Over-Skilling, Under-Skilling, and Higher Education
Definition and Theories of Skill Mismatch
The study of over- and under-skilling is part of the broader academic discussion on the extent, determinants and impact of mismatches between the knowledge and skills acquired in education and the competences required at work. A significant part of such debate, arguably initiated by Thurow (1975) and Freeman (1976), focuses on postsecondary graduates due to the greater importance of specialism knowledge and the greater distinction between the skill profiles of the different fields of study. Such mismatches are not only widespread (Mateos-Romero and Salinas-Jiménez 2018) but have since been shown to have significant consequences on workers’ earnings, productivity, career progression, and job satisfaction.
Skill Mismatch and Human Capital Theory
The interest in the topic stems from the challenge that such misalignments pose to a frictionless or fully rational vision of investments in education, as encapsulated in traditional human capital theory (HCT) (Becker 1975; McGuinness 2006). If individuals are able to anticipate the life-time benefits of investing in their own human capital and if firms are able to fully recognize and reward their workers’ potential productivity, both sides will continue to invest in education, training, or any other component of human capital to the extent that the benefits of such investments continue to outweigh their costs. In such a framework, the onus of apparent misalignment between education and work is largely transferred to the individual student or worker (the supply-side). The actual existence of mismatch problems between education and work is then explained either through suboptimal individual choices or by considering other non-observable or omitted variables (such as innate ability, cognitive, and noncognitive attributes developed early in the life-cycle or the quality of education received). In any case, to the extent that the returns to (higher) education remain sufficiently high, there is sufficient ground to argue for further education expansion and relatively little incentive to discuss other sources of aggregate inefficiency in education investments. There is widespread evidence that returns to investments in higher education have indeed remained high or have actually increased as the number of tertiary graduates continued to rise (Oreopoulos and Petronijevic 2013). When inefficiency is discussed, the focus is on how institutional set-ups may hinder the quick matching between workers and firms, through limits to labor mobility, or between students and an adequate education supply, through the lack of adequate information in education markets or an over-reliance on non-market mechanisms. Fundamentally, true misallocation is seen as temporary (McGuinness 2006) and an important conceptual gap between apparent over- (under-) education and genuine over- (under-) skilling emerges (Chevalier 2003). The former concept is usually measured by comparing one’s observable credentials with those of the average or modal worker performing a similar job. The different nature of these two concepts has been demonstrated empirically by pointing out to their low level of correlation (Green and McIntosh 2007). According to this view, it is also preferable and more reliable to use measures of skills mismatch as determinants of earnings and career outcomes since over-education can actually coexist with under-skilling (Quintini 2011).
Alternative Explanations of Skill Mismatch
Genuine and persistent skill misallocation may be expected, however, if one is prepared to explicitly address the heterogeneity in the demand for skills. Once one accepts that employers may not be able to fully adapt the task content of jobs to individuals’ skills, an adequate match depends both on the direction of changes in skill demand as well on the composition of the supply of skills (Sattinger 1993, 2012). Persistent skill misalignment can then arise for a number of reasons, provided higher education expansion per se is not associated with significant deskilling or lower average education quality.
First, while changes in technology and work organization have been largely complementary with high-skilled workers, the task content of jobs may shift overtime in ways that fuel greater heterogeneity and concentrate advantages among particular segments of the graduate workforce. There is evidence, for example, of net creation of new highly-skilled jobs at the top of the earnings distribution but equally of university graduates replacing non-graduates, increasingly in less-skilled jobs and particularly so since the financial crisis (Autor and Dorn 2009; Beaudry et al. 2016). There is also evidence, for example, of greater complementarity between postgraduates and technology, with the former group securing most of the positive earnings and occupational status effects of the rising demand for advanced qualifications (Lindley and Machin 2016).
