Abstract
ABSTRACT This study analyses the persistence and true state dependence of overqualification, i.e. a mismatch between workers' qualifications and their jobs' educational requirements. Employing individual-level panel data for Germany, we find that overqualification is highly persistent among university graduates over the first ten years of their career cycle. Accounting for unobserved heterogeneity, results from dynamic random-effects probit models suggest that a moderate share of the persistence can be attributed to true state dependence. Unobserved factors are found to be the main driver of overqualification persistence. However, observed heterogeneity in terms of ability and study characteristics significantly contributes to overqualification persistence.
Highlights
Labour markets of industrialised countries share the common feature that substantial shares of workers are holding jobs which are not commensurate to their educational attainment
The second subsection provides the main results from the dynamic random-effects probit model taking the selection into the initial condition and unobserved heterogeneity into account
The average partial effect of the lagged dependent variable is moderately reduced by 2 percentage points after including sociodemographic characteristics as well as previous unemployment spells into the model
Summary
Labour markets of industrialised countries share the common feature that substantial shares of workers are holding jobs which are not commensurate to their educational attainment. Summarising previous studies, Leuven and Oosterbeek (2011) find that an average share of 30% of workers acquired a level of qualification exceeding the educational requirement of their current job. These workers are formally overqualified for their job, i.e. they experience a vertical educational mismatch. Overqualification could temporarily arise if the labour market is in disequilibrium because of a sudden increase in the supply of better educated workers inducing a decline in their relative wages In this situation, employers could hire more qualified, i.e. more productive, workers into positions previously held by individuals with lower educational levels (Borghans and Grip, 2000). According to human capital theory, prolonged overqualification can only be explained as representing a statistical artifact arising from the fact that human capital is observed only incompletely
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