FACULTEIT ECONOMIE EN BEDRIJFSKUNDE. HOVENIERSBERG 24 B-9000 GENT Tel. : 32 - (0) Fax. : 32 - (0)

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1 FACULTEIT ECONOMIE EN BEDRIJFSKUNDE HOVENIERSBERG 24 B-9000 GENT Tel. : 32 - (0) Fax. : 32 - (0) WORKING PAPER Overeducaton n the Flemsh Youth Labour Market Deter Verhaest 1 Eddy Omey 2 March /141 1 Department of Socal Economcs, Ghent Unversty; SONAR 2 Department of Socal Economcs, Ghent Unversty; SONAR * Correspondence to: Deter Verhaest, Ghent Unversty, Hovenersberg 24, 9000 Ghent, Belgum e-mal: Deter.Verhaest@rug.ac.be ** A prevous verson of ths paper was presented at the European Research Network on Transtons n Youth meetng, September , Sntra, Portugal. We would lke to thank Drk Van de gaer, Freddy Heylen and the partcpants of the TIY meetng for ther useful comments. D/2002/7012/16

2 Abstract Based on three defntons, we measure overeducaton among Flemsh labour market entrants and nvestgate ts determnants to test the valdty of dfferent theores and to shed more lght on the valdty of the measures themselves. Dependng on the measurement method, overeducaton vares n the frst job from 26 to 54%. Lookng for the determnants of msmatch, the results dffer for the varous measures and schoolng levels. We fnd clear evdence that the probablty of overeducaton s lower for search ntensve ndvduals, ndvduals wth better study results and for jobs n small frms. Furthermore, overeducaton dffers greatly among jobs n dfferent occupatons and ndustres. These results are largely explaned by the dffcultes that some occupatons and ndustres have to fll ther vacances. As expected, the measure based on job analyss delvers the most consstent results. However, we fnd ndcatons that part of the msmatch, measured by job analyss and to a lesser extent by ndrect self-assessment, results from dfferences n job complexty. JEL classfcaton: I21; J24 Keywords: Overeducaton, Overschoolng, Qualfcaton Msmatch

3 I. Introducton The mportance of schoolng and educaton s now generally recognsed, not only for socal coheson but also as a crucal determnant of sustaned economc growth (see e.g. Storesletten & Zlbott (2000)). Investments n educaton have rsen n most ndustralsed countres. As a result, educatonal levels of the populaton n general and schoolleavers n partcular are now much hgher. Parallel to ths evoluton, there have been growng concerns about overeducaton. Freeman (1976) was one of the frst to warn for overnvestments n schoolng. Now an extensve lterature on the subject exsts, wth estmates for dfferent countres rangng from 10% to more than 40% (Groot et al. (2000)). The Flemsh SONAR-database, resultng from a survey of year olds about ther educatonal and labour market career, not only makes t possble to test the stylsed facts about overeducaton for Flemsh labour market entrants, but can also provde addtonal nsghts nto the problem. The objectve of the paper s twofold: to measure the ncdence of overschoolng (and ts counterpart, underschoolng) for Flemsh labour market entrants n ther frst job and to look for the determnants of overschoolng. Measured overeducaton s hghly senstve to the defnton used. Defntons of overeducaton can be dvded n four categores. The SONAR-database gves us the opportunty to measure overeducaton relyng on the dfferent methods. Based on these measures, we nvestgate the determnants of overeducaton among labour market entrants durng ther frst job to test the valdty of the dfferent theores and to shed more lght on the valdty of the measures themselves. Ths artcle s structured as follows. In secton II we dscuss dfferent theores of over- and undereducaton and the emprcal evdence on the subject. The measurement of overeducaton s dscussed n secton III. In secton IV we measure sklls msmatch for Flemsh labour market entrants. Secton V deals wth the estmaton method. The determnants of overschoolng n the frst job are nvestgated n secton VI and secton VII. Fnally, n secton VIII, we summarse the paper and draw some conclusons. 2

4 II. Theory and exstng evdence Someone could be defned as beng overeducated f attaned sklls exceed the requred sklls to do hs job. However, there are some conceptual problems wth ths defnton of over- and undereducaton. Frst, as Green et al. (1999) state, n a pure human captal framework, the concept of overeducaton may be meanngless. Accordng to Human Captal Theory (HCT), whch s based on neoclasscal economcs, a worker s pad hs margnal product. As a consequence, overeducaton can only be the result of a temporary labour market dsequlbrum and there s no problem wth overnvestments n schoolng. Second, observed overeducaton may compensate for lower qualty of educaton, for example by dfferences n qualty of nsttutons or study results. Thrd, formal educaton n tself s an ncomplete measure of human captal. Overeducaton could be permanent f t compensates for a lack of other elements of human captal lke experence, on-the-job tranng or ablty. Undereducated people should then have a more than average amount of these knds of human captal. To overcome these conceptual problems, a clear dstncton has to be made between educatonal msmatches and skll msmatches (see e.g. Allen & van der Velden (2001)). In ths paper we always use the terms overeducaton or overschoolng n the meanng of educatonal msmatches, f the formal educatonal level exceeds the job level. There s a lot of evdence n the lterature that the probablty of beng overeducated depends on dfferences n the qualty of educaton or other elements of human captal. Dolton & Vgnoles (2000) found more overeducated Brtsh graduates among those wth a polytechnc degree and those wth lower degree classes. The generally observed declne n overeducaton and rse n undereducaton by age (see e.g. Van Hoof (1996)) are n lne wth the hypothess that educatonal msmatches result from dfferences n other sklls, as experence and the amount of on-the-job tranng rse wth age. Indeed, evdence s found that overeducated workers have less experence (see e.g. Alba-Ramrez (1993), Groot (1996), Sloane et al. (1999)). However, after several years on the labour market, a large group remans overeducated. Green et al. (1999) found some evdence that the 3

