Unfortunately, mismatched
I was asked to write a brief overview of my masters’ work project and I wouldn’t be able to do it without first introducing you to my friends. We have collectively formed, for almost two decades, the highest heterogeneous group of individuals one could imagine: a professional piano player, a primary school teacher, a political science graduate, a nurse, one physical therapist and a theatre actress. We had, fortunately, never shared a single interest or idea. That would change at an almost 40-degree summer afternoon chill-out reunion, where, for the first time, we admitted sharing one thought: we all feared to graduate and to, unfortunately, become mismatched. We were all afraid to end up in a job requiring less education than our own, or, using the appropriate jargon, we were all afraid to become overeducated workers.
I left our regular summer reunion with the research questions for my masters’ work project: What are the career prospects for someone starting off in a job requiring less education than their own? Would it be just a temporary state or not? And even if being able to leave into a matching position, could the initial mismatch leave any scar throughout the workers’ career?
Using a remarkably rich longitudinal data set, covering all Portuguese establishments with at least one wage earner from 1986 to 2013, I was able to both target and follow over time individuals entering the labor market overeducated.
Starting off with their profile: the average overeducated Portuguese worker is 31 years old and even if a considerable proportion has lower than secondary schooling levels, for higher diplomas the time spent as mismatched appears to be considerably larger. Although no sizeable differences are found with respect to gender incidence (43% of overeducated workers are females and 57% males), its distribution across sectors of activity turns up to be quite divergent, with overeducated male workers majorly allocated into construction and freight-transport activities and females into hospitality and retail or hypermarket jobs. Notwithstanding, the future is unfavoured for women, whom, independently of age or sector of activity, are found significantly less likely to depart into a paired position than men.
Despite taking an average of 5 years for an entry-level overeducated worker to work in a matching position, the exit process appears uneven within the overeducated population. While the majority is expected to leave at a faster rate and within the first two years from entry, for nearly 30% the mismatch status is expected to become long-lasting. As opposed to those arguing a mismatched beginning to be a doorstep towards a suitable career, increasing the time spent as overeducated in 10% is expected to reduce one individual’s prospects to leave in roughly 4%, grounding overeducation more as a trap rather than a stepping stone en route for a matched career.
Entering a job where part of your human capital is left unused may reveal itself as costly. If you think of education as an investment, whose returns materialize in terms of higher future wages, then becoming overeducated may turn your investment strategy suboptimal: the average overeducated worker yields only half the return to his educational investment than it would had he/she been able to enter a paired job position.
Better hurry up and leave… right? Leaving may still not pose an end to the already dismal story. Individuals leaving with a “Previously Overeducated” stamp over their curriculum are expected to suffer future pay losses, these ranging from 3.5% up to 14% for a two and a ten-year former overeducated employment spell, respectively.
Of course, distinct hypothesis can be offered to unveil the previous negative association between overeducation and future wages: it is a period of skills underutilization, and therefore individuals become subject to their depreciation, or may simply be the result of overeducated workers being less productive per se. Yet, there is already some evidence, namely for the Belgium labor market, of prospective employers using a previously mismatched curriculum as a signal of lower productivity, in a similar manner as to those who were formerly unemployed.
This might still not be the end of this story. What about the costs arising from being in a job where you will, most likely, become unfulfilled? What about the costs of realizing you were not able to get where you wanted? And what about those arising from having nearly half of your twenty-year friends moving abroad as to avoid becoming, unfortunately, mismatched? Despite acknowledging their relevance, these I was, unfortunately, unable to seize within my econometric outputs.
Vítor Pereira is a Nova SBE alumnus who has recently graduated from the Masters in Economics. He is an economist whose domains of interest range from history of economic thought, monetary economics and economics of education. Vitor was part of Nova SBE’s volunteering program (Nova Community) as a mathematics tutor and was one of the students representing the school at the first European Central Bank’s Youth Dialogue. He has also participated in a special project for the Nova Economics Club, where he co-authored the creation of a financial literacy course for a Portuguese non-profit organization. Besides having worked in the fixed income asset management team of an investment bank, Vítor has previously joined the school’s faculty team as a teaching assistant in the Economics and Management undergraduate programmes. He is presently working as an economist in the Portuguese external accounts at the Portuguese National Central Bank [Banco de Portugal].