Second, bounded rationality and information asymmetries are common in education markets and in the transition from school to work. There is also widespread state involvement in the provision and organization of higher education, both to correct market failures but equally for equity reasons leading to significant cost-sharing. If higher education systems fail to align with the direction of structural changes in the demand for skills and if prospective students fail to anticipate the labor market impact of poor education choices, the result may be growing skill gaps. Over-investment in academic skills, for example, may also coexist with significant under-skilling in terms of soft and social skills such as teamwork, communication, flexibility, and problem-solving abilities (Deming 2017). Independently of whether the onus of persistent skill gaps should be also placed with employers, individuals’ ability to respond positively to change seems to be at an ever-greater premium. In that sense, a focus strictly on careers rather than on transferable skills can be detrimental, leading to potentially unmet expectations. Furthermore, since enrolment in higher education also responds to consumption, citizenship, and experience incentives and since prospective students pay, in many countries, only a fraction of the costs of their education, such skill gaps may persist overtime and work to amplify the effects of the recomposition of graduate labor markets that we alluded to above. There is indeed evidence of growing heterogeneity in the returns by quality of education, degree, class, as well as between different fields of study (Burgess 2016).
Third, the rise of credentialism due to the desire to signal higher skills to the labor market is one other possible source of persistence in gaps between the skills acquired in education and those required at work. (See also the entry by García-Aracil, A., Albert, C in this Encyclopedia.) There is increasing evidence that spells in higher education do matter to skill accumulation, if maybe particularly so in STEM-related fields which are subject to very fast depreciation (Deming and Noray 2018). However, the ability to endure relatively long periods of academic testing, resulting in the accumulation of skills little valued by employers (Caplan 2018), can still work to positively distinguish particular graduate segments from high-school graduates, independently of the content of the education they receive. If such signals are not strong enough to secure access to jobs that make direct use of the skills learned in higher education (van der Velden and Bijlsma 2018), or if those jobs and opportunities for further skill accumulation are not there, skill misalignment persists. Crucially, the lower the skill upgrading of jobs and the lower their average quality, the more graduates may be forced to “run to effectively stand still” (Brown et al. 2010). In those cases, over-education and over-skilling may actually coexist (if not necessarily regarding the types of skills valued by employers). The result is a significant waste of private or public resources.
Empirical Evidence and Policy Implications
So, why does this matter? While HCT continues to have a considerable grip on reality, it still sees the processes of skill formation in higher education and graduates’ transition into work as largely “black boxes.” This impairs our ability to design higher education systems and devise appropriate policies to reduce mismatch, curtail its effects, and limit wasteful investments.
Education Versus Skill Mismatches: A Difficult Choice?
Clearly, the divide between education and skill mismatch is a crucial starting point. Flisi et al. (2017), for example, look at data for 17 European countries and point out that only a minority of individuals face simultaneous skill and education mismatches. The authors also point out that the incidence of the two phenomena appears to be negatively correlated at the country-level. This indicates some degree of choice in the design of education systems and how these interact with job opportunities and labor market institutions.
Specifically, a difficult trade-off must be negotiated. Countries with more vocationally oriented education systems appear to be able to lower the incidence of over-education and the likelihood of positional races (Mavromaras and McGuinness 2012; Verhaest and van der Velden 2013; Ghignoni and Verashchagina 2014). However, such path can be associated with considerable wage and social stratification. Success in gearing the (higher) education system firmly towards job-related skills and labor market needs is then likely to depend on the existence of well-formed institutional linkages between the education system and the labor market. Graduates from vocational-oriented higher education institutions, for example, are more likely to be over-educated relative to those from traditional universities in countries where institutional differentiation has been recently implemented or is insufficiently appreciated by employers (Barone and Ortiz 2011). Social background can also play an important role in avoiding mismatch. Having highly educated parents, for example, is negatively associated with education mismatches (Mavromaras and McGuinness 2012). Postgraduates are also much less likely to be overeducated relative to first-degree graduates in countries where the higher education system has expanded quickly (Barone and Ortiz 2011). Furthermore, in most countries, over-education is still associated with relatively high wage returns, even if these are lower than those attributed to required education (McGuinness 2006). While this is compatible with education working as a signal and indeed reinforces its rationality, it is equally possible that such mark-ups result from graduates’ greater flexibility, greater ability to transform jobs, and their higher social or interpersonal skills (Figueiredo et al. 2017). Such flexibility is especially useful in contexts of low availability of graduate level jobs and public sector employment opportunities, both important drivers of education mismatches across countries (Green and Henseke 2016a). A strict focus on technical education, therefore, if deployed at the expense of such flexibility and without enough compromise by employers, creates greater risks for governments and students as they require the almost impossible task of accurately forecasting job trends and ignore that a great deal of productive knowledge accumulation is necessarily learned at work (Cappelli 2015). The goal of promoting greater institutional and mission diversity in higher education, either through the implementation of binary systems or the increasing over-representation of vocationally oriented courses and institutions, should then be looked at from this more cautious perspective.