5 overeducated are less able 1. As we concentrate n ths paper on the frst job, dfferences n overeducaton can only be explaned by dfferences n qualty of educaton or ablty. Snce the returns to on-the-job tranng are lower for part-tme and temporary jobs, the employer could opt to recrut someone wth a hgher qualfcaton f formal educaton and on-the-job tranng are substtutes. The same holds true for women snce they have a hgher probablty of leavng ther job. Indeed, van Smoorenburg & van der Velden (2000) found that overeducated get less on-the-job tranng. Renes & Rdder (1995) found that women need more experence than men to be hred for the same job. The Career Moblty Hypothess (CMH, Scherman & Galor (1990)) bulds on the Human Captal theory. Overeducaton may be a good nvestment opportunty f hgher educaton mples a hgher probablty of upward moblty wthn or across frms. Job seekers may accept jobs below ther schoolng levels because the sklls learned on the job by experence and on-the-job tranng may lead to promoton or to a hgher job level outsde the frm. Scherman (1991) found that overeducated workers had a hgher chance to move to a hgher level job. However, he also found ths for the undereducated, for whch no explanaton was gven. Whle human captal theory concentrates on the supply sde of the labour market, n Job Competton Theory (JCT, Thurow (1975)) the demand sde matters. Accordng to job competton theory, productvty s only determned by job characterstcs and not, as n human captal theory, by ndvdual characterstcs. Workers are placed n a queue on the bass of ther schoolng level, whch s used by the employer as an ndcator for ther tranablty. If there s an oversupply of hghly educated job seekers for hgh level jobs, some educated workers wll look for jobs at lower levels. Relatvely less educated job seekers wll be drven to the jobs at the lowest levels or, worst, crowded out of the labour market. The consequence s overeducaton for hgher educated workers and more unemployment for the lower educated. Wth the general rse of educatonal levels over the past decades n most ndustralsed countres, there have been growng concerns about overnvestment n schoolng and crowdng out of the less educated. Freeman (1976) was one of the frst to stress the problem of overnvestments n schoolng. He saw ths as an explanaton for the dmnshng returns to educaton durng the seventes n the U.S. 4

6 However, along wth the rse n supply, there has also been a rse n demand for hgher educated ndvduals. Wth technologcal progress, jobs may become more complcated and requre more sklls. If msmatch s measured on the bass of former job requrements, overeducaton may be upwardly based. Mendes de Olvera et al. (2000) found some evdence for the Technology Hypothess (TH). A more realstc assumpton s that productvty s determned by the combnaton of ndvdual and job characterstcs, as stated by Assgnment Theory (AT, Sattnger (1993)). Ths s strongly confrmed by research on the relatonshp between msmatch and earnngs. A great part of the msmatch lterature has concentrated on the estmaton of the returns to over- and underschoolng. Almost wthout excepton, returns to overeducaton are found to be postve but smaller than returns to requred educaton, whle returns to undereducaton are negatve, but ths penalty s also smaller than returns to requred educaton 2. Not only educatonal and job levels are mportant, so are educatonal subjects and job types. The sklls of a student n engneerng at a hgher vocatonal level wll be of more use n a unversty level engneerng job than the sklls of an academc hstoran. Battu et al. (1999) and Dolton & Slles (2001) found clear dfferences n msmatch between dfferent educatonal subjects and occupatons. A last group of theores concentrates on the search and selecton behavour of employers and employees. Accordng to Sgnal Theory (ST, Spence (1973)) educaton n tself s not productve, but s used as a sgnal for ablty and effort. It departs from the assumpton that the wllngness to pay the costs of educaton fundamentally depends on ablty. If, due to an exogenous factor, global educatonal costs fall, less able students wll decde to learn longer. As a result, the sgnal of a partcular educatonal level wll fall and the employer wll upgrade the educatonal requrements, wthout any change n content 3. Ths s also referred to as qualfcaton nflaton. Also study results and dplomas from educatonal subjects consdered as beng dffcult can be used as sgnals for ablty. Accordng to the Educatonal Credental Hypothess (ECH) of van der Meer & Welers (1996) overeducaton s manly concentrated n large organsatons and n the fnancal and professonal servces sector. They suppose that large organsatons rely more on 5

7 educatonal credentals as they encounter more dffcultes to measure worker productvty. Another explanaton for educatonal msmatch les n Matchng Theory (MT, Jovanovc (1979)). Accordng to ths theory, search costs and mperfect nformaton result n an mperfect match. A process of gradual adjustment to labour market requrements leads to a perfect match. So, n lne wth the predctons of Career Moblty Theory, overeducaton s only temporary. Whle Career Moblty Theory ddn t gve an explanaton for undereducaton, n a matchng theory framework ths s also a temporary phenomenon. The outcomes of Robst (1995) are more n lne wth these hypotheses. He obtaned for overeducated a hgher and for undereducated a lower probablty for movement to a hgher level job. Overschoolng may also result from low geographcal moblty (GMH). Battu et al. (1999) and Dolton & Slles (2001) found a postve nfluence of regonal moblty on the qualty of the match. The Theory of Dfferental Overqualfcaton (TDO, Frank (1978)) explans the hgher probablty of beng overeducated among women by ther low geographcal moblty opportuntes. Ths follows from the observaton that famly resdence s mostly determned by the husband s career choce. To test for the dfferent theores, we formulate some hypotheses that wll be tested n the emprcal secton of ths paper. Some of them clearly correspond to one theory, others are compatble wth dfferent theores. The man theores on whch these hypotheses are based are mentoned n parentheses. H1: Overeducaton declnes wth age (HCT, CMH, MT). H2: Better study results decrease the probablty of beng overeducated (HCT, ST). H3: The probablty of overeducaton s hgher n part-tme and temporary jobs (HCT). H4: Cohabtng women have a hgher probablty of beng overeducated (HCT, TDO). H5: Overeducaton s concentrated less n entry jobs for occupatons wth dffcultes to fll vacances and more among ndvduals from educatonal subjects wth a relatvely hgh supply n the labour market (JCT, AT). H6: Technologcal progress nduces more measured overeducaton (TH). 6

