U.S. over-education and underemployment over the course of a lifetime

As newly minted college graduates start to enter the labor force in the coming weeks and months, the specter of underemployment hangs over some graduation ceremonies. Concern about having to take a job that doesn’t require a college degree is down from when the labor market earlier this decade was much weaker, but it’s still there. This sort of job mismatch is usually thought of as a concern for young workers. Yet as much as we think of underemployment as a problem for young workers, some new research shows that it may be more prevalent for older workers.

In a new working paper released today by the Washington Center for Equitable Growth, Georgetown University doctoral candidate Ammar Farooq looks at “over-education” over the course of a lifetime. Using data on the educational requirements of occupations and employment data during the 2000s, Farooq can see what shares of college-educated workers at different ages are in jobs that don’t require a degree. The result is a U-shaped relationship as workers age—a relationship that shows college graduates are more likely to start off in jobs for which they are overqualified, then work themselves into positions more in line with their educational attainment as they approach middle age, only to reverse course as they grow older. (see Figure 1)

Figure 1

What accounts for this U-shaped curve? Looking at data on the transition between over-education and being in a properly matched job, Farooq finds that as college-educated workers age, they are increasingly likely to move into a job that doesn’t require a degree and are less likely to move into a job that does require one.

Interestingly, Farooq also finds that almost half of the moves into underemployment—defined as having a job for which one is overqualified—don’t happen after workers with college degrees become unemployed. Instead, about half the moves happen when these workers are already employed but shifting into positions that require less than a college education, peaking at around 60 percent of all moves during ages 40 to 45. This means that transitions aren’t all about unemployment forcing workers into jobs for which they may be overqualified. And while working part time increases the probability of being overemployed, after controlling for this and other characteristics, the trend is still U-shaped over time.

Furthermore, when workers are moving into jobs that don’t require a degree, they aren’t moving into jobs that require lots of experience. Those job moves also result in wage declines for the worker.

Whatever the cause of this particular U.S. labor market trend, these trends indicate that the “cruel game of musical chairs” in the job market isn’t exclusively a problem for the young. College-educated workers later in life are likely to move into jobs they are seemingly overqualified for. It seems like chairs are being pulled out from under more workers than previously thought.