Overeducation and Skills - Clarifying the Concepts

There is now a burgeoning literature on the topic of 'overeducation' (and the complementary concept of 'undereducation'), and a growing quantity of UK empirical evidence on this issue. However, as Joop Hartog indicated in his keynote address to the Applied Econometrics Association, 'a solid relation [of the overeducation/ undereducation literature] with a formal theory of the labour market is lacking' (Hartog (1997)). Furthermore, the term 'overeducation', in particular, is often used interchangeably with similar but distinct concepts such as 'qualification inflation'. This paper attempts to define and measure 'undereducation' and 'overeducation' more precisely, to quantify the extent of genuine skill and educational mismatch and to link these phenomena into the existing literature on skill-biased change and wage inequality. We provide new empirical evidence on this issue, using data from the International Adult Literacy survey, the recent UK Skills Survey, and the National Child Development Study. Specifically, we find convincing evidence of skill under-utilisation in the British labour market. For example, 20% of IALS respondents have reading and comprehension skills that appear to be under-utilised in their jobs. We also show that 'genuine' overeducation is a significant phenomenon in Britain. For instance, a new survey of graduates by the University of Newcastle suggests that just over 20% of recent graduates are genuinely 'overeducated' for their jobs. We discuss the policy and welfare implications of our findings.