Deconstructing Theories of Overeducation in Europe: A Wage Decomposition Approach

40 Pages Posted: 15 Feb 2016

See all articles by Seamus McGuinness

Seamus McGuinness

Economic and Social Research Institute, Ireland

Konstantinos Pouliakas

Cedefop; University of Aberdeen - Business School; IZA Institute of Labor Economics


This paper uses data from the Cedefop European Skills and Jobs (ESJ) survey, a new international dataset of adult workers in 28 EU countries, to decompose the wage penalty of overeducated workers. The ESJ survey allows for integration of a rich, previously unavailable, set of factors in the estimation of the effect of overeducation on earnings. Oaxaca decomposition techniques are employed to uncover the extent to which the overeducation wage penalty can be attributed to either (i) human capital attributes, (ii) job characteristics, (iii) information asymmetries, (iv) compensating job attributes or (v) skill needs of jobs. Differences in human capital and job‐skill requirements are important factors in explaining the wage premium.It is found that asymmetry of information accounts for a significant part of the overeducation wage penalty for tertiary education graduates, whereas job characteristics and low skill content of jobs explain most of the wage gap for medium‐qualified employees. Little evidence is found in favour of equilibrium theories of skills matching and compensating wage differentials. The paper thus highlights the need for customised policy responses (e.g. career guidance; policies to raise job quality) to tackle overeducation.

Keywords: overeducation, skills, mismatch, wages, decomposition

JEL Classification: J24, J31, J70, I26

Suggested Citation

McGuinness, Seamus and Pouliakas, Konstantinos, Deconstructing Theories of Overeducation in Europe: A Wage Decomposition Approach. IZA Discussion Paper No. 9698, Available at SSRN:

Seamus McGuinness (Contact Author)

Economic and Social Research Institute, Ireland ( email )

Dublin 4


Konstantinos Pouliakas

Cedefop ( email )

PO Box 22427
Finikas (Thessaloniki), 55102

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072

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