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Allocation and the Returns to Over-education in the UK

Author

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  • Wim Groot
  • Henriëtte Maasen Van Den Brink
Abstract
Over-education indicates that there are mismatches between the supply and demand for skills in the labour market, and inefficiencies in the investment in education. This paper uses the 1991 wave of the British Household Panel Survey to examine the extent and the returns to over-education in the UK. For this, we divide years of education attained by workers into years of education required for the job, years of over-education and years of under-education. The paper contributes to the literature on this topic by determining the rates of return when investments in education are endogenous. We use three different approaches to measuring the returns to over-education. The first is the conventional one, in which years of education required, years of over-education and years of unver-education are included as exogenous variables in an ordinary least squares (OLS) estimation of the wage equation. The second approach uses instrumental variables for years of education required, over-education and under-education in the wage equation. By this, we allow for the mutual relation between the utilization of education and wage setting within the framework of the allocation theory. In the third approach, we extend the notions of the allocation theory by specifying separate wage regimes for each of the three modes of the allocation of skills supplied and skills required. The results suggest that OLS overestimates the returns to over-education because of ability bias. For the same reasons, the OLS estimates of the returns to under-education might be biased downwards. OLS estimates on the years of education required are biased downwards as well. The results further show that mismatches between supply and demand for skills tend to diminish with years of experience in the labour market.

Suggested Citation

  • Wim Groot & Henriëtte Maasen Van Den Brink, 1997. "Allocation and the Returns to Over-education in the UK," Education Economics, Taylor & Francis Journals, vol. 5(2), pages 169-183.
    • Handle: RePEc:taf:edecon:v:5:y:1997:i:2:p:169-183
    DOI: 10.1080/09645299700000014
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    References listed on IDEAS

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    1. repec:fth:prinin:304 is not listed on IDEAS
    2. Orley Ashenfelter & Alan Krueger, 1992. "Estimates of the Economic Return to Schooling from a New Sample of Twins," Working Papers 683, Princeton University, Department of Economics, Industrial Relations Section..
    3. Ashenfelter, Orley & Krueger, Alan B, 1994. "Estimates of the Economic Returns to Schooling from a New Sample of Twins," American Economic Review, American Economic Association, vol. 84(5), pages 1157-1173, December.
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    Cited by:

    1. Séamus McGuinness, 2006. "Overeducation in the Labour Market," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 387-418, July.
    2. Mañé Vernet, Ferran & Miravet, Daniel, 2010. "Sobreeducación y Sobrecualificación en los Universitarios Catalanes. Una perspectiva de género," Working Papers 2072/179592, Universitat Rovira i Virgili, Department of Economics.
    3. RODOKANAKIS, Stavros & VLACHOS, Vasileios, 2010. "A Non-Experimental Evaluation Of Education And Training In Greece: The Cases Of Northern Aegean And Crete," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 10(1).
    4. Mehta, Aashish & Felipe, Jesus & Quising, Pilipinas & Camingue, Sheila, 2011. "Overeducation in developing economies: How can we test for it, and what does it mean?," Economics of Education Review, Elsevier, vol. 30(6), pages 1334-1347.
    5. Shujaat Farooq, 2015. "Job Mismatches in Pakistan: Is there Some Wage Penalty to Graduates?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 54(2), pages 147-164.
    6. repec:kap:iaecre:v:11:y:2005:i:1:p:93-109 is not listed on IDEAS
    7. Altorjai, Szilvia, 2013. "Over-qualification of immigrants in the UK," ISER Working Paper Series 2013-11, Institute for Social and Economic Research.
    8. Luca Cattani & Giovanni Guidetti & Giulio Pedrini, 2016. "Overeducation among Italian graduates: do different measures actually diverge?," Working Papers 77, AlmaLaurea Inter-University Consortium.
    9. Luca Cattani & Giovanni Guidetti & Giulio Pedrini, 2018. "Overeducation among Italian graduates: do different measures diverge?," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(2), pages 491-521, August.
    10. Queralt Capsada-Munsech, 2019. "Measuring Overeducation: Incidence, Correlation and Overlaps Across Indicators and Countries," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 145(1), pages 279-301, August.
    11. Hanol Lee & Jong‐Wha Lee & Eunbi Song, 2016. "Effects of Educational Mistmatch on Wages in the Korean Labor Market," Asian Economic Journal, East Asian Economic Association, vol. 30(4), pages 375-400, December.
    12. Henna Ahsan, 2024. "Impact of Education Mismatch on Earnings: Evidence from Pakistan’s Labor Market," PIDE-Working Papers 2024:1, Pakistan Institute of Development Economics.
    13. Stavros Rodokanakis, 2010. "A Non-Experimental Evaluation of Unemployment Risk in Crete and the Ionian Islands: Regional Evidence for Greece," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2010(4), pages 44-63.
    14. Lourdes Badillo-Amador & Antonio García-Sánchez & Luis Vila, 2005. "Mismatches in the Spanish Labor Market: Education vs. Competence Match," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 11(1), pages 93-109, February.
    15. Rodokanakis, Stavros, 2010. "Comparing the Probability of Unemployment in Northern Greece vis-à-vis the Entire Country," The Journal of Economic Asymmetries, Elsevier, vol. 7(1), pages 137-174.

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