination - - - General
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education

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