8 H7: Overeducaton s also concentrated n large frms and n the fnancal and professonal servces sector (ECH). H8: Search ntensve ndvduals have a lower probablty of beng overeducated (MT). H9: Geographcally moble ndvduals have a lower probablty of beng overeducated (GMH). III. Measurng overeducaton The measurement of over- and undereducaton has been the subject of extensve dscussons n the lterature. Although the measurement of attaned schoolng s not wthout problems 4, most dscusson s about the measurement of requred educaton. Broadly speakng, overeducaton (resp. undereducaton) has been measured n four ways, whch can be dvded nto two objectve and two subjectve measures (see e.g. Groot et al. (2000)). The subjectve defntons are based upon a self-assessment technque. Frstly, workers are drectly asked whether they are rghtly, over- or underschooled to do ther job. Secondly, a more ndrect way s to ask respondents what mnmum level of educaton s requred to get or to do ther job 5. To measure over- and underschoolng, ths s compared wth the attaned educatonal level. The job analyss method s a more objectve approach, based on the evaluaton of requred schoolng by job analysts, whch classfy the job n an occupatonal classfcaton. A last objectve method derves msmatch from realsed matches. Requred educaton s measured by the medan or mode of the educatonal level of workers n a certan occupaton. Verdugo & Verdugo (1989) e.g. defned a worker to be overeducated f hs educaton s more than one standard devaton above the average for hs occupaton 6. All these measures have ther shortcomngs. However, the Verdugo & Verdugo measure has been crtcsed most. Not only s the choce of one standard devaton hghly arbtrary, t not really measures msmatch, but only devatons from what s actually realsed and not from what should be realsed. Self-assessment technques also have ther drawbacks. Wth 7

9 drect self-assessment methods, the nterpretaton of job level and educatonal level s totally left over to the subjectve assessment of the respondent. Measures based on questons about what s needed to get a job may reflect more the screenng and selecton behavour of employers than msmatch. The subjectve assessment of what s needed to do a job may also be nfluenced by what s asked to newly hred workers or based to the medan level of educaton of dentcal workers n ther frm. Wth the job analyss method, the subjectve assessment of the respondent s replaced by the subjectve assessment of a job analyst. The classfcaton of jobs s not straghtforward. Jobs that are at frst sght dentcal, may n realty be qute dfferent. Another problem s the changng content and complexty of jobs as a consequence of technologcal progress. If the classfcaton system s not redefned from tme to tme, overschoolng may be upwardly based. However, the same holds for subjectve methods f respondents base ther answers on former requrements. Balancng the pros and cons, Hartog (2000) concludes that job analyss s the best method. Some have tred to determne the best method on a more systematc bass. Van der Velden & van Smoorenburg (1999) fnd a systematc overestmaton for job analyss and conclude that self-assessment s the best technque. Anyhow, despte dfferences n measured msmatch among dfferent studes and dfferent measurement approaches, the stylsed facts about the relatonshp between msmatch and earnngs are robust (see e.g. Hartog (2000)). 7 We base our research on data about school to work transtons from the SONAR-database. SONAR s an nterdscplnary research group that nvestgates the transton from school to work n Flanders. Durng the last months of 1999, 3015 Flemsh 23 years old were questoned by face-to-face ntervew on the bass of a random sample. The ntervew conssted of an extensve questonng of ther educatonal and early labour market career. We make a subsample of respondents for whch we have data on the frst job. A problem wth our sample s that 457 respondents (15.2%) stll study, mostly at the unversty level. However, SONAR-researchers decded to ntervew at 23 to mnmse recall error. A second ntervew at the age of 26 wll provde the data on labour market entry for ths group. As a consequence, the data on the frst job are not a random sample for the hghly educated. Another 119 respondents (3.9%) never had a frst job. Ths reduces our 8

10 subsample to 2439 respondents. Of ths subsample 44.6% were stll workng n ther frst job, 46.1% n another job and 9.3% were unemployed at the tme of the survey. For an extensve descrpton of the data, we refer to SONAR (2000). Whle most studes have to rely on a sngle measure of msmatch, we assess over- and undereducaton relyng on the two subjectve defntons and the job analyss method. Usng more than one ndcator enables us to test the robustness of our results. Few European studes make use of the job analyss method. In the SONAR survey, jobs are specfed by the Standard Job Classfcaton of 1992 of the Dutch CBS 8. Ths classfcaton s based on fve functonal levels: elementary, lower, medum, hgher and scentfc. Ths enables us to compute an objectve measure (OV1). Some problems are apparent wth the estmaton of requred educaton. Frstly, we have to choose between years of schoolng and educatonal standards for the measurement of educatonal human captal. Although most U.S. research reles on years of schoolng, we follow other European studes (see e.g. Dolton & Vgnoles (2000)) and opt for educatonal standards. Gven the complexty of the Flemsh educatonal system (see Appendx A), years of educaton would be an oversmplfed approxmaton of educatonal human captal. Secondly, the translaton of the dfferent educatonal standards nto functonal levels s not evdent. Although nternatonal standards lke ISCED and CASMIN have been developed, they have ther drawbacks (see e.g. Kerckhoff & Dylan (1999)). In Appendx B, we report our translaton of the dfferent educatonal standards nto the dfferent functonal levels. Broadly, they correspond to the followng educatonal levels: prmary, lower secondary, hgher secondary, lower tertary and hgher tertary educaton. Someone s defned to be overeducated accordng to our frst measure (OV1) f hs educatonal level s hgher than the educatonal level of the job. For our second measure (OV2), requred educaton s based on the queston: To get your job, what educatonal level were you requred to have? 9. To ensure comparablty of the two approaches, we group these levels nto the same fve educatonal classes as for the objectve measure. Agan, someone s defned to be overeducated accordng to our second measure (OV2) f hs educatonal level s hgher than the requred level for hs job. Snce 9

