The Issue of Over-education in the Labor Market of the United Kingdom - Term Paper Example

Over-Education in the Graduate Labor Market Department Executive summary This paper discusses theissue of over-education in reference to the labor market in UK. In addition, enough evidence have been provided to show the impacts of graduates’ over-education and how they are treated in the labor market in relation to the returns they receive and the expected return. There are numerous factors that seem to dictate how individuals fit in the labor market that revolve around the country of origin, gender and level of schooling. It is evident that the native-born who are non-whites and immigrants will likely be over-educated as compared to the natives.UK has generally been a theatre of significant shift in graduate production. Any doubts have been raised on whether the demand for graduates corresponds to the supply. Most graduates get jobs in sub graduate jobs sectors regardless of the factor that they are over educated. There are so numerous questions that come up due to the fact that university graduates find themselves taking jobs that are at the same level as those of the school leavers. People are in the dilemma of whether university education is a viable investment. Lastly, this paper will recommend a few things that the policy makers should put in place to try to curb the negative impacts of over-education. Introduction The total number of graduates leaving the higher education institutions in UK has risen steadily over the past twenty-five years and is continually rising (Alpin & Walsh, 1998). The trend linked with inequality in age is between, as well as within, narrowly defined qualification groups. This can be explained by the ability variances between similarly qualified workers and a considerable divergence of human capital that individuals with similar qualifications have. As the numbers continue to rise, of individuals participating in higher education, significant transformations by universities in the types of qualifications being offered have been experienced (Alpin & Walsh, 1998). These new transformations have been put in place to intervene for the changing economic needs however not all of these are career related. Currently, there is no formal division associated with career related and non career related qualifications; much expectation is that there will be education employment mismatch. In addition, employees would be over-educated in connection to the type of work that they have been hired to do. This paper will examine the impact associated with over-education as an explanation for the simultaneous of expanding educational participation and rising wage inequality (Dolton & Vignoles, 2000). Analysis of the UK Graduate Market in General The topic of over-education has created a lot of debate and attention about the value of higher education. There are now more than 40,000 degree courses that a student chooses from which tends to make people question the belief that institutions of higher learning are a good investment and a sort of economic guaranteed success (Dolton & Vignoles, 2000). The author questions if the certificates a student gets are worth the paper on which that they are printed on. This concept of concept is not new and important focus has to be directed towards this phenomenon. The waste from employees working in the wrong jobs may be significant than that linked with unemployment in the economy (Dolton & Silles, 2001). An estimated 30% of graduates in UK are over-educated as far as the job requires six years after clearing (Dolton & Silles, 2001). This paper will in some instance investigate the reasons behind a graduate accepting a lower level job. The non-competitive environment and labor market rigidities are what results to over-education. These rigidities come from commitments to the family or immobility of the labor force. Over-education in a person’s first job can result in future over-education. In addition, it can result in graduates’ deskilling or obsolescence of skills, which are not, used (McGuinness & Bennett, 2007). It is difficult sometimes to recover from a bad start. If graduate supply is in plenty, an employer will rather not hire an old graduate who has worked in a lower level job as opposed to a fresh graduate. Over-education also has an impact on wages. Some research absorbs the assumption that mismatch in the labor market is considerably a random phenomenon (Leuven & Oostrbeek, 2011). Over Education and Its Incidence in the UK Graduate Labour Market Various studies reveal that approximately thirty percent of UK graduates are over qualified in reference to the expectations of their current employment. Substantial minorities of fresh employees who are graduates are over-educated, and there is a likelihood of under utilization of their skills at the job in the first years after being employed. Most graduates’ expectation regarding what they earn does not match their expectations (McGuinness & Bennett, 2007). Students in UK will take home approximately £19, 000 when they get their first job. Most of the graduate employers will offer that amount however; it was reported by HESA in 2003 that the average amount is close or slightly above £17, 000 per year. NatWest Survey, on the other hand, reported more than five percent increase in graduate starting salaries from £12600 to 13600 in 20004. It is also clear the graduates do earn more than the non-graduates however the premium is in most cases lower than