When the job competition is overeducated

When the job competition is overeducated

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July 26, 2022

Lately, it seems like all the competition in the job market is among employers trying to find workers. But those with pre-pandemic memories will recall that there hasn’t always been such a glut of opportunities for job seekers.

According to research by Nader Habibi, the Henry J. Leir Professor of practice in the economics of the Middle East in the Crown Center for Middle East Studies, and Arnold Kamis, associate professor of data analytics in the Brandeis International Business School, the long-term trends show that in many occupations a portion of workers had received more education than needed. Over time, the percentage of these “overeducated” workers is increasing — crowding out those with less education who are still qualified to perform the jobs. They also found that overeducated workers make up larger percentages of higher-paying professions, meaning that less-educated but still eligible workers are losing out on the best jobs for which they are adequately educated.

Habibi and Kamis explored this phenomenon in their recent paper, “Impact of earnings and self-employment opportunities on overeducation: evidence from occupations in the United States labor market 2002-2016,” in The Journal of Education and Work. They took some time to discuss their findings with BrandeisNOW.

What exactly does it mean to be “overeducated?” How is it different or the same as being overqualified?

Overeducation has some similarity with overqualification but the two are not the same. If a person with several years of experience and advanced skills is hired into an entry level job, he or she can be overqualified but not necessarily overeducated. Overeducated in our research project means an individual with a university degree is working in an occupation that does not require it; similarly, an individual with a graduate school degree is working in an occupation that does not require it. The United States Bureau of Labor Statistics (BLS) investigates the education and skill requirements of various occupations periodically and uses this information to identify the level of education that is appropriate for each occupation. We use this definition to define overeducation. For example, if an occupation only needs a high school degree, any employee that holds a higher education degree is defined as being “overeducated.”

Why is overeducation in job roles problematic for individuals and the workforce, or the overall economy?

Young adults who invest several years to earn a university degree would like to find a job that utilizes their university knowledge and skills. If after graduation they cannot find a suitable job and have to settle for a low skill job which is also open to anyone with a high school degree, such as working as a cashier in a department store, they will feel frustrated and unhappy with their job status. Furthermore, the resources that a student’s family and the government spend on his or her education are partially wasted when they cannot find a suitable job. What the BLS occupation data shows is that, in many occupations, the percent of employees that are overeducated is significant and sometimes reaches as high as 30 to 40 percent. Another negative impact of overeducation is that when a high school graduate and a university graduate compete for the same job that only requires a high school degree, the high school graduate is at a disadvantage. In other words, the person loses that position to an overeducated employee. This creates an incentive for more young adults to go to college primarily not to be displaced by an overeducated person.

Is it possible that, rather than people being overeducated, many jobs are simply becoming more complex, and having a bachelor’s or a master’s degree is necessary to manage that complexity?

There is no doubt that with technological advancement many occupations require more skill and more education. In response to technological growth and the need for more educated workers, the percent of young adults that complete a master’s or doctoral degree has also increased. Yet, even in advanced industrial countries, the share of jobs that do not require a bachelor’s or master’s degree can be 30 to 50 percent of all occupations. The problem that we observe in the labor market of both advanced and developing countries is that the number of university graduates exceeds the available university level jobs. Due to the popularity of higher education, many governments around the world have expanded the capacity of higher education without any attention to the labor market demand. It is also difficult to predict the direction of technological change and skill demands accurately. So while there is a shortage of university graduates in some fields, there might be a surplus of graduates in other fields.

Do you think the trend toward more overeducated workers in desirable professions might be mitigated a bit by the current hot job market? 

In the short run, this is true. When the labor market is hot, a larger share of university graduates are able to find jobs which match their level of education. In the long run, however, the supply of university graduates tends to catch up with market demand and gradually exceed it in many fields. 

What else would you like people to know about your research?

An interesting finding of our research is that university education will on average lead to higher income and better job prospects in the long run. When we compare the share of overeducated employees in various occupations, we observe that this share is positively correlated to the average income of the occupation. In other words, university graduates that accept low-skill or semi-skilled jobs do find work in better paying occupations, including ones that do not require their university degree. Unfortunately, this displaces those who are only adequately educated, who have to settle for less desirable jobs or become unemployed. Interestingly, among the occupations that do not require a university degree, the ones that have a higher share of overeducated workers also have more opportunities for self-employment and entrepreneurship.