11 ths measure s based on the level needed to get the job and not on the level to do the job, ths measure may be hghly senstve to the stuaton on the labour market. The drect selfassessment measure (OV3) s derved from the answers to the queston: Do you have a level of educaton whch s accordng to your own opnon too hgh, too low or approprate for your job?. Along wth the problems already stated, another problem wth ths measure may be that t s nfluenced by the adapted expectatons of what maxmum job level the worker thnks he can acqure and hs satsfacton of ths level. Due to the numerous drawbacks of the measure based on realsed matches, we do not compute a second objectve measure. Relyng on the dfferent theores we have already formulated some hypotheses. We formulate some addtonal hypotheses concernng the measurement of overeducaton: H10: The measure based on job analyss delvers the most consstent results. H11: The results for the measure based on ndrect self-assessment are based by the selecton and screenng behavour of the employer. H12: Overeducated workers occupy more complex jobs than ther approprately educated colleagues at the same job level. IV. Overschoolng among Flemsh labour market entrants The overschoolng fgures are reported n table 1. The results show large dfferences among the dfferent measures. Overschoolng for the frst job vares from 25.8% for the thrd measure (OV3) to 53.7% for the objectve measure (OV1), whle the second measure (OV2) les somewhere n between wth 44.7% overschooled. Ths contradcts the results from the meta-analyss of Groot et al. (2000) whch suggest that there are only small dfferences between these three measures. However, the results are more n lne wth those from Groeneveld (1997) who also computes overschoolng based on these three measures for a database of Dutch workers. She also fnds that the percentage of overschooled based on job analyss (30.7%) s more than twce that based on the frst subjectve measure (13.4%), whle accordng to the second subjectve measure 19.3% s overschooled. 10 Also 10

12 for undereducaton dfferent results are found. The declnng group of overeducated at the age of 23 s n lne wth the exstng lterature, showng a negatve relaton between age and overeducaton. Together wth the hgher undereducaton at 23, ths suggests that experence s a determnng factor for the msmatch status of a worker. Table 1: Msmatch n the Flemsh youth labour market OV1 OV2 OV3 Frst job At 23 Frst job At 23 Frst job At 23 Overeducated 53.7% 48.3% 44.7% 37.5% 25.8% 15.9% Adequately educated 42.0% 46.2% 52.6% 58.5% 68.5% 77.9% Undereducated 4.3% 5.5% 2.7% 3.9% 5.6% 6.6% Table 2: Educatonal and job levels n the frst job Job level (OV1) elementary Lower Medum hgher Scentfc total < LS (3.4%) LS (5.9%) HS (53.5%) LT (27.3%) HT (9.9%) Total 381 (16.8%) 672 (29.7%) 638 (28.2%) 473 (20.9%) 98 (4.3%) Job level (OV2) <LS LS HS LT HT total < LS (3.4%) LS (6.0%) HS (53.2%) LT (27.3%) HT (10.1%) Total 903 (41.0%) 88 (4.0%) 487 (22.1%) 536 (24.3%) 191 (8.7%) OV3 Undereducated Adequately educated Overeducated <LS 14.7% 68.0% 17.3% LS 6.8% 61.7% 31.6% HS 6.8% 62.0% 31.2% LT 3.4% 78.8% 17.7% HT 1.3% 73.2% 25.4% Total 5.6% 67.9% 26.5% Note: For the OV1 and OV2 measure, every entry ndcates for a gven educatonal level the number of respondents n our sample that work at a gven job level, measured by the two measurement methods. For the OV3 measure, every entry ndcates for a gven educatonal level the percentage of under-, adequately or overeducated n our sample. 11

13 To gan more nsghts nto our msmatch fgures, we relate n table 2 educatonal levels to job levels (OV1), requred educaton (OV2) and overeducaton accordng to the OV3 measure. As can be observed, overeducaton accordng to the OV1 measure s largely the result of the relatvely large group of elementary and especally lower level jobs n comparson wth a majorty of ndvduals who leave school wth a hgher secondary degree. Undereducaton s manly concentrated among those wth less than a lower secondary dploma. For the OV2 measure, overeducaton results from the large group of jobs for whch no or less than a lower secondary dploma was requred to get the job and the large group wth a hgher secondary dploma. Fnally, for the OV3 measure, undereducaton s as expected negatvely related wth schoolng level. However, overschoolng s concentrated among those wth a lower and hgher secondary educaton, as wth the OV2 measure. Ths s an ndcaton that reported msmatch may be nfluenced by the requred educaton to get a job. Snce our second measure (OV2) s based on the educatonal level asked by employers, t s more an ndcaton of what socologst call the credental gap. Ths s the dfference between the acqured qualfcatons and the qualfcatons demanded by the employer (Pollet et al. (1999)). If we suppose that jobs are rghtly classfed by job analyss, we can gan more nsghts nto the selecton behavour of employers, by comparng the job level wth the level asked. Dolton & Slles (2001) use ths as an ndcator for qualfcaton nflaton and deflaton 11. For an elaborated analyss of the dfferences between job level and requred educaton, we refer to Appendx C. Table 3: Qualfcaton nflaton & deflaton and msmatch OV1 Undereducated Adequately educated Overeducated Total Qual. Deflaton 10.9% 33.0% 56.1% 30.3% Good level 1.5% 65.4% 33.1% 46.9% Qual. Inflaton 1.0% 5.5% 93.5% 22.8% The results n table 3 ndcate that n 22.8% of the cases the mnmum level asked durng selecton was hgher than the level of the job. Ths qualfcaton nflaton s manly concentrated among those wth a hgher secondary and lower tertary dploma (see 12

