Has it gone down the drain? The influence of overeducation on the wages of young workers

Purpose - This article aims to analyse the impact of overeducation on the wage level and wage growth of young workers. Design/methodology/approach - The study uses data from individual administrative records of young people who are entering the labour market for the first time in Spain. Wage-level equations and wage-dynamics equations considering job mobility either exogenous or endogenous are estimated. Findings - Our results confirm that workers who are overeducated earn less than those who are adequately educated, even if they have the same level of education. This holds true for their first job and for the jobs they hold five and ten years later. However, when overeducated workers change employers, their wage increases are higher than those of adequately educated workers, allowing them to eliminate the initial wage penalty. Thus, our findings are consistent with the theory of career mobility for a portion of young workers. Research limitations/implications - We test whether overeducated individuals experience a wage penalty and whether this penalty diminishes over time, as suggested by the career mobility theory. We focus on young entrants at the start of their careers. Practical implications - A share of the overeducated workers find it difficult to get out of their situation and carry out upward occupational and wage trajectories. Some policy recommendations can be derived from our analyses to reduce the educational mismatch (in particular, its persistence) and the negative consequences that overeducation can produce for workers, companies and the economy in general. Originality/value - We estimate equations for wage changes as a function of initial educational mismatch status. We also take into account the potential endogeneity of job mobility. Both issues are quite novel. Moreover, we focus on young workers (university graduates) who have just entered the labour market; examine the determinants of the wage of their first job, as well as the job they have five and ten years later and analyse the impact of overeducation on wage variation and the role of labour mobility in this regard. We test whether the predictions of career mobility theory are accurate.