Employment implications of job–skills mismatch

In Portugal, between 1995 and 2005, the incidence of over-education and under-education has increased. However, being over-qualified is more common, especially among workers aged less than 40 years and with a third-level education. The mismatch between workers’ education and the type of qualifications required by their occupations has important implications in employment, particularly in terms of workers’ job mobility and wages.

Background

A research team from the Economic Policy Research Unit at the Department of Economics of the School of Economics and Management at Minho University (Núcleo de Investigação em Políticas Económicas do Departamento de Economia da Escola de Economia e Gestão, Universidade do Minho) in northwestern Portugal led a study analysing the incidence of under-education and over-education, and its implications for wages and workers’ job mobility in Portugal. The analysis is particularly relevant given the remarkable increase in the last 30 years in the proportion of workers with higher educational levels, especially university education. This has, however, happened in a context where the active population is still mostly characterised by low educational levels.

About the study

In this study, the analysis of the mismatch between workers’ education and the type of qualifications required by their occupations is based on the difference between workers’ schooling and the schooling required to perform their jobs. When no difference emerges in schooling, there will be a perfect matching; when the difference is positive or negative, there will be over-education or under-education, respectively. The choice of those measures was determined by data availability. This study uses the panel dimension of Personnel Records (Quadros de Pessoal), a matched employer–employee dataset with annual information for the period 1995–2005.

Profile of under-qualified and over-qualified people

The mismatch between workers’ education and the schooling required to perform their job is rising in Portugal. The proportion of workers with an unsuitable education level increased from 23% in 1995 to 31% in 2005; more specifically, 18% were over-educated in 2005 and 13% were under-educated (see figure). No significant differences were found in the incidence of under-education and over-education between men and women.

Trends in incidence of under-educated and over-educated persons, 1995–2005 (%)

The prevalence of under-education and over-education varies with age; for workers aged up to 40 years, the incidence of over-education is much greater than that of under-education, increasing from 20% to 30% between 1995 and 2005. In contrast, under-education is notable and is increasing in the older age groups: 35% of workers aged 55 years or over were under-educated in 2005.

Being under-qualified or over-qualified varies with educational level. In the case of employees with six or fewer years of education, the incidence of over-qualification is zero; on the other hand, under-qualification is significant among these employees, having increased from 15% to 26% between 1995 and 2005. For people with between six and nine years of education, there was a slight decline in over-qualification, from 28% to 24%. Among workers who have nine or more years of school education but who did not pursue third-level education, under-qualification is virtually non-existent; however, over-qualification is high in this group, although slightly decreasing – standing at 38% in 2005. Over-qualification is particularly significant among workers with a third-level education, albeit registering a lower level in 2005 – 50%, compared with 60% in 1995.

The incidence of over-education has increased over time for technicians, middle-level professionals and workers in unskilled jobs. However, it has declined for categories associated with a higher skills level such as managers, senior executives and experts from intellectual and scientific occupations.

Impact on wages and job mobility

In relation to wages, among workers who earn salaries less than four times the minimum wage, the incidence of over-education does not exceed 20%. The proportion of these lower wage workers with an unsuitable level of education increased, which contrasts with the situation for those on higher incomes.

People with lower wage levels receive a smaller premium associated with over-education. This premium increases and more than doubles among workers with higher wage levels. Under-education is more penalising for workers with higher wage levels.

With regard to the implications on workers’ job mobility, results show that mobility rates are higher among over-educated workers, followed by workers with adequate education; under-educated workers are less likely to move to another company. On the other hand, workers who receive wages between the minimum wage and twice the minimum wage are the most mobile group, irrespective of the adequacy of their education compared with that required by their occupation. In terms of gender, while women were more mobile in 1995 – regardless of their educational level – this trend was reversed in 2005, when men were more mobile.

Commentary

Between 1995 and 2005, both over-education and under-education have increased. However, the increase is higher in respect of over-education. The premium associated with an additional year of education for over-qualified workers is smaller than that associated with workers with an adequate education. Under-qualified workers receive a lower premium in this regard.

Over-educated workers have higher job mobility; nonetheless, workers’ mobility has been decreasing sharply since 2002, both for under-educated and over-educated workers. The apparent synchronicity between workers’ job mobility rates and the economic cycle suggests that the implications in terms of the adjustment between workers’ education and the schooling required by the different available occupations warrants deeper analysis in future research.

Heloísa Perista and Eudelina Quintal, CESIS