14 Appendx B). Ths may be due to employers who respond to the hgher supply of schoolleavers wth a hgher secondary and lower tertary dploma by ncreasng the educatonal levels to get a job. In 93.5% of the cases ths qualfcaton nflaton also resulted n overeducaton. In stll 33.1% of the entry jobs for whch the rght educatonal level was asked, someone wth a hgher level of educaton was recruted and for the 30.3% of the cases for whch a lower than normal educatonal level was asked, even 56.1% stll led to overeducaton. These last fgures can manly be explaned by the combnaton of a large group of jobs at the lower and medum level for whch no requrements were asked and the relatvely small group who enters the labour market wthout a secondary dploma (see Appendx C). Globally, these results ndcate that overschoolng s the result of the vacancy profle as well as the effectve recrutment by the employer. V. Estmaton method In the lterature so far most attenton went to the relatonshp between msmatch and earnngs. Far less attenton has been gven to the nvestgaton of dfferences n msmatch themselves. Exceptons are Battu et al. (1999) and Dolton & Slles (2001) for UK graduates and Groot (1996) and Sloane et al. (1999) and Alba-Ramírez (1993) for all educatonal levels n the UK and Span respectvely. In ths secton we try to contrbute to ths lterature by nvestgatng what determnes overeducaton n the frst job. Suppose we have n observatons of matches of ndvduals wth educatonal level E and jobs wth job level J, resultng from supply and demand behavour n the labour market. The overeducaton status ( OV ) of a match could be defned as: OV = E J (1) If we retake table 2, then the combnaton of the 5 job levels and 5 educatonal levels delvers 25 cells. Then, a match has probablty P ej of havng an educatonal level E 13

15 and a job level J. We could test the former equaton by runnng a multnomal logt that estmates the probablty of each combnaton of attaned level E wth requred level n comparson wth the probablty of a reference combnaton, e.g. P 33, based on ndvdual characterstcs X and job characterstcs F that determne msmatch. However, there are some problems wth ths estmaton. Estmaton based on our OV3 measure s not possble as we have no job levels for ths measure. Further, for the two other measures, some cells are empty or have extremely low frequences (cf. table 2), mostly due to the small proporton of undereducated schoolleavers. Instead, we estmate the probablty of beng overeducated wth as reference the probablty of beng adequately educated (when E = J ) or undereducated (whene < J ). So we have: J OV OV = 1 E = 0 E > J J (2) For ths estmaton, we restrct our sample to the 2201 non self-employed wth a job n Flanders (Brussels ncludng). We do the estmatons for each of our three measures of msmatch. Note that for the OV1 and OV2 measures someone wth the lowest educatonal level can not be overeducated. Therefore, we have to restrct our sample to the four hghest educatonal levels for these two measurement methods. Our estmaton method s bnary logt estmaton. A frst group of theores concentrate on ndvdual characterstcs and explan why two ndvduals wth the same educatonal level fll jobs wth dfferent requred levels. Therefore, the frst equaton we estmate for our three measures s of the followng form: ( OV = 1) = CONSTANT1 + α 1X + β1e + ε ( OV = 0) P Log 1 P (3) Along wth educatonal levels ( E ), we control for other ndvdual characterstcs ( X ) as ethncty and gender. We make a dstncton between sngles and cohabtants to test for Frank s theory of dfferental overqualfcaton. Ths status s measured at the begnnng 14

16 of the frst job. We control for ethncty by ncludng a dummy that takes the value one f the grandmother at the mother s sde has a non-european natonalty. To control for the search ntensty of the job seekers, we nclude a varable search behavour that measures the moment at whch an ndvdual has begun hs search for a job n relaton to the moment of leavng school. Furthermore, the unemployment duraton between labour market entry and the begnnng of the frst job s ncluded. The nfluence of ths varable on overeducaton may be postve f ths duraton s used by employers as a sgnal for capactes. As ndvduals stay unemployed longer, they may also be forced to accept a job below ther educatonal level. However, ths postve nfluence may be counteracted by the lengthenng of the search perod. The probablty of fndng an approprate job could be enhanced f one s prepared to accept a job outsde one s regon. So, we nclude a dummy that equals one f the frst job s outsde one s provnce. Dummes for the dfferent regons are ncluded to control for dfferences n local labour market condtons. Specfcaton (3) s qute restrctve snce t assumes that the coeffcent of each ndependent varable s the same for all cells below the dagonal. The nfluence of varables such as search behavour or gender may however be dfferent for the varous educatonal levels. Therefore, we ntroduce nteracton terms of the dfferent schoolng levels wth the other ndependent varables. Furthermore, we control for dfferences n study results, educatonal subjects and extra educatonal years and dplomas. The avalablty and defntons of these varables dffer for the varous educatonal levels. Therefore, we ntroduce some extra nteracton terms for the dfferent educatonal levels. For those wth a hgher secondary degree, we control for the type of educaton and for those who obtaned ther degree n part-tme educaton. We nclude dummes for those who followed a seventh year of secondary educaton or extra part-tme educaton, for those wth an extra vocatonal degree and for those who passed at least one year n tertary educaton, but never ended ther studes. We ntroduce an nteracton term for the hgher educated wth ther study results n the last year of hgher educaton. For those wth a lower tertary dploma, we control for the educatonal subject and nclude a dummy for those who passed an extra year n another study feld but never ended these studes. For 15

