@arindube Vernon Smith on the cruelty of the minimum wage

Over-qualification rates in jobs in the USA, UK and Canada

In the UK, foreign-born are much more likely to be over qualified than native born highly educated not in education with less difference between men and women. More men than women are overqualified for their jobs in the UK. Over qualification is less of a problem in the UK than in the USA and Canada.

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Source: OECD (2015) Indicators of Immigrant Integration 2015: Settling In.

In the USA and Canada, there are few differences between native and foreign born men in over-qualification rates. Foreign-born women tend to be more over-qualified than native born women in the USA  and more so in Canada. Many more workers are overqualified for their jobs in the USA and Canada as compared to the UK.

There are large differences in the percentage of people with tertiary degrees and the education premium between these three countries that are outside the scope of this blog post. These trends may explain differences in the degree of educational mismatch.

It goes without saying that the concept of over-qualification and over-education based mismatch in the labour market is ambiguous, if not misleading and a false construct.

To begin with, under human capital theories of labour market and job matching, what appears to be over-schooling substitutes for other components of human capital, such as training, experience and innate ability. Not surprisingly,  over-schooling is more prominent among younger workers because they substitute schooling for on-the-job training. A younger worker of greater ability may start in a job below his ability level  because he or she  expects a higher probability to be promoted because of greater natural abilities. Sicherman and Galor (1990) found that:

overeducated workers are more likely to move to a higher-level occupation than workers with the required level of schooling

Investment in education is a form of signalling. Workers invest so much education that they appear to be overqualified  in the eyes of officious bureaucrats. The reason for this apparent overinvestment  is signalling superior quality as a candidate. Signalling seems to be an efficient way of sorting and sifting among candidates of different ability. The fact that signalling survives in market competition suggests that alternative measure ways of measuring candidate quality  that a more reliable net of costs are yet to be discovered.

Highly educated workers, like any other worker, must search for suitable job matches. Not surprisingly, the first 5 to 10 years in the workforce are spent in half a dozen jobs as people seek out the most suitable match in terms of occupation, industry and employer. Some of these job seekers who are highly educated will take less suitable jobs while they search on-the-job for better matches. Nothing is free or instantly available in life including a good job match.

A more obvious reason for over qualification is some people like attending university and other forms of education for the sheer pleasure of it.

Anyone who encounters the words over-qualified and over-educated should immediately recall concepts such as the pretence to knowledge, the fatal conceit, and bureaucratic busybodies. As Edwin Leuven and Hessel Oosterbeek said recently:

The over-education/mismatch literature has for too long led a separate life of modern labour economics and the economics of education.

We conclude that the conceptional measurement of over-education has not been resolved, omitted variable bias and measurement error are too serious to be ignored, and that substantive economic questions have not been rigorously addressed.

The discovery process in student athlete wages

Randall McElroy III

FiveThirtyEightSports has a great piece about how much college quarterbacks are really worth in terms of market value. I’m neutral-but-leaning-against on the issue of paying college athletes, but the piece begins with University of Iowa Athletic Director Gary Barta giving a very bad reason to oppose it: it’s too complicated to figure out how much they should be paid. He’s right given how he’s conceiving the issue, he’s just not conceiving the issue in the right way.

Wages are not determined by a person or group of people independently evaluating what a job is “really” worth. That’s what markets do, i.e. that’s what innumerable decisions over time by innumerable anonymous consumers operating within the price system do. The failure to understand how the price system works in allocating resources by preferences is not unique to Barta. Very few people understand it, and lamentably even people who do understand it often…

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