Overeducation and the Skills of UK Graduates

Abstract

Executive SummaryThe early Nineties have been characterised by a dramatic change in the British higher education landscape. Reforms allowed universities to expand and at the same time new institutions were granted university status. In a five year period, the number of students doubled (from 15% in 1988 to 30% by 1992). This large expansion in the number of students attending higher education was concomitant to a reduction in the unit cost of a graduate.Questions about the effect of such a rapid expansion have been raised concerning both the supply and the demand of graduates. On the supply side, the issue is about the quality of new graduates. It is feared that post-expansion graduates may have less human capital. This reduction in quality may be a consequence of i) over-crowding and funding reductions, ii) introduction of programs with little academic content, iii) dumbing down of existing programs to accommodate students with lower initial ability. Additionally, the demand for graduates may have failed to accommodate the rapidly increasing supply of graduates.So far, the literature has assessed the impact of the higher education expansion by measuring the changes in the returns to a degree over time. There had been no significant drop in the returns, which would suggest that the labour market absorbed the extra graduates and that the skills of graduates were appropriate. However, since new cohorts typically represent only a small fraction of the sample, these conclusions may be incorrect. Instead in this paper, we compare the early labour market attainment of two cohorts of graduates, one graduating just at the beginning of the expansion period (1990), whilst the second graduated towards the end of the expansion (1995). The two surveys allow us to measure the evolution in overeducation and the wage penalty associated with it between the two cohorts.Additionally, the second survey allows us to assess the skills of new graduates.Over-education can be defined as not being in a graduate job. The expansion of higher education resulted in a doubling of the over-educated population to 35% but we do not find evidence that over-educated individuals are lacking academic skills. Hence, the expansion did not result in a reduction in the quality of graduates.Over-educated graduates are a heterogenous group which can be divided between apparent over-education, where graduates feel that their job matches their skills and genuine over-education, where the graduate is over-skilled for the job. Apparently over-educated individuals are almost indistinguishable from matched graduates, but genuinely over-educated graduates failed to develop management and leadership skills while at university. This later group, representing 15% of graduates is also found to lack unobservable characteristics associated with higher wages (such as motivation, presentation, punctuality, etc). The wage penalty for being genuinely over-educated is similar in both cohorts and reaches 21%, almost eradicating the financial benefit of higher education for ...

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