DETERMINANTS AND WAGE EFFECTS OF EDUCATIONAL MISMATCH IN SPAIN

Abstract

This paper analyzes the impact of three alternative measures of educational mismatch (overeducation, horizontal mismatch and overskilling) on the wages of a sample of Spanish university graduates who have recently finished their studies. In the literature, two alternative theories have been proposed to explain the educational mismatch: the allocation theory, which states that worker productivity is limited by job characteristics, so that overeducated workers underutilize their skills and therefore earn lower wages; and the theory of skill heterogeneity which states that the educational mismatch is apparent to the extent that overeducated workers have a lower endowment of knowledge and skills. With the aim of trying to shed some light on this theoretical debate, the 2019 data from the “University graduate Job Placement Survey”, carried out by the Spanish national Institute of Statistics (InE), has been analyzed. For the empirical analysis we have estimated the wage penalties of the three types of educational mismatch. In order to control for individual heterogeneity in estimating the wage effects a fixed effects model is used. The results of the empirical work indicate that the overeducated graduates suffer a substantial and statistically significant wage penalty both in the fixed effects model and in the ordinary least squares model. From the economic point of view, overeducation represents a waste of resources. Therefore, public authorities should create the conditions to strengthen the demand for qualified labor so that the labor market can absorb the growing supply of graduates that the Spanish university system has produced in recent decades.