17 those wth a hgher tertary degree, we control for the educatonal subjects and nclude a dummy for ndvduals wth a unversty dploma. A second group of theores concentrates on job characterstcs and explans why two jobs wth the same level are flled by ndvduals wth dfferent educatonal levels. So, we also estmate the followng equaton, based on job levels ( J ). As we have no job level data for our thrd measure (OV3), we could only do ths estmaton for the frst two measures. ( OV = 1) = CONSTANT2 + α 2F + β2j + ε ( OV = 0) P Log 2 P (4) The job characterstcs for whch we control ( F ) are frm sze and sector varables. The ncluson of ndustry dummes and frm sze could test for the theory of van der Meer & Welers (1996). Furthermore, we nclude dummes for type of contract and dummes for techncal, clercal and soco-cultural professons. Overeducaton may smply result from msmeasurement, due to dfferent job complexty wthn occupatons. To test for ths we also estmate equatons wth the ncluson of dummes for dfferent job sklls needed n the job. The job sklls ncluded are leadershp sklls, foregn language sklls, mathematcal sklls, computer sklls and communcaton sklls. As already stated, our OV2 measure may be a rather ncomplete measure of msmatch snce t s based by the specfc selecton behavour of the employer. If we make a dstncton between the level asked for a job and the job level, we could test for qualfcaton nflaton and deflaton. Wth the objectve level ( J R ( J ), we defne Qualfcaton Inflaton ( QI ) as: JA ) and the requred level QI = 1 J QI = 0 J QI = 1 J R R R > J = J < J JA JA JA 16

18 To test for qualfcaton nflaton, we estmate an ordered probt model. For the modellng of the ordered probt, we refer to Davdson & MacKnnon (1993). Ths estmaton also helps evaluatng the hypothess that the OV2 measure s based by selecton and screenng behavour (H10). Along wth the objectve job level ( JA J ), the other job characterstcs for whch we control ( F ) are the job locaton, sector, frm sze, professons and type of contract. Agan, we restrct our sample to the 2201 non self-employed wth a frst job n Flanders. Furthermore, we also estmate an equaton ncludng job sklls dummes. In ths nterpretaton, we test for devatons of the OV2 job levels ( J ( J ). For defntons of all explanatory varables, we refer to Appendx B. JA R ) from the OV1 job levels VI. The determnants of overeducaton: Indvdual characterstcs The estmaton results are reported n table 4. Dependng on the overschoolng measure, results dffer substantally. Globally the results for the OV1 measure (equaton (1)) are most consstent wth our ntuton. As already motvated, we also consder our OV1 measure to be the most approprate measure for msmatch. Therefore we start our dscusson from ths measure and then try to explan dfferences wth the other measures. Interactons are ncluded for the lower and hgher tertary educatonal level wth gender, search behavour, unemployment duraton, moblty and provnce 12. Only for the measure based on job-analyss ths sgnfcantly mproved the Log Lkelhood. The results for the educatonal levels are dffcult to nterpret, snce they should be analysed together wth the results for ther nteractons wth the other varables. Therefore, we also computed some probabltes (see Appendx D). These probabltes do not only largely dverge between but also wthn the educatonal levels 13. The results suggest that beng hgher educated not necessarly leads to a hgher probablty of beng overeducated. For the OV2 and OV3 measure, the lower educated have the hghest probablty of beng overeducated n the frst job. For the OV1 measure, the results are less clear and hghly depend on educatonal subjects and other nteracton varables. Furthermore, these results 17

19 should be nterpreted carefully snce part of the explanaton could le n dfferences n the busness cycle. The mprovng macro-economc stuaton over the nnetes partly explans the advantageous stuaton for the hgher educated, snce they entered the labour market at the end of the decade. The results for gender are n lne wth Frank s theory for the OV1 measure 14. Cohabtng women have a hgher probablty of beng overeducated. However, ths was not found for the other two measures. The results for the OV3 measure may ndcate that women not only adapt ther career opportuntes n functon of ther husband s but are also satsfed wth ths mpled lower job level. Clark (1997) found, even after controllng for a large number of job and ndvdual characterstcs, that women are more satsfed wth ther job than men. Based on the SONAR data, ths was also found n Verhofstadt et al. (2001). The results for the OV2 measure are hard to explan. As for the nteracton effects n equaton (1), note that the effect from gender on the probablty of beng overeducated s even larger for school leavers wth a lower tertary dploma. On the other hand, women wth a hgher tertary dploma have a lower probablty of beng overeducated n comparson wth men. Further, t seems that non-europeans have a hgher probablty of beng overeducated. However, these results are never sgnfcant and for the OV3 measure, the opposte s found. The small proporton of non-europeans n our sample may explan the nsgnfcance of these results. The moment that an ndvdual starts searchng for a job seems crucal for the qualty of the match. Someone who starts hs search behavour after he leaves school has a sgnfcantly hgher probablty of beng overschooled. Ths result holds for the three measures. It s especally true for the lower educated and holds far less for those wth a tertary dploma. For the OV1 and OV2 measure, there s a small, nsgnfcant nfluence of the duraton of unemployment before the frst job on the probablty of beng overeducated. A postve nfluence s n lne wth the hypothess that unemployment creates a negatve sgnal for the employer and forces an ndvdual to accept a job below hs educatonal level. However, we agan fnd opposte results for the OV3 measure. The opposte results for the OV3 measure may just reflect that, the longer one s unemployed, 18

