Over-education of recent higher education graduates: New Australian panel evidence

This study investigates the incidence of over-education amongst recent Australian bachelor degree graduates and its effect on their earnings. We find that between 24% and 37% of graduates were over-educated shortly after course completion, with over-education most common amongst young females and least common amongst older females. Over-education rates vary markedly across major fields of study and appear to be associated with the relative demand for graduate labour. Overeducation was less common three years after course completion; however a nontrivial proportion of graduates remain over-educated. With regard to the effect of over-education on earnings, we find a notable age-related effect not reported in earlier studies. Young over-educated graduates were not penalised after unobserved heterogeneity had been addressed, whereas older over-educated graduates were at an earnings disadvantage relative to their well-matched peers.

► We examine the incidence and wage effect of over-education by gender and age group.
► Over-education rates vary across study fields and reflect relative skill demand.
► Over-education decreases in the three years after graduation but remains present.
► Graduates are more likely to stay over-educated than become over-educated later.
► Only older over-educated graduates suffer a significant wage penalty.