The economics of overeducation

Abstract- This paper provides a brief account of the economics of overeducation. The main emphasis is on explaining overeducation using several labor-market models and establishing theoretically the impact of overeducation on production. The paper first points out that although overeducation is only a short-run phenomenon according to the neoclassical account of the labor market. it can be a persistent problem when analyzed from the perspective of Spence’s job-screening model or Thurow’s job-competition model. It then proceeds to argue how overeducation can adversely affect individual productivity. The argument is based on indirect evidence from the industrial-psychology literature which shows that workers with more education than their jobs require often exhibit counterproductive behavior in the workplace. To establish the overeducation-productivity relationship more formally and directly, a production-function model which incorporates the negative impact of overeducation on production has been constructed. This model is based on a review of the economic literature on production and it characterizes production as a two-phase process. The paper concludes with a brief discussion of the implications of overeducation for both private and public policies. I