The Career Prospects of Overeducated Americans

Abstract

In this paper we analyze career dynamics for the large share of U.S. workers who have more schooling than their peers in the same occupation. We use data from the NLSY79 combined with the CPS to analyze transitions into and out of overeducated employment, together with the corresponding effects on wages. Overeducation is a fairly persistent phenomenon at the aggregate and individual levels, with 66% of workers remaining overeducated after one year. Overeducation is not only more common, but also more persistent among blacks and low-AFQT individuals. Further, the hazard rate out of overeducation drops by about 60% during the first 5 years spent overeducated. However, the estimation of a mixed proportional hazard model suggests that this is attributable to selection on unobservables rather than true duration dependence. Finally, overeducation is associated with lower current as well as future wages, which points to the existence of scarring effects.

Should governments of OECD countries worry about graduate underemployment?

“…Subsequent studies have thrown doubt on this conclusion, however, and longitudinal studies since have generally found a high degree of state dependence (that is, persistence) in being underemployed (e.g. Clark et al (2014) for USA; Diem and Wolter (2014) for a cohort of recent Swiss graduates; Kiersztyn (2013) for Poland; Mavromaras et al (2013) for Australia). It seems that being obliged to accept a lower-status job to end unemployment at the start of the career slows down the transition into an education-adequate job compared to a longer initial search period (Baert et al, 2013).…”

The impact of the Global Financial Crisis on youth unemployment

“…For a 20-year-old young person, to be unemployed for 1 year is to have lost 5% of one's life to date in unemployment; to be unemployed for 2 years is to have lost 10% of one's life in unemployment! Added to that is the problem of scarring: one spell of unemployment is likely to lead to repeat spells (Junankar and Wood, 1992) and to lower life-time earnings (Clark et al, 2014). Is it surprising that the long-term unemployed suffer from alienation, psychological problems and depression?…”

“…The prospects facing a large and growing number of young people are therefore grim. Recent research (Clark et al, 2014;Mavromaras et al, 2013;Stewart, 2007) suggests a long-term scarring effect of taking on a job that is below the skill level of the person who does so: the probability of subsequently getting a good job (i.e. one that is appropriate for that person's skills and education levels) is decreased significantly.…”

Overeducation and wages revisited: A two‐cohort comparison and random coefficients approach

“…In particular, the signs and sizes are roughly equivalent to similar OLS cross‐section estimates of 1979 NLSY cohort data in Clark et al . (2017). Another consistency with the literature is the reduction in the coefficient on required education by more than half once unobserved heterogeneity is controlled for in Models 2, 4, and 5.…”

“…(2014) and Clark et al . (2017), that can be expressed in its simplest form when using panel data as: where y it is the natural log of the wage (wage +1) of individual i in year t ; z i is a vector consisting of time invariant controls; x it is a vector of time variant controls; α , β , δ , θ , and ϑ are estimable coefficients; τ t are time dummies and ε it denotes the error term 6…”