The impact of overeducation on wages of recent economic sciences graduates

Abstract

According to human capital theory, wages are determined by workers' productivity, in its crudest form implies that return to education does not depend on how workers' skills are used. However, after controlling for other differences, the empirical evidence shows that workers with identical education can be paid differently. The literature has found young people are more likely to experience a mismatch between their formal education and that required for their jobs. While there is no consensus on the reasons for the mismatch, there is one on the consequences in terms of wages; overeducation means a penalty. Our evidence shows that overeducated graduates of the Facultad de Ciencias Económicas of the Universidad Nacional de Córdoba suffer a wage penalty compared to those working in a job that requires a university degree. The results are robust to different specifications and the use of alternative estimators. Even when not statistically significant, the penalty of a severe level of overeducation is higher than one for a mild level of overeducation; having had work experience while studying at university helps to reduce the cost of overeducation; women exhibit a similar penalty to men. While on average overeducation means a wage penalty, there is great heterogeneity among overeducated graduates, with those at the top end of the wage distribution experiencing a much lower penalty, or even a premium in some cases. Finally, while in the case of overeducation we find statistically significant effects, the same is not true of the horizontal mismatch in terms of knowledge.