Mismatches as Drivers of Inequality
Education and skill mismatches are, in any case, not only pervasive but also powerful drivers of inequality within generalist systems. A number of recent studies that use data from the OECD’s Survey of Adult Skills (PIAAC) clearly show, not only that both types of skill mismatch have profound consequences on earnings and job satisfaction but equally that the relative penalties of such mismatches have increased significantly since the beginning of the new millennium. This has happened even in countries where the demand for graduate jobs kept increasing at a steady pace (Green and Henseke 2016a). At this stage, it is important to note that a significant portion of such effects remains even after controlling for individual skill and ability levels (Korpi and Tåhlin 2009; van der Velden and Bijlsma 2016). Indeed, education mismatches or, put differently, the ability to find a job to adequately deploy one’s skills, has an even greater impact on earnings than skill mismatches (Mateos-Romero and Salinas-Jiménez 2018). This suggests that demand-side constraints should be firmly put at the center of this debate and that the availability of graduate-level jobs (relative to the supply of tertiary skills), in particular, plays a key role in shaping inequality trends (Green and Henseke 2016b; Davia et al. 2017).
Implications for Higher Education Policy
In many settings, and in less dynamic economies in particular, the ability to mitigate the impact of skill mismatches through demand-side interventions may be limited or at least slow to take effect when compared with changes in the composition of supply (Ghignoni and Verashchagina 2014). Successful innovation and industrial strategies that result in the recomposition of employment towards higher value-added activities, helping firms integrating into more advanced global supply-chains along the way, are certainly likely to contribute to mitigate mismatch effects over time. In the meantime, however, worrying about issues of quality and inclusiveness in higher education as well as with the different signaling capacity carried by different higher education institutions (HEIs), degrees, or fields of study is likely to produce faster results.
Allowing the build-up of a very hierarchical and selective higher education system, for example, can contribute to more extensive and more impactful job-education mismatches. The quality of HEIs and study programs has often been identified as one of its important drivers (Verhaest and van der Velden 2013; Ordine and Rose 2015). Therefore, in order to minimize mismatch problems, the massification of higher education among the young should ideally happen through more equitable access to institutions of higher actual or perceived quality. Increased selectivity or elitism in the system, on the contrary, has the potential to turn it into a powerful engine of inequality.
Fields of study, on the other hand, are also consistent predictors of education mismatches. As occupational diversity grows, the challenge on fields of study such as the Arts, Languages, Psychology but equally Business Management or Biology, to cite those highlighted by Ransom and Phipps (2017), is increasingly that of demonstrating their relevance to niches of activity within less traditional employment destinations, many in the private sector. HEIs are then increasingly required to equip students with job-relevant skills (namely in STEM-related areas) but equally and perhaps more importantly with the flexibility as well as the transversal and social skills necessary to allow for such crafting of economic relevance across the whole employment spectrum. Any arrangements (internships, experiential and or work-based learning, mixed curricula, job placement) that bridge the information gap between HEIs and employers, generating their engagement, are certainly welcome as is their extension across most fields of study (McGuinness et al. 2016). This, however, should not be confused with an excessive focus on short-run technical skills in ways that shift the onus of responsibility for skill generation exclusively to schools and students (Cappelli 2015).
The Scarring Effect of Mismatches
Finally, how worried should policy makers be at all? In other words, to what extent do skill mismatches fade out with time for matching or skill development and career mobility? A number of recent studies appear to suggest that, while education-job mismatches do become less common over time, they leave a scarring effect lowering the likelihood of finding an adequate match in the future and resulting in lasting earnings penalties (Korpi and Tåhlin 2009; Baert et al. 2013; Acosta-Ballesteros et al. 2018). Studies that focus more specifically on skill mismatching tend to confirm such lasting effects, particularly when both education and skill mismatches are combined (Mavromaras and McGuinness 2012; Meroni and Vera-Toscano 2017).
