The incidence and effects of overeducation in the UK graduate labour market

Research indicates that a significant proportion of the U.S. work force (between 11% and 40% of white males) have more education than is actually required for their jobs, i.e. are overeducated. We consider overeducation in the context of the U.K. graduate labour market, using a one in six sample of 1980 U.K. graduates surveyed in 1986. We find that 38% of graduates were overeducated for their first job and, even six years later (1986), 30% of the sample were overeducated. Most of the literature in this field has estimated the effect of overeducation on earnings and we confirm that the overeducated earn less than their peers in graduate jobs, indicating that the return on surplus education is less than the return on required education. We also frame two additional hypotheses based on human capital theory, related to the effects of degree class and sector, on the earnings of the overeducated. We do not find support for a strict human capital interpretation of the role of education in the U.K. graduate labour market and support an assignment model in which the characteristics of the job, as well as the individual, determine earnings. [JEL I21, J24] (C) 2000 Elsevier Science Ltd. All rights reserved.