20 the more one s prepared to accept a lower job level and the more one s satsfed wth that level. Furthermore, results dffer for ndvduals wth a lower tertary educaton. The results for the geographc moblty varable are not straghtforward ether. Although the coeffcents have the expected negatve sgn, we fnd no clear evdence that acceptng a job outsde the provnce of resdence mproves the match. The effect s slghtly sgnfcant only for the OV2 measure and rather small for the OV1 measure. A person may be moble because he s less satsfed wth a certan job level, what can explan the dfferent results. Furthermore, the opposte s found for those wth a dploma of unversty level. Ths opposte effect may result f those wth unobserved nferor characterstcs are forced to search for a job outsde the resdental regon. Therefore, t may be better to control for the wllngness to accept a job outsde one s regon nstead of effectve geographcal moblty tself. Whle we fnd dfferences among the varous regons, these dfferences are not consstent among the measures and schoolng levels. These results may be nfluenced by partcular labour market developments n the dfferent regons 15. The varables whch control for dfferences n study results, educatonal subjects and extra educatonal years and dplomas seem hghly relevant n explanng dfferences n overeducaton. The results for the OV1 and OV2 measure are largely smlar. The OV3 regresson shows some dfferent results, whch can be explaned by the way that ths measure s computed. Those wth a techncal secondary dploma have the smallest probablty of beng overeducated. Ths s not surprsng snce general secondary educaton s not drected to labour market entry but rather prepares for tertary educaton. However, for the OV3 measure, we fnd the lowest probablty of beng overeducated among those wth a vocatonal degree. Ths results from the dsadvantage of drect selfassessment technques to leave the nterpretaton of educatonal level to the opnon of the respondent. So, a general degree may be seen as of a hgher and a vocatonal degree as of a lower level n comparson wth a techncal degree. Also for school leavers from the lower tertary educaton, the educatonal subjects play a sgnfcant role n explanng overeducaton. 19

21 Table 4: Logt estmates of the probablty of beng overeducated: ndvdual characterstcs OV1 OV2 OV3 (1) (2) (3) Constant *** Non-European Educatonal level Lower secondary *** *** Hgher secondary (ref.) Lower tertary *** *** *** Hgher tertary ** * Sex/status Women (coh.) * Women (sngle) * * Man (ref.) Women (coh.)*lt Women (sngle)*lt * Women (coh.)*ht Women (sngle)*ht ** Search behavour > 1 month before (ref.) < 1 month before * ** < 1 month after *** *** *** > 1 month after *** *** *** Immedately workng * Don t know, never searched * ** < 1 month before*lt < 1 month after*lt *** > 1 month after*lt * Immedately workng*lt Don t know, never searched*lt * < 1 month before*ht < 1 month after*ht * > 1 month after*ht Immedately workng*ht Don t know, never searched*ht Unemployment duraton * Unemployment duraton*lt ** Unemployment duraton*ht Geographcal moblty * Geographcal moblty*lt Geographcal moblty*ht ** Provnce Oost-Vlaanderen (ref.) West-Vlaanderen ** Lmburg *** * Antwerpen Brabant

22 West-Vlaanderen*LT Lmburg*LT Antwerpen*LT Brabant*LT West-Vlaanderen*HT * Lmburg*HT ** * Antwerpen*HT Brabant*HT Interacton Hgher Secondary Type of educaton General *** Techncal *** *** ** Art ** Vocatonal (ref.) Part-tme educaton ** ** *** Extra part-tme educaton Seventh year ** *** Fourth vocatonal degree *** *** ** Hgher educaton (not fnshed) ** ** Interacton Tertary Educaton Study results (last year) Suffcent *** *** *** Dstncton *** ** * Great dstncton (ref.) Interacton Lower tertary Extra year Educatonal subjects Health care Commercal, busness admnstr *** *** *** Socal *** * Techncal, scentfc *** ** *** Teachng (ref.) Interacton Hgher Tertary Educatonal subject (Appled) scence/ (para) medcal Cultural/ socal * Economcs / law/ admnstr. (ref.) At unversty *** LL Ch² Fnal (61) *** *** *** Ch² Fnal Reduced (26) 55.7 *** N *: sgnfcant at the 10% level, **: sgnfcant at the 5% level, ***: sgnfcant at the 1% level; LT = Lower Tertary, HT = Hgher Tertary, EL = Educatonal Level; 21

23 Better study results n tertary educaton strongly reduce the probablty of beng overeducated for the three measures. Havng a dploma from unversty n comparson wth a non-unversty nsttuton sgnfcantly decreases the probablty of beng overeducated accordng to the OV1 measure. Addtonal years of educaton after the completon of hgher secondary educaton also decrease the probablty of beng overeducated accordng to the OV1 and OV2 measures. Only havng a part-tme degree ncreases ths probablty. For the OV3 measure, these effects dmnsh strongly or go n the opposte drecton. Theoretcally, dfferent explanatons for these fndngs are possble. Indvduals wth extra dplomas and better study results may have acqured more sklls or smply be more able. Employers may also use extra dplomas and better study results as a sgnal for ablty or tranablty. The results for the OV1 measure ndcate that ndvduals assess these dplomas and extra educatonal years as mprovng ther sklls and leadng to a hgher educatonal level. VII. The determnants of overeducaton: Job characterstcs The results for the determnants of overeducaton are reported n table 5, whle those for qualfcaton nflaton and deflaton are reported n table 6. As expected, overeducaton s negatvely related to requred educaton. Furthermore, the results ndcate that qualfcaton nflaton s manly concentrated among elementary and medum level jobs. As already explaned, ths may result from the hgh proporton of ndvduals who leave school wth a secondary and tertary dploma. Based on the OV2 measure, we fnd that part-tme workers and those wth temporary contracts have a hgher probablty of beng overeducated, although ths s not sgnfcant. Ths could be explaned as f on-the-job tranng and formal educaton are substtutes. However, based on the OV1 measure, we fnd a non-sgnfcant negatve nfluence. A more plausble explanaton for the OV2 results could be that, lke overeducated workers, part-tme and temporary workers are ndvduals who are forced to accept those jobs because of ther unobserved nferor characterstcs. Ths hypothess s confrmed by the

