Over-education In the Ggaduate Labour Market Case Study Of UK Market - Essay Example

OVER-EDUCATION IN THE GRADUATE LABOUR MARKET – CASE STUDY OF UK MARKET Executive Summary Over the last 25 years, there has been a rapid expansion in the UK job market with a significant increase in the numbers of graduates. Recent research has shown that there are considerable proportions of graduates who have attained more education than what is actually required to do, for the particular job. At the same time, employer also complains that there is a shortage of high skilled labour. This has raised the concern about the value of education, whether it implies positive utilization of the educational investment and guarantee economic success. Thus, the objective of the paper is to explore the incidence of over education in the UK job market and its impact on employee job satisfaction. TABLE OF CONTENTS TABLE OF CONTENTS 3 Introduction: 4 Analysis of UK graduate labour market and the incidence of over-education: 4 Reasons for over-education: 6 Impact of over-education on the job satisfaction: 7 Over-education is short-term phenomenon: Explanation 8 Implications of over-education for universities and government policy makers: 8 Conclusion and Recommendation: 9 Reference List 10 Introduction: The number of graduates living in the UK higher education society has risen over the last few decades. Additionally, the inequality in wage becomes apparent as well as narrowly defined within a qualified group. The proportion of graduates in labour force has increased severely over the last few decades. Various studies has shown that, a significant proportion of the labour force are over educated, than it is actually required for their current job status. Cameron and Heckman (1998) identified that, a significant proportion of people in UK are over educated. This paper focuses on extensive literature, over the incident of over-education in the UK. Even though, the proportion of people in UK labour force with a college education is still less than in comparison to the other developing countries, the tendency of people towards higher education is rapidly increasing since 1970s. Some researcher has suggested that, higher education in the UK can be expanded further (Hartog and Oosterbeek, 1988). However, many of them were unable to secure graduate level job and earn their expected profit. Therefore, objectives of the particular paper are to analyse the current situation of the UK’s graduate labour market, impact of over-education on job satisfaction, implication of over-education on the government policy makers and finally to analyse the extent of education on short term phenomenon. Analysis of UK graduate labour market and the incidence of over-education: According to Sloane et al. (2000), the incident of graduate in labour market defines excess of qualified people in workforce than it is actually required. Most of the UK literatures are self-assessment and finds that around 29% to 47% people of the total workforce are over educated (Kiker et al. 1997). Although, the incidence of over-education has increased, return to the education remains stable, implying supply of skill over its demand. As per the economic model of demand-supply, over-education occurs when there is a difference between job requirement and actual qualification. Research carried out by Verdugo and Verdugo (1989) has shown that, around 62% of male graduate in the UK, who were over-educated in their first job, remained in the sub-graduate position for the six years. However, there are no evidences to show that the quality of labour market improves with the change in the education level. These facts appear to be consistent with the hypothesis that, graduate population are not homogeneous in their skills and abilities. Some graduate have developed their merits in a proper way to match the graduate level job, while some others lacks in these skills. Davidson and MacKinnon (1993) opined that, recent expansion in the number of pupil going to the colleges and universities has been associated with greater heterogeneity in the skill level of graduate. However, most of the literature related to over-education in the UK graduate market has ignored the issue of heterogeneity in education by defining that; over-education is departing from a norm. Increasing heterogeneity in the skill level of the graduates with assuming homogeneity of skill is an overestimation over the extent of over-education in the UK. Over-education without necessary attribution is termed as the economic inefficiency. Borghans and de Grip (2004) suggested that, the incident of over-education is becoming a temporary phenomenon due to the friction in labour market, although evidences in UK are contradictory to the assumption. Research conducted by Alba-Ramirez (1993) has shown that around 38% of the graduates were over educated in their first job and 30% remained in the same position for the next 6 years. There are also some evidences that signify that; over-education in the UK is becoming permanent feature of graduate career. The incident of over-education in the UK has not led to decrease in return to the promotion of education in general. In general, after controlling the differences in institutional and socio-economic factors, the incidence of over-education has turned out to be the consequence of some unobserved elements, such as heterogeneous skills and abilities. Some evidence has shown that, efficiency of the worker overvalued the job requirements and thereby, the wage penalty for the over-education has increased. Reasons for over-education: The incidence of over-education occurs when an individual possess more educational qualification that is actually required to perform a job efficiently. It is a form of labour underutilization that imposes cost on both individuals and economy. Over-education refers inefficient allocation of human resource and it imposes negative impacts on the economic growth and productivity (Wolff, 2000). The incidence of over-education arises when supply of skill occur from increasing participation in education, and exceeds the demand for skill in the job market. Moreover, it also signifies that, the investment in education as sub-optimal. Over-education arises when number of people in educational attainment increases. This causes a relative fall in the wage of high skilled workers. Supply of high skilled labour becomes cheaply available and thereby, most of the producer substitutes their production strategy with high skilled worker. Reasons behind the incidence of over-education of graduate young adult can be analysed from different perspectives (Wolff, 2000). The deficiency in the social capital is an important force behind the cause of over-education in the UK. Family background might not have direct impact on the educational attainment of the worker, but different institutions and