Expert Commentary

The career prospects of overeducated Americans

2014 study published by the National Bureau of Economic Research tracking the career paths of nearly 5,000 individuals for 12 years after they first entered the job market.

Student debt in the United States topped $1 trillion in 2013, and education loans now make up the second largest form of consumer debt after home mortgages. One cause is the rising cost of going to college, which has outstripped inflation and income growth in recent decades. At the same time the Great Recession has meant that new graduates are entering a more difficult job market, with lower salaries and fewer positions available to new recruits.

U.S. college enrollment fell 2% in 2012-2013, in part a consequence of of the decline in the college-age population as well as the tentative recovery drawing people back to the job market. The United States continues to have a high college entry rate, however, in part because of the perceived lifetime benefits of university education. Equally important, the costs of not going to college are rising: On average, millennials with a bachelor’s degree or more earn 51% more than those with some college, and 63% more than those with just a high school diploma.

Not all degrees and graduates are created equal, however. The choice of major can affect employment prospects and wages, but not always in predictable ways: In 2010 and 2011, the lowest unemployment rates were among elementary education (5%) and nursing (4.8%) majors, while architecture (12.8%) and information systems (14.7%) saw the highest rates. Those with double majors can do well, but not always. Attendance at an elite school — one with an average SAT score 100 points or higher than the mean — is associated with 7% higher lifetime earnings, but if attending school requires taking on substantial debt, graduates’ job choices can be significantly constrained.

A concerning trend for graduates is the increasing number that find themselves in low-wage jobs, or roles for which they are overqualified, after leaving college. The significance of this trend depends on whether it is simply a case of graduates taking more time to find a job matched to their skill level, or whether for some being overeducated in their jobs is a long-term problem in which case it may significantly reduce their return on investment from college.

To better understand this issue, a 2014 study for National Bureau of Economic Research, “The Career Prospects of Overeducated Americans,” tracked 4,895 individuals for 12 years after they first entered the job market. The authors — Brian Clark and Arnaud Maurel of Duke University and Clement Joubert of UNC Chapel Hill — define an overeducated worker as someone who has higher educational qualifications than the average employee — for example, someone with two to four years of college education but is working as a cashier or secretary, where the majority of his or her peers are high school graduates. The authors use their data to analyze factors associated with overeducated employment, its patterns and duration, and the impact on wages.

The study’s findings include:

  • 37.4% of college graduates are in overeducated employment, typically working in a job requiring 12 years of education. Secretaries and sales workers account for the largest numbers of overeducated workers.
  • The likelihood of being overeducated decreases over time. For workers with at least some college education, the incidence of overeducated employment falls from 62.3% to 50.4% over the first 12 years of respondents’ careers. While this implies at least some overeducated employment may be temporary, as new graduates take lower-qualified jobs initially, but are able to move up through the job market, the persistence of overeducation at 50% after 12 years implies other factors are at play.
  • Female workers were between 5% and 13% more likely to be in overeducated employment than males. At 14 years of schooling, black and Hispanic workers were both more likely to be overeducated at 16% and 12% respectively, although this difference became insignificant for workers with college education.
  • Those who have experienced overeducated employment suffer a significant wage penalty of between 2.6% and 4.2%, which persists over four years.
  • Those who are unemployed or otherwise out of the labor market are more likely to transition into an overeducated job than a matched job, while transitions into matched jobs are more common among the overeducated than the non-employed. This suggests that for some workers, overeducation is a pathway from non-employment into matched employment.
  • Consistent with previous studies, each additional year of education boosts wages by 9.6%. However, each additional year of overeducation produces less than half the rate of return, only 3.8%. Under-education is associated with earning 6.9% less for each year of under-education.
  • There is mixed evidence that people may accept a job they are overeducated for because of other characteristics associated with that job. Workers in hazardous jobs are actually more likely to be overeducated, regardless of their level of schooling. At the same time, overeducated workers are more likely to have several jobs, perhaps indicating they value greater job flexibility.

“Our results suggest that overeducation is a complex phenomenon that involves a number of the classical ingredients of labor economics: human capital, search frictions, ability differences and, perhaps, compensating wage differentials,” the authors conclude. They suggest further research to better understand the mechanisms driving overeducation, and the effects of different policy responses, including unemployment insurance and school subsidies.

Related research: A 2012 report from the Corporation for National and Community Service and the White House Council for Community Solutions, “Lost Economic Value of Unemployed or Underemployed Youth,” looks at the 6.7 million “opportunity youth” — those ages 16 to 24 who aren’t enrolled in school and chronically unemployed or underemployed. The study indicates that their full lifetime economic burden is $4.7 trillion, a consequence of our “failing to adequately invest in future generations.”

Keywords: higher education, jobs, wages, labor market, youth

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