Overeducation under different macroeconomic conditions: The case of Spanish university graduates

Abstract: This paper examines the incidence and persistence of overeducation in the early careers of Spanish university graduates. We investigate the role played by the business cycle and field of study and their interaction in shaping both phenomena. We also analyse the relevance of specific types of knowledge and skills as driving factors in reducing overeducation risk. We use data from the Survey on the Labour Insertion of University Graduates (EILU) conducted by the Spanish National Statistics Institute in 2014 and 2019. The survey collects rich information on cohorts that graduated in the 2009/2010 and 2014/2015 academic years during the Great Recession and the subsequent economic recovery, respectively. Our results show, first, the relevance of the economic scenario when graduates enter the labour market. Graduation during a recession increased overeducation risk and persistence. Second, a clear heterogeneous pattern occurs across fields of study, with health sciences graduates displaying better performance in terms of both overeducation incidence and persistence and less impact of the business cycle. Third, we find evidence that some transversal skills (language, IT, management) can help to reduce overeducation risk in the absence of specific knowledge required for the job, thus indicating some kind of compensatory role. Finally, our findings have important policy implications. Overeducation, and more importantly overeducation persistence, imply a non-neglectable misallocation of resources. Therefore, policymakers need to address this issue in the design of education and labour market policies.