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Overeducated Workers as an Insurance Device

Author

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  • Guido Bulmahn
  • Matthias Kräkel

Abstract

Empirical findings show that firms frequently employ overeducated workers. Since overeducated workers earn more than adequately educated ones working in similar jobs these findings seem to be puzzling. In this paper, we introduce an insurance approach to explain the employment of overeducated workers. Referring to this approach, overeducated workers are employed by a firm to avoid high losses in the case of a crisis (e.g. when the production process breaks down). Contrary to adequately educated workers, overeducated ones may be helpful in this situation by quickly offering improvisatorial solutions. First, we use a simple model to demonstrate the insurance argument. Second, we test the major implication of the model empirically by using industry panel data: if and only if high‐skilled workers are employed for insurance purposes, the average wage of high‐skilled workers in firms that need insurance will be lower compared with firms that do not need insurance. The data confirm this theoretical result.

Suggested Citation

  • Guido Bulmahn & Matthias Kräkel, 2002. "Overeducated Workers as an Insurance Device," LABOUR, CEIS, vol. 16(2), pages 383-402, June.
  • Handle: RePEc:bla:labour:v:16:y:2002:i:2:p:383-402
    DOI: 10.1111/1467-9914.00200
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    Cited by:

    1. Benoît Mahy & François Rycx & Guillaume Vermeylen, 2015. "Educational Mismatch and Firm Productivity: Do Skills, Technology and Uncertainty Matter?," De Economist, Springer, vol. 163(2), pages 233-262, June.
    2. Galasi, Péter, 2004. "Túlképzés, alulképzés és bérhozam a magyar munkaerőpiacon, 1994-2002 [Over-education, under-education and wage premiums on the Hungarian labour market, 1994-2002]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 449-471.
    3. Ala`a Nimer AbuKhalifeh & Ahmad Puad Mat Som & Ahmad Rasmi AlBattat, 2013. "Strategic Human Resource Development in Hospitality Crisis Management: A Conceptual Framework for Food and Beverage Departments," International Journal of Business Administration, International Journal of Business Administration, Sciedu Press, vol. 4(1), pages 39-45, January.
    4. Kampelmann, Stephan & Mahy, Benoît & Rycx, François & Vermeylen, Guillaume, 2016. "Who Is Your Perfect Match? Educational Norms, Educational Mismatch and Firm Profitability," IZA Discussion Papers 10399, Institute of Labor Economics (IZA).
    5. Halit Yanikkaya & Pınar Tat, 2023. "The effect of educational mismatch on the Turkish manufacturing industry," International Journal of Education Economics and Development, Inderscience Enterprises Ltd, vol. 14(4), pages 413-436.
    6. McGuinness, Seamus & Pouliakas, Konstantinos & Redmond, Paul, 2017. "How Useful Is the Concept of Skills Mismatch?," IZA Discussion Papers 10786, Institute of Labor Economics (IZA).
    7. Mircea Vultur, 2018. "La main-d’œuvre surqualifiée : qu’en pensent les employeurs?," CIRANO Working Papers 2018s-29, CIRANO.

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