Underemployment vs. unemployment…Why overeducaton is as much a problem as undereducation?

Brian Clark, Clement Joubert and Arnaud Maurel raise an important issue. When we link labor markets to education the focus is on how undereducation leads to unemployment and so on.  We hardly look at the other side of the story which is how overeducation leads to underemployment where people do not get the jobs as per their education levels. There are ample stories of this kind as well where graduates run taxis and so on.

The authors raise this concern from an American perspective but could be a more global problem as well. Much of the work we do hardly requires knowing just basic skills of 3 R’s (reading, (w)writing and (a)rithmetic).  Unless you get into rocket science kinds of work, just basic is more than enough. But we are really required to pile on more and more degrees just for the sake of it. It is funny how you need an advanced MBA to sell shampoos, hair oils, balance accounts and so on. One can just do all these tasks by just being a simple graduate. But then this is how it is. The society forces us to spend our time more and more on getting education which does not add much value overtime.

Plus with rising costs of education, students have additional burden of debt on their heads. This is how the authors start the post:

Americans had accumulated more than 1 trillion dollars in student loan debt as of 31 December, 2013. While the press conveyed widespread concern over this number, it might be that efficient credit markets are allowing more individuals to invest in education, with large rewards in terms of future earnings. After all, young college graduates earned 62.5% more on average than high school graduates in 2013 (Taylor et al. 2014). However, researchers have started paying more attention to the fact that the huge average ‘college wage premium’ masks large differences in post-college earnings. In particular, an extensive body of research, reviewed in Leuven and Oosterbeek (2011), has established that a sizeable fraction of workers hold occupations that do not require as much schooling as they have acquired. Think, for example, of college-educated secretaries or school teachers with a PhD.

A robust finding across geographical contexts is that overeducated workers earn more than less educated workers in the same occupation, but a lot less than similarly educated workers in occupations that do require their level of schooling.

The typical wage regression on American data finds that one year of surplus schooling, above the level required for one’s job, only yields an increase of 4.3% in earnings, which is about half of the usual ‘returns to schooling’ estimates for non-overeducated workers.¹ Such numbers might lead some to reconsider whether more schooling is a good investment, at least financially, given increasing tuition costs.

Ultimately, the ability of overeducated college graduates to repay their pile of loans will hinge on how their careers progress. Is overeducation a temporary phenomenon, largely restricted to the first couple of years after graduation? Do the earnings of initially overeducated workers catch up over time with those of their non-overeducated peers? Or, instead, do these workers tend to remain in low-paying occupations durably?

The authors say it is a bigger longer term problem. This leads to policy problems as focus remains on unemp. This leads to rise in underemp:

A more general policy implication of our results is that underemployment indicators might gainfully complement the usual unemployment indicators. For example, employment agencies are often evaluated on their ability to get workers out of unemployment quickly. This could generate more overeducation as workers accept jobs for which they are overqualified for fear of being disqualified from unemployment benefits.

Things have become way too stretched over the years. Education is less known for its value but has just become a signaling brand. Who else than yours truly to understand this?