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Social Indicators Research

, Volume 139, Issue 3, pp 1085–1108 | Cite as

Wage Losses Due to Overqualification: The Role of Formal Degrees and Occupational Skills

  • Nancy Kracke
  • Malte ReicheltEmail author
  • Basha Vicari
Article

Abstract

Wage penalties in overqualified employment are well documented, but little is known regarding the underlying mechanisms. Drawing on new methods to measure the mismatch between jobs and qualifications, we test two explanations: formal overqualification and a mismatch of occupational skills, which have so far not been analysed. Using the National Educational Panel Study survey that is linked to German administrative data, we can objectively measure both types of mismatch. By using fixed-effects models, we confirm that overqualification is associated with a wage loss of approximately 5%, which indicates penalties when working at a lower requirement level. We find that some of this wage loss can be explained by a mismatch of skills between the current and training occupation. Further analyses show that mismatches of occupational skills explain the wage loss of formal overqualification for employees with vocational training. For academics, the two types of mismatch are unrelated. We conclude that, because of occupational boundaries and more specific occupational skills, vocationally trained people who are overqualified more often work in jobs with lower and different skill requirements. We emphasize that measuring both formal degrees and occupational skills and their mismatch allows for a deeper understanding of overqualification and wage-setting.

Keywords

Overqualification Occupational skills Mismatch Wages 

JEL Classification

I21 I26 J24 J31 

Notes

Acknowledgements

The authors would like to thank Silke Anger, Britta Matthes, Joe King, Martin Abraham, Monika Jungbauer-Gans, the participants of the AG Qualität der Beschäftigung, IAB Nuremberg, the editor, and three anonymous reviewers for valuable comments and help. This research did not receive any specific grants from funding agencies in the public, commercial, or not-for-profit sectors. This paper uses data from the National Educational Panel Study (NEPS): Starting Cohort 6—Adults, doi: 10.5157/NEPS:SC6:3.0.1. From 2008 to 2013, NEPS data were collected as part of the Framework Programme for the Promotion of Empirical Educational Research funded by the German Federal Ministry of Education and Research (BMBF). As of 2014, the NEPS survey is carried out by the Leibniz Institute for Educational Trajectories (LIfBi) at the University of Bamberg in cooperation with a nationwide network.

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Copyright information

© Springer Science+Business Media B.V. 2017

Authors and Affiliations

  1. 1.German Centre for Higher Education Research and Science Studies (DZHW)LeipzigGermany
  2. 2.New York University Abu Dhabi (NYUAD), Division of Social ScienceAbu DhabiUnited Arab Emirates
  3. 3.Institute for Employment Research (IAB)90478 NurembergGermany

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