Overeducation under different macroeconomic conditions: How Spanish university graduates fit in the labor market?

This paper analyzes a relevant issue for education and labor policymakers, overeducation in the early careers of university graduates. Using Spanish data, we investigate the role played by the business cycle and field of study and their interaction in shaping both the incidence and persistence of overeducation. We also analyze the relevance of specific types of knowledge and skills as driving factors in reducing overeducation risk. Our data come from the Survey on the Labor Insertion of University Graduates (EILU) conducted by the Spanish National Statistics Institute in 2014 and 2019. The survey collects rich information on cohorts that graduated in 2019 and 2014, during the Great Recession and the subsequent economic recovery, respectively. Our results show, first, the relevance of the economic scenario when graduates enter the labor market. Graduation during a recession increases overeducation risk and persistence. Second, a clear heterogeneous pattern is observed across fields of study, with health sciences graduates displaying better performance in terms of both overeducation incidence and persistence and less impact of the business cycle. Third, we find evidence that some transversal skills can help to reduce overeducation risk in the absence of specific knowledge required for the job, thus indicating some kind of compensatory role. Our findings have important policy implications. Overeducation, and more importantly overeducation persistence, imply a non-neglectable misallocation of resources, with serious consequences not only for the affected individuals but for the society as a whole. Therefore, policymakers need to address this issue in the design of education and labor market policies, seeking to ensure that the competencies acquired at university provide graduates with a better fit in the labor market.