religious background (those are act as the indicator of social capital), have a positive impact on the incidents of over-education. According to Sloane et al. (2000), the view of education becomes one of the most important responsibilities for government in any country towards its citizens. The UK government has considered that, providing education to its population is beneficial for its country and thereby, makes huge contribution to its society. Right now, all citizens from UK are paying tax to maintain local schools. Thus, the scope and level of education is increasing among the population as government has given more focus on the improvement of educational services. Further, long and expensive job search procedure also act as the restrictive factor behind the incidence of over-education in the UK graduate market (Kiker et al. 1997). Extensive analysis on UK labour market has shown that, cost of searching an appropriate job is much higher. Inclusion of a long-term job search procedure might create opportunities to find out a matching job, but lengthy job searching procedure often disheartens candidates and thus, they take up the first opportunities that come their way without considering the relevance of the job with the skills. Impact of over-education on the job satisfaction: Verdugo and Verdugo (1989) has observed that, the incidence of over-education and over skilling generally impose negative impacts on job satisfaction and attributes underutilisation of job related skill of the employees. There are number of literature examining the link between over-education and labour market outcomes such as career mobility and job satisfaction. In general, results found from the literature sates that over educated worker are the less satisfied worker as compared to low or semi skilled worker. Borghans and De Grip (2004) suggested that, perhaps over educated workers are less likely to be satisfied with the type of work generally they do and thereby, includes less efficiency in their job. Over educated people are assigned with the tasks and duties that do not challenge their skills and limits their potential abilities. Apart from that, often job satisfaction and over-education are also misaligned due to the lack of opportunities present to the candidates and their relevant skills. Over-education is short-term phenomenon: Explanation The literature on over-education shows that there was an unfavourable effect of the over-education issues on wage. The over educated people deserve higher wage than what they are actually paid. Davidson and MacKinnon (1993) points out that, over-education does not produce any favourable impacts on the individual level. However, it produces advantages for least qualified workers, but fails to stimulate the skills and abilities of the qualified workers. From the microeconomic point of view, growing incidence of over-education in UK might reduce the GDP growth. The idea behind this approach is that, over-education decreases effectiveness of the high skilled workers as it mainly depends on the feelings that they receive from their employer. Higher wage represents a kind of gratification to encourage their individual effort level. As over educated worker receives fewer wages than they deserve, it hampers their productivity. In contrast, over educated people tends to become under productive. Thus, the issue of over-education acts as a transitory phenomenon not only to influence professional career of the individual, but also to provide permanent long-term impact on the economic growth. Implications of over-education for universities and government policy makers: The problem of over-education has become a crippling financial drain in the path of UK’s economic growth (Alba-Ramirez, 1993). It aggravate extra burden on government in terms of educational burden as well as youth unemployment. As the employees are not happy with their current job status, workers are less likely to report best efficiency with their job. There are various reasons that signify why policy maker needs to concern about the fact of over-education especially in recent time (Sloane et al. 2000). Majority of the worker are leaving their jobs due to lack of job satisfaction and this imposes huge waste on the government. In order to remove the incidence of over-education problem, government, and other policy makers are trying to modify the UK’s labour market structure. They have already started to relate qualification of the future worker with the changing requirements of labour market. Conclusion and Recommendation: This paper has tried to evaluate the implication of over-education problem among the graduate in the UK’s labour market. Over-education has an impact on both wages and job satisfaction. In order to eliminate or reduce the consequence of over-education problem, the policy maker needs to become more concerned about the problem. In this context, several policies can be suggested here. The government needs to increase the effectiveness of their strategies for creating skill-based jobs and improve the condition of the job market. Further, policy makers can advice workers on the labour market to choose their career option according to their qualifications. In this way, government can take future steps to eliminate the issues of over-education problem. Reference List Alba-Ramirez, A., 1993. Mismatch in the Spanish Labour Market: Overeducation? The Journal of Human Resources, 27(2), pp. 259-278. Borghans, L. and de Grip, A., 2004. The Overeducated Worker? The Economics of Skill Utilization, Edward Elgar: Cheltenham. Cameron, S. and Heckman, J., 1998. Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts of American Males. Journal of Political Economy, April, 106(2), pp. 262-333. Cutillo, A. and Di Pietro, G., 2006. The effects of overeducation on wages in Italy: A bivariate selectivity approach, International Journal of Manpower, 27(2), pp.143-168. Davidson, J. and MacKinnon, J., 1993. Estimation and Inference in Econometrics. Oxford University Press: Oxford. Hartog, J. and Oosterbeek, H., 1988. Education, Allocation and Earnings in the Netherlands: Overschooling? Economics of Education Review, 7(2), pp. 185-194. Kiker, B. F., Santos, M. C., de Oliveira, M. and Mendes, M., 1997. Overeducation and Undereducation: Evidence for Portugal. Economics of Education Review, 16(2), pp.111-125. Sloane, P. J., Battu, H. and Belfield, C. R., 2000. How Well Can We Measure Graduate Over-Education and Its Effects? .National Institute Economic Review, Jan. 0 (171), pp.82-93. Verdugo, R. R. and Verdugo, N. T., 1989. The Impact of Surplus Schooling on Earnings: Some Additional Findings. The Journal of Human Resources, 24(4), pp. 629-643. Wolff, E., 2000. Technology and the Demand for Skills’ in L. Borghans, and A. de Grip, (eds.), The Overeducated Worker? The Economics of Skill Utilization. Edward Elgar: Cheltenham, pp. 27-57. Read More