Overeducation during the great recession
In the depths of the Great Depression, Joan Robinson (1936, p. 226) wrote of the “adoption of inferior occupations by dismissed workers as disguised unemployment.” While her work focused primarily on macroeconomic demand side policy issues, the link between unemployment and occupation-mismatches were none-the less established.
Fast-forward to 2008-2009. The economy is in the midst of what would later be called the Great Recession. Presumably both unemployment and occupation-mismatches increase.
In April 2008 the U.S. unemployment rate was 5.0 percent and near the natural rate. By April 2009 it reached 9.0 percent, peaking at 10.0 percent later that year. The rapid decline in the unemployment rate provides useful insights on the impact of recessions on the labor force status of overeducated workers.
This paper adds to the literature by taking a detailed look at how changes in labor market conditions impacts the labor force status of individuals who are overeducated and undereducated prior to the start of the Great Recession. It is the first known empirical study to do so.
Data and Methods:
The data in this study is from the March 2008, 2009 and 2010 annual demographic supplements of the Current Population Surveys (http://www.bls.gov/cps/). The cross-sectional data allows for a portion of those surveyed to be analyzed over a two year period. Some individuals in the survey during year t are matched to the same individuals in year t+1 (but not t + 2).
Several econometric (multinomial logit) models are developed observing labor market characteristics of individuals during their second year in the survey (year = t + 1). The independent variables of these models include controls for educational attainment level and dummy variables if the individual is overeducated or undereducated in the first year in the survey.
Results:
Individuals overeducated prior to the Great Recession are one to four percentage points more likely to become unemployed or have their hours significantly reduced one year later relative to their undereducated counterparts, ceteris paribus. Additionally, roughly 12 percent of those overeducated prior to the recession exit full time employment the following year, up sharply from the 7.7 exit rate during the 1991-92 recession as reported in another study. Despite this, roughly one in five overeducated workers secure employment in occupations where they are not overeducated a year later, a figure comparable to that found in 1991-92.
The findings are consistent with the theoretical expectations established in the full paper.
JEL: J24, J30, J60