Overeducation among Russian university graduates

Overeducation, also named as “vertical mismatch” in the research literature, occurs when an individual possesses a higher level of formal qualification than is required for his/her current job. Given the recent shortage of personnel in the Russian labor market, this problem has become particularly acute, but remains insufficiently studied. This paper examines the issue of overeducation in the Russian labour market by focusing on the educational and professional backgrounds of recent university graduates, using administrative data. A probit model with Heckman correction for self-selection into employment is used to estimate the probability of overeducation, as well as a fixed effects wage regression model to estimate the returns to overeducation, accounting for unobserved characteristics. The results show that, on average, 35% of higher education graduates are overeducated for their jobs. Men who have received part-time higher education at non-selective universities in the fields of agriculture or humanities are more likely to be employed in unsuitable jobs. On average, overeducated graduates receive a 20% wage penalty compared to graduates employed in suitable jobs. The use of panel regression with fixed effects reduces the penalty to 7% at the start of their careers. On the one hand, overeducation compensates for its low quality, which prevents graduates from occupying skilled jobs that actually require higher education. On the other hand, the structure of the labour market does not imply sufficient demand for workers with higher education. Individual unobservable differences in productivity and abilities play an important role in the distribution of graduates across jobs of different skill levels.