Essays on Overeducation: Evidence from Spain

Sandra Nieto Viramontes

September 26, 2014

Raúl Ramos

Investment in human capital is a key tool for the social and economic progress in every country. Thus one of the most important public policies in the last century has focused on increasing the level and quality of education among the population. This goal has been reached by all developed countries. However, the rapid increase of the percentage of the population with high education in developed economies during the last decades has probably contributed to labour market inefficiency. It is observed that part of this population is not working in jobs that require their level of education; otherwise they end up in jobs that require workers with a lower level of education. This situation is called overeducation. This dissertation examines several aspects related to the overeducation phenomenon in Spain. In particular, the first empirical analysis studies whether overeducated workers obtain a higher return on this training – specifically, non-education training activities – than the rest of workers. If it is so, overeducated workers could overcome part of the wage penalty derived from their education-occupation mismatch. The results showed that non-formal education activities have a positive effect on wages, but only overeducated workers who have undergone non-formal education activities receive a wage premium. It seems that this type of training provides overeducated workers with new abilities that permit them to reduce the wage penalisation derived from the mismatch between their level of education and occupation. The aim of the second empirical analysis is to test a supported theory based on the existence of individuals’ skill heterogeneity to explain the wage penalty associated with overeducation. From such a perspective, the wage penalty associated with overeducation is due to the huge variation of skills between workers with the same level of education. Then, overeducated workers would not suffer a wage penalty. In fact, they would earn lower wages as a result of their lower skills. Our hypothesis was that the wage penalty associated with overeducation could be explained by lower skill levels. As a consequence, overeducated workers may not be suffering a wage penalty in Spain, but their earnings are determined by their skill level. Our results show that individuals’ skill heterogeneity explains only 18% of the effect of educational mismatch on wages in Spain. The wage penalty still remains for those overeducated workers who are not less skilled than properly matched workers. Finally, the last empirical analysis aims to identify a relationship between the situation of overeducation of parents and the educational performance of their children. Previous literature found that children of highly educated parents tend to perform better than children of less educated parents. One possible explanation for the positive relationship between parents’ human capital and students’ performance is based on children’s perceptions about the importance of education. In this sense, students whose parents have a high level of education and good jobs might be more aware of the value of education and, consequently, have higher motivation and perform better than other students. Under this point of view, our hypothesis is that the existence of parents’ job-education mismatch can modify the students’ perception about the importance of education and, consequently, have an effect on their performance at school. In particular, we analyse whether there is a relationship between parents’ educational mismatch and the educational performance of their children, and we checked whether it is similar across the performance distribution or, by contrast, whether there are differences between students at the top and at the bottom of the performance distribution. The results shows that students whose parents are overeducated have a penalty in their academic achievement in all three subjects analysed, this effect being stronger for students with lower educational outcomes. So, the results seemed to confirm our hypothesis.

Defended thesis cover