Demand and Supply of Skilled Labour and Overeducation in Europe: A Country-level Analysis

This paper analyses the incidence of overeducation of university graduates. To this end, we estimate a random effects model for a panel of European countries. Our results do not confirm that the increase of the supply of qualified labour per se can be seen as a relevant factor fuelling overeducation. The relative wage of university graduates is inversely related to overeducation. This finding suggests a role for the demand for qualified labour. Cyclical conditions also matter, as overeducation operates as a short-term adjustment mechanism. This result sheds new light on the possible effects of the recession currently hitting the industrialized countries and on policy measures needed to foster economic recovery.