Avenues for Further Research
The evidence presented so far suggests that policy interventions that prove successful in reducing levels of mismatch are warranted. On average, the individual and social returns to investments in higher education are sufficiently large to advice against any attempt to limit the continuing massification of higher education. A more difficult question, however, is how to prevent expansion happening at the expense of inclusiveness. The way in which higher education institutions can shape competences and skills that prove valuable in the labor market and, mainly, how such practices can be widely spread across the higher education system, to foster greater social mobility, is still an unresolved issue. Further research is needed, in particular, on the role that education-job mismatches can play in hindering the mobility of students from disadvantaged contexts as well as marginal enrollees (those on the margin between opting in or out of higher education).
Skill Mismatches and Marginal Enrolments
There is still considerable controversy in the literature on the possibility of remediating disadvantages shaped earlier in the life-cycle. On the one hand, there is evidence that such disadvantages condition later outcomes in the labor market with the suggestion being that earlier interventions, namely, during childhood, provide greater returns (Heckman and Carneiro 2003). The ensuing implication is that choosing higher education may not be rational for all as ability biases shape a large part of the observed returns of such investments (Heckman et al. 2018). It has also been suggested that such unobserved heterogeneity determines the likelihood of education mismatches, greatly reducing their causal impact in labor market outcomes (Tsai 2010). On the other hand, there is also tentative evidence that causal returns from higher education can be substantial in the case of marginal admissions (Zimmerman 2014). There is, indeed, a competing sociological narrative of negative selection, according to which those students least likely to attend higher education may benefit the most from such decisions (Brand and Xie 2010). As we have suggested, the evidence on the dynamic effects of mismatches is also far from being unanimous in attributing lasting effects merely to unobserved heterogeneity. Our main conclusion, therefore, is that (mainly longitudinal) research on how the design of mass higher education systems can help to accommodate such student segments, both equipping them with relevant competences and avoiding situations of education-job mismatches, is greatly needed.
Skill Mismatches and HE Stratification
Another related area of research worth pursuing is how system-level stratification can lead to more prevalent and impactful mismatches. This may happen as a result of increasing dispersion both in the quality as well as in the signaling power of the education provided. As we have argued, higher education expansion has been happening in parallel with increasing inequality of outcomes among graduates. In specific contexts, such as the UK there is already evidence pointing out to negative returns to HE for graduates from particular fields of study and specific institutions (Belfield et al. 2018). Elite institutions may be able to capture a disproportionate share of the funding opportunities available in the system (including for research and external engagement activities which can feedback positively with teaching) maintaining, at the same time, a high degree of student selectivity. The resulting gaps in quality are then likely to feedback into the labor market through greater probability of mismatch. Therefore, in addition to the actual content and delivery of higher education, institutions and policy makers should pay particular attention to how inclusive and diversified access to prestigious institutions is and how greater support can be given to disadvantaged students. In the European Higher Education Area, it is also worth researching the impact that the Bologna process and other recent reforms may have had in this respect. Building on our earlier discussion of the determinants of mismatches, the consequences regarding the generalization of postgraduate degrees in some countries as well as the greater competitive pressures that are likely to result from such reforms are unlikely to be neutral regarding the incidence of mismatches, particularly if left unaddressed.
Skill Mismatches and Gender Inequality
Finally, the way in which gender interacts with education-job mismatches has been somewhat overlooked, particularly among the economists who study this topic (Capsada-Munsech 2017). Gender is intrinsically linked with higher education choices but equally with career trajectories, including the choice of occupations in the immediate transition to work. Furthermore, from a longitudinal perspective, the persistence of mismatches is likely to be associated with aspects such as family formation, the search for working-time flexibility, as well as opportunities for better reconciliation of work and family responsibilities and even negotiation attitudes at work, factors that have been shown to play a decisive role in gender inequality (Goldin 2014; Blau and Kahn 2017). The important aspect here is that gender should not be simply considered as an additional control variable in the sense that is strongly intertwined with different trajectories across the life-cycle. Mismatches may form and impact individuals as a result of such different paths. By failing to incorporate a gender perspective, we may not only fail to see that mismatches can have a disproportionate impact in one of the sexes but, more importantly, misunderstand how a given diagnostic or policy recommendations may apply to work settings that disproportionally employ men or women.
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