Measuring Over‐education

Previous work on over‐education has assumed homogeneity of workers and jobs. Relaxing these assumptions, we find that over‐educated workers have lower education credentials than matched graduates. Among the over‐educated graduates we distinguish between the apparently over‐educated workers, who have similar unobserved skills as matched graduates, and the genuinely over‐educated workers, who have a much lower skill endowment. Over‐education is associated with a pay penalty of 5%–11% for apparently over‐educated workers compared with matched graduates and of 22%–26% for the genuinely over‐educated. Over‐education originates from the lack of skills of graduates. This should be taken into consideration in the current debate on the future of higher education in the UK.