Conventional wisdom holds that recent college graduates have a harder time finding jobs today than in the past. But a new approach to assessing job suitability suggests otherwise.
To bridge the chasm between competing viewpoints on college’s utility, this Urban Institute study uses statistical tests to measure how many college graduates were overqualified for their positions.
Many view college as a worthwhile endeavor because it yields higher career earnings than workers who lack a college degree typically earn. But for others, the projected benefits of attending college fail to justify the reality many graduates face upon entering the workforce: jobs that do not adequately utilize their high skill level and that offer low wages.
Recent studies have claimed that as many as 48 percent of college graduates are overqualified for the jobs they have, but this figure seems inconsistent with their comparatively higher earnings relative to earnings of workers without a college degree. To obtain that high mark, those studies classify many occupations that pay well as being a bad job for college graduates.
This report offers a novel approach that involves statistical and earnings tests, which can be applied in different years to identify whether an occupation is a good fit for a college-educated worker based on each year’s conditions. By using this technique, I find a higher percentage of college-educated workers in good-fit jobs than other approaches do.
The alternative of a good-fit job is an occupation in which college-educated workers are overqualified and earn considerably less than their counterparts in good-fit jobs. The earnings penalty for college-educated workers not being in good-fit jobs rose dramatically from 1980 to 2014.
Many non-college-educated workers are employed in good-fit BA jobs (i.e., jobs normally occupied by someone with a bachelor’s degree). Although they make less than workers with more education in those jobs, they make more than similarly educated workers in overqualified BA occupations.
All occupations can be divided into good-fit BA jobs and overqualified BA jobs. In 1980, 39 percent of employment was good-fit, but this figure rose to 45 percent in 2014. Several external factors affected the rising level of education-based earnings inequality during this time. The share was 24 percent in 1980, when many new college-educated baby boomers entered the labor force. After declining to 21 percent at the end of the Clinton boom in 2000, it rose during the economic troubles sparked by the 2008 financial crisis and reached 25 percent in 2015.
The report’s key findings include:
- The advantage of being in good-fit jobs for both college- and non-college-educated workers grew substantially after 1980.
- The share of overqualified college-educated workers varied minimally in 1980, 2000, and 2014.
- The 25 percent figure of college-educated workers being overqualified in their jobs is lower than all other estimates in the literature.
- Younger BA workers consistently had higher overqualified rates in all years, but the gap was greatest during the weak economy in 2014.
- The earnings penalty for college-educated workers in overqualified jobs grew because incomes changed minimally for college-educated workers in jobs for which they were overqualified, while BA workers in good-fit jobs saw a $20,000 increase in earnings.
- Because of the spike in the number of college-educated workers, fewer non-college-educated workers were employed in high-paying, good-fit BA jobs than in the past.
- The pay of non-college-educated workers in good-fit BA jobs increasingly trailed the pay of college-educated workers in these jobs. Although this occurred for both male and female workers, the gap grew more among male workers than among female workers.
- The pay gap between college-educated and non-college-educated workers in BA-overqualified jobs was smaller than the comparable difference in good-fit BA jobs.
- In 2014, the overqualification rate of college-educated African Americans was 7 percentage points higher than the white rate, and the Hispanic rate was 10 percentage points higher than the white rate.
Figure 1 of this report was updated in February 2017 to correct a labeling error.