Skills Heterogeneity Among Graduate Workers: Real and Apparent Overeducation in the Spanish Labor Market

Abstract

This paper takes account of skills heterogeneity among workers with a higher education degree and proposes a new measure to differentiate between real and apparent overeducation based on the level of cognitive skills actually achieved by the individuals. This proposal is applied to the study of the wage effects of overeducation in the Spanish labor market using data from PIAAC. The results suggest that between a quarter and a half of the graduate workers who appear to be overeducated in the Spanish labor market could be considered as being only apparently overeducated since they show a lower level of skills than that corresponding to their educational level or, alternatively, a level of cognitive skills which is commensurate with their job. Different returns are found for each group of overeducated individuals both when compared with adequately educated peers within a similar level of education (with greater wage penalties for apparently overeducated workers) and when the comparison is done with well-matched co-workers doing a similar job (with a wage premium for real overeducation but no significant returns for apparently overeducated workers). These different returns by skill levels beyond what overeducation measures implies that the market distinguishes between education and skills and that educational attainment per se does not perfectly align with acquired skills, meaning that traditional measures of overeducation would overstate the actual level of skills mismatch in the labor market.