Skill mismatch has become an issue of increasing policy concern in the aftermath of the economic crisis, which saw high levels of youth unemployment in the EU economy.

Weak labor demand, combined with rising levels of higher education attainment, have increased overeducation rates in many advanced European economies.

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Overeducation by population groups

However, the policy debate about the underlying causes and significance of the phenomenon of overeducation is yet unresolved. Part of the wage penalty of overeducated university graduates can be attributed to their lower levels of work experience and training, while mismatch is also naturally higher for young workers at the early stages of their careers.

new IZA discussion paper by Seamus McGuinness and Konstantinos Pouliakas uses Cedefop European skills and jobs survey data to examine previously unavailable demand-side characteristics, such as the level of skill demand in employees’ jobs.

Using a representative sample of adult employees from 28 EU countries, the analysis shows that job characteristics and the low skill content of their jobs account for an equal share of the wage penalty of overeducated workers as supply-side factors.

Lack of information about skill needs and career prospects of jobs is also an important reason why overeducated tertiary graduates end up in lower-paid jobs. The paper thus highlights that policies that emphasize career guidance and counseling and those that seek to raise job quality can be effective ingredients in mitigating overeducation in European labor markets.

Read the complete paper (IZA DP No. 9698):