24 answers to questons about the reason for acceptng a part-tme job or temporary contract. By far the most frequently mentoned reason s that they could not fnd a full-tme or permanent job 16. The results for qualfcaton nflaton and deflaton are n lne wth ths hypothess. Employers seem to lower ther educatonal requrements for part-tme jobs, because these jobs are less attractve. Also Dolton & Slles (2001) found no effect from part-tme employment n the frst job on the probablty of overschoolng. However, they found a postve effect n the current job. Sloane et al. found a sgnfcant negatve effect of part-tme unemployment on the probablty of undereducaton for women. Soco-cultural professons have a sgnfcantly hgher probablty of beng performed by ndvduals wth a hgher than necessary educatonal level. Furthermore, there s sgnfcantly more qualfcaton nflaton for these jobs. Ths s not surprsng gven the relatvely large group that has a degree n a related feld of study n comparson wth the number of jobs for these professons. These postve results are also found for clercal professons. The opposte results for techncal professons are n lne wth the dffcultes for fllng n vacances for these jobs. Ths leads to sgnfcant lower qualfcaton nflaton. We also fnd sgnfcant dfferences n overschoolng and qualfcaton among the dfferent regons. However, as wth the results for ndvdual characterstcs, we have no clear explanaton. The results based on the OV1 measure are n lne wth the theory of van der Meer & Welers (1996) snce overschoolng s manly concentrated n large frms. For the OV2 measure, no sgnfcant effect s found. However, f the requred educatonal level underlyng the OV2 measure manly reflects the selecton behavour of frms, ths does not contradct the theory snce more overschoolng n large frms results from hgher asked educatonal levels for jobs wth the same job level. Another explanaton may be that larger frms are more attractve as they delver more career opportuntes and n general pay hgher wages. The results for qualfcaton nflaton and deflaton are n lne wth the fndngs for overschoolng. It may ndcate that large frms ndeed set hgher educatonal requrements, as a consequence of ther greater attractveness or ther organsatonal structure. 23

25 Table 5: Logt estmates of the probablty of beng overeducated: job characterstcs OV1 OV2 (1) (2) (3) (4) Constant *** *** *** Job Level Elementary *** *** *** *** Lower *** *** *** *** Medum Hgher *** *** *** *** Part-tme contract Temporary contract Professon Soco-cultural *** *** *** *** Clercal *** * *** *** Techncal *** *** Frm sze Large (ref.) Medum ** Small *** *** Unknown *** *** Sector Industry (ref.) Prmary * ** * Constructon Commerce Caterng Transp. & commun ** Fnance ** ** Prof. Servces Government *** *** ** ** Educaton *** *** Health care ** Other servces Unknown Regon of Employment Oost-Vlaanderen (ref.) West-Vlaanderen ** ** Lmburg Antwerpen Brabant ** * * Job Sklls Leadershp sklls ** Foregn language sklls *** * Mathematcal sklls Computer sklls *** *** Communcaton sklls LL Ch² *** *** *** *** N *: sgnfcant at the 10% level, **: sgnfcant at the 5% level, ***: sgnfcant at the 1% level.

26 Table 6: Ordnal probt estmates of the probablty of qualfcaton nflaton and deflaton (1) (2) Treshold Qualfcaton deflaton (-1) *** (0.133) *** (0.153) Good level (0) (0.131) *** (0.153) Job level Elementary (0.099) *** (0.105) Lower *** (0.070) *** (0.072) Medum (ref.) Hgher *** (0.084) *** (0.086) Scentfc *** (0.135) *** (0.138) Part-tme contract *** (0.069) *** (0.070) Temporary contract (0.057) (0.058) Professon Soco-cultural * (0.154) (0.156) Clercal (0.088) ** (0.093) Techncal *** (0.095) *** (0.097) Frm sze Large (ref.) Medum ** (0.071) * (0.072) Small *** (0.083) ** (0.084) Unknown * (0.131) (0.134) Sector Industry (ref.) Prmary *** (0.263) *** (0.268) Constructon * (0.119) ** (0.122) Commerce *** (0.088) *** (0.090) Caterng (0.140) * (0.143) Transport & communcaton * (0.127) *** (0.129) Fnance *** (0.153) *** (0.154) Prof. Servces * (0.106) (0.108) Government (0.166) (0.169) Educaton (0.131) (0.134) Health care (0.110) ** (0.113) Other servces ** (0.156) * (0.158) Unknown *** (0.179) ** (0.010) Regon of employment Oost-Vlaanderen (ref.) West-Vlaanderen ** (0.080) * (0.081) Lmburg ** (0.089) ** (0.091) Antwerpen (0.073) (0.074) Brabant (0.080) (0.082) Job Sklls Leadershp sklls (0.062) Foregn language sklls ** (0.062) Mathematcal sklls *** (0.058) Computer sklls *** (0.067) Communcaton sklls (0.071) -2LL Ch² 328.2*** 448.7*** N *: sgn. at the 10% level, **: sgn. at the 5% level, ***: sgn. at the 1% level; Standard errors n parenthess