Overeducation and scarring effects on the wages of young graduates

The authors’ goal in this paper is to study if there are long-run effects on the wages of those workers who entered the labour market overeducated but who have, over time, been able to overcome this situation by obtaining a job for which they are correctly matched.

This study universe is constituted by workers entering the labour market with a university degree between 2004 and 2012. The age range of these individuals is between 22 and 35 years old. With the data of the 8,359 selected individuals, the authors have constructed a balanced panel covering the period 2013–2017. This methodology is developed in two steps. First, the authors estimate a wage equation with the traditional variables and, second, the authors use the estimated coefficients of these variables to predict the wage paths of a representative individual in each group.

The main result the authors obtain indicates that the wages of those who manage to overcome an initial situation of overeducation do converge but very slowly to the respective wages of those others that entered the labour market correctly matched from the beginning. The authors consider this result to point towards the existence of scarring effects in wages induced by an initial situation of overeducation. The authors also present evidence, beyond education, about the influence that the occupational characteristics that a worker has on wages.

The factors that can influence the catching-up of wages are multiple, and it is not feasible to test all of them empirically. Therefore, the wage convergence process the authors present may also be influenced by other variables for which the authors do not have information.

This paper contributes to different branches of the labour market. First, the authors present new evidence within the literature dealing with the so-called scarring effects on wages related to the conditions entering the labour market. Secondly, this study’s results provide a new argument that complements those developed so far that explain a reduction in the wage skill premium detected among young graduates in Spain. Finally, this paper contributes to advancing research about the effects that overeducation has on wages.

The question the authors are attempting to answer in this paper can be formulated in the following terms: when a worker manages to overcome an initial situation of overeducation, what happens to his/her wage? Will it adjust quickly to the new working situation, or will we observe a slow convergence to the wages of workers with an employment history without overeducation situations? To the best of the authors’ knowledge, this topic has not yet been studied. Researchers have mostly focused their attention on comparing the wages of overeducated workers with the wages of those who are correctly matched. In this case, the authors compare the wages of correctly matched workers, but with the difference that some were initially overeducated and others were not.