fifty percent (McGuinness & Bennett, 2007). There are major differences that remain in areas of the industrial sector, specialist knowledge, income and occupation. Female graduates are likely to receive an approximately fifteen percent less as opposed to their male counterparts. The female fresh graduates are more likely to work in the public sectors. There are no possibilities of decline in the situation of an employee who is over-educated or whose skills are underutilized over several years after graduation. The initial period of under utilization or rather over-education may pose negative effects on future career prospects and salary. The Department of Skills and Education assumes that graduates demand will remain balanced to the expected supply. To second that, the fixed-penetration scenario asserts that proportion qualified associated with each occupation will stay fixed as 1999 levels. If this fixed penetration scenario is realized, it is expected that over-education will lead to increased problems since the labor market will not be in a position to absorb the continuing growth of University graduates (Mason, 2000). UK has an ethnically diverse population of graduate immigrants (Blackaby et. al, 2000). Way before the Second World War, more than half of the immigrants to Britain hailed from countries of the Old Commonwealth such as Australia, Canada and New Zealand. Evidence shows that the UK immigrants on average perform far way much better that the natives in the labor market (McGovern, 2012). This is seen in terms of earning and possible higher employment. There still exist ethnic differences with immigrants who are non-white tending to portray poor performance in comparison to the white immigrants and white natives. Racial inequality that is evident in the labor market, according to the standard argument found in the literature, can be reduced through encouraging investments in human capital (Blackaby et. al, 2000). On the other hand, if the disadvantage workers have higher levels of educations and are unsuccessful in getting employment in the fields they are skilled then there will be relatively lower possibility to return to their qualifications (Borghans & Grip, 2000). It is crystal clear that ethnic differentials linked to over-education can be observed without associating it with the labor market discrimination. For instance, there may be various variances in the education quality in terms of grades, institutions and subjects attended. The UK minority group more likely under performs when it comes to achieving five or more GCSE A-C (Battu & Sloane, 2004). The minority ethnic groups are less likely as compared to the whites to get first of second upper-class honors with the African, Black Caribbean having lower performance than the whites (McGovern, 2012). Moreover, some employees may have lower qualification levels qualifications regarding job experience to compensate. Most immigrants will likely posses lower levels of experience associated with the UK labor market on average. However, there is an assumption that they accumulate UK specific skills and knowledge with time spent in the labor market. Over-education, variances may be as a result of career mobility for the reason that higher educated employees may be in the initial stages of their career and progression (Borghans & Grip, 2000). The Impact Of Over Education on the Job Satisfaction of Graduates Who Are In That Position The rise of higher education is among the most significant socio-economic changes as far as modern economic history is concerned. Various studies related to the rapid educational upgrade experienced in the labor force reveals that a big number of graduates are opting to take jobs that do not require their university education (Walker & Zhu, 2003). Related literature has showed that there is a widespread shortage in significant skills particularly at the intermediate level of skill. As education faces expansion, many questions have been raised concerning the widely held view that investing in university education is a guaranteed economic success to the graduates. This literature begs the question whether the employees who are over-educated earn less income than otherwise similarly employees who are educated whose jobs are in line with their educational qualifications. Many graduates who are holding non-graduate positions at work may transform these jobs and get the same earning as the other employees in graduate level positions. If over-education is the fruit of under utilization of skill, lower level of ability or lower quality of education it should portray the same reflection in a lower level of wages (Walker & Zhu, 2003). To assess the effect of under and over-education on earnings, researchers have used standard earning equations linked to human capital that is acquired through required education. For men, the earnings from required education in UK are a little higher for the graduate non-white immigrants and lower for the graduate white immigrants compared to the natives. Over-education effect in this case is positive and significant among the groups however the coefficients are rather smaller as opposed to required education in all situations as we expect. An over-educated worker earns more than the employee with the required education does but less than they could earn if the required and actual schooling were equalized. The returns of over-education are higher among the graduate white natives; the non-white natives however receive lower returns (Walker & Zhu, 2003). The over-educated immigrants mostly do not enjoy much more than those immigrants who have the required education within their own occupation. They could however earn more if only they attain a match between actual and required schooling. The negative impacts linked with being under educated fall at around five percent for all the groups (Walker & Zhu, 2003). For the women graduates, the returns are larger at all levels of schooling than those of men. In addition, white women enjoy more returns in relation to required education than the non-whites do. The largest return however is for the white natives. For immigrant women and men, the wage loss that is linked to over-education is estimated to be approximately five percent for women and seven percent for men (Groebeveld, 2014). Given the fact that the non-white native men pursued their education in UK and still receive no advantage when it comes to earnings for over-education, there are spots of discriminatory factors that dictate how employees are picked up from these conventional ethnic controls. Over Education Is a Short Ten Phenomenon Over education is proving to be a permanent feature in the economy even after the model of supply and demand asserts that it is due to temporary disequilibrium. Most over educated people who have jobs in UK seem to be in a mismatched situation that is stagnant. Widened participation in education has lead to an increase in over education for varied reasons. The employers who encounter more modified pool of graduates may have in one way or another upgraded some non-graduate jobs that existed before. Alternatively, the employers may recruit graduates to work for them in jobs that have remained the same but do not call for graduate skills. The over educated workers spend seven percent less that of matched graduates (Mason, 2000). Implications Of Over Education for Universities and Government Policy Makers Policy makers should be concerned with education particularly at this time when UK is experiencing rising shortage of highly skilled labor. First, if a university graduate gets a job that they could have performed without the degree, it portrays a significant waste of taxpayers’ money (Buchel & Mertens, 2004). In addition, the individuals clear university with inadequate training to serve the labor market hence the firms have to allocate funds and time for more training of the graduates. Conclusions/ recommendations This analysis has utilized data and literatures on a cohort of graduates in order to know the extent to which both the impacts and cases of over-education varied by level of ability in the labor market. It is clear that incidences of over-education are heavily concentrated amongst the lower ability segments associated with wage distribution. In addition, we have seen that irrespective of females’ ability levels, the overeducated females in UK earn significantly fewer returns as compared to their well-matched counterparts (Leuven & Oostrbeek, 2011). In addition, we have seen that the graduate white natives have an added advantage when it comes to returns to over-education. The overall conclusion about over-education literature linked to the functioning of the labor markets and education investment is rather pessimistic. References Alpin, C., Shackleton, J. R., & Walsh, S. (1998). Over- and undereducation in the UK graduate labour market. Studies in Higher Education. 23, 17-34. Battu, H., Belfield, C. R., & Sloane, P. J. (2000). RESEARCH ARTICLES - How well can we measure graduate over-education and its effects? National Institute Economic Review. 82. Battu, H., & Sloane, P. J. (2004). Over-Education and Ethnic Minorities in Britain. The Manchester School. 72, 535-559. Blackaby, D. H., Leslie, D. G., & Murphy, P. D. (2000). White/ethnic minority earnings and employment differentials in Britain: evidence from the LFS. University College of Swansea, Department of Economics. Borghans, L., & Grip, A. D. (2000). The overeducated worker?: the economics of skill utilization. Cheltenham, UK, E. Elgar. BüChel, F., & Mertens, A. (2004). Overeducation, undereducation, and the theory of career mobility. Applied Economics. 36, 803-816. Dolton, P., & Vignoles, A. (2000). The Incidence and Effects of Overeducation in the U.K. Graduate Labour Market. Economics of Education Review. 19, 179-98. Dolton, P., & Silles, M. A. (2001). Over-education in the graduate labour market some evidence from alumni data. London, Centre for the Economics of Education. Groeneveld, S.M. (2014). Overeducation, wages and promotions within the firm. Labour Economics, 11, 701-714. Leuven, E., & Oosterbeek, H. (2011). Overeducation and Mismatch in the Labor Market. Bonn, IZA. Mason, G. (2000). The mix of graduate and intermediate-level skills in Britain: what should the balance be? London, National Institute of Economic and Social Research. Mcgovern, P. (2012). Inequalities in the (De-)Commodification of Labour: Immigration, the Nation State, and Labour Market Stratification. Sociology Compass. 6, 485-498. Mcguinness, S., & Bennett, J. (2007). Overeducation in the graduate labour market: A quantile regression approach. Economics of Education Review. 26, 521-531. Prais, S. J. (2001). Developments in education and vocational training in Britain: Background note on recent research. National Institute Economic Review. 178, 73-74. Walker, I., & Zhu, Y. (2003). Education, Earnings and Productivity: Recent UK Evidence. Education, Earnings and Productivity: Recent UK Evidence. Read More