The Over-Qualification Epidemic

Earlier this year, the Bureau of Labor Statistics released the 2012-2022 employment projections report, analyzing the employment landscape and its relation to education attainment.  It concludes that over half of United States workers over-qualify for their work.

Using the data, we can distinguish between the level of education “typically required for employment” in a particular occupation and the number of people at various levels of education who have that job. A total of 52.6 percent of employed people are overqualified for their job, meaning that their highest level of education exceeds the average requirements for that job. So don’t be surprised if your taxi driver is as educated as you are. One out of 20 holds a bachelor’s degree or higher, and 85 percent have at least a high-school education.  The BLS says that this education is unnecessary for the job.

Being overqualified for a job carries an opportunity cost. If a graduate waits tables at a restaurant, he forfeited four years of wages to pay tuition. But fear not: he should rest assured that he is in good company, with 354,330 other graduates.

Most people do not plan to take those jobs. The condition of the labor market plays a role in labor outcomes. Many who, out of desperation, take jobs that don’t require a degree search for better employment as they work. However, this phenomenon, known as frictional unemployment, does not seem to explain the pernicious underemployment problem.

Are college degrees still as strong of a signal for employers as colleges claim? Is the labor market flooded with degrees? If so, is it the specific degree’s fault or because companies are not hiring? Most importantly, why is this problem so persistent?

Most likely, it’s signaling. Regardless of whether a job requires a degree, an employer is likely to choose the more educated applicant. The degree conveys information to the employer which is otherwise costly to obtain. For example, a bachelor’s degree serves as an indication of work ethic, discipline, and general intelligence, while a high-school diploma might indicate laziness or a lack of ambition. Even if that is a misrepresentation of the applicants, or if the job does not require a degree, a college graduate is usually a safer hire than a high-school graduate. That reasoning crowds out qualified applicants who lack a degree, and they trickle down to jobs that they are overqualified for. When there is nowhere to trickle down, underemployment and unemployment rise.

The popular line is that unemployment rates decline and income increases with improved education. Therefore, college is the only way for a high-school graduate to prosper. But not necessarily.  No law of economics says a college degree is a ticket to success, nor should we treat it as one.

The fact that many graduates are in positions that don’t require a degree suggests that too many people attend college. Combine that with rising tuition costs, one trillion dollars in federal student loan debt, and a college incompletion rate of approximately 40 percent, and it’s an equation for an economic disaster in education.