Over Education in the UK Graduate Market - Research Paper Example

OVER-EDUCATION IN THE UK GRADUATE MARKET Table of Contents Executive Summary………………………………………………...…………………..…………2 Introduction………………………………………...………………………………………….…..3 Analysis of UK Graduate Labour Market in General…………………………..………………....3 Trends in Graduate Employment………………………………………………………….3 Graduate Vacancies……………………...………………………………………………..4 Graduate Salaries………………….………………………………………………………5 Over-Education and Its Incidence in the UK Graduate Labour-Market……………..………....5-6 Why Over-education Happens…………………………………………………………………….6 Human Capital Theory…...……………………………………………………………….6 Career Mobility Theory…………………………………………………………………..7 Assignment Model………………………………………………………………………..7 Labour Market Rigidities……………………………………………………………..…..7 Impact of Over-Education on Job Satisfaction of Graduates……………………………………..8 Over-education as a Short-term Phenomenon…………………………………………………….8 Implications of Over-Education for Universities and Government Policy Makers……………….9 Conclusion……………………………………………………………………………………...…9 References……………………………………………………………………………………10-11 Executive Summary The number of graduates in the UK higher education has constantly risen over the past few years, and the rising trend seems to be continuing. This is posed a problem of some graduates landing to jobs that requiring lower education or skills than they possess. The effect is that the graduates do not receive fair returns on their investment in education, and the ultimate effect is job dissatisfaction. The incidence of over-education in the UK labour market stands at 22% according to 2009 survey. The causes of over education are explained by various theories, but they all agree that it is a temporary phenomenon. The universities and the government have thus a responsibility to institute policies to reduce the rising incidence of over-education and its effects. Higher education in the UK has expanded in the last three decades and the trend continues. Policy makers justify this expansion on two rationales. First, it is important to meet the high-skill labour requirements of a knowledge economy and second, to add opportunities in education and, consequently, employment for groups that have been under-represented in higher education in the past (Wilton, 2011). Although this expansion is beneficial in many aspects, there have been no adequate attempts to ascertain the capacity of the economy to absorb the increasing numbers of graduates from the various fields of education, hence resulting into a phenomenon where the demand for labour is unable to keep pace with the supply. Ultimately, some graduates end up getting employment in jobs that do not match their educational qualification. Such workers are overeducated in the labour market (Dolton and Silles, 2008). There is a broad body of evidence for the existence of over-education in the UK graduate labour market and its incidental effects. Analysis of UK Graduate Labour-Market in General Trends in Graduate Employment Some years back, the discrepancy between graduate and non-graduate level jobs was very conspicuous in the UK. University graduates, usually, entered into traditional graduate careers such as medicine and Law or got recruited onto graduate management training programs with prestigious firms. However, in the recent past the graduate market has become more complex especially because of advancements such as rising global competition and development in technology, which demand that the workforce should be more skilled to fit in the current job market. Thus, jobs that in the past did not require a degree now demand a degree, resulting to expansion of higher education as more people enroll to acquire degrees hence bringing about competition within the various sectors of the higher education spectrum (Ons.gov.uk, 2014) In addition, jobs that were often classified as non-graduate now demand higher level skills that can be attained at the degree level hence changing the criterion for employment. However, despite the trend of more people acquiring degrees, employers are more concerned with the quality of skills possessed by individuals as the most imperative factor than the knowledge of the subjects acquired through the degree programs. There is a general agreement that about two-thirds of undergraduates find graduate jobs within the first six months since graduation (Wlv.ac.uk, 2014). According to Higher Education Statistics report in 2007, the supply of Business and Management graduates has significantly increased. Between the year 2006-2007, business and administrative studies students constituted 11% of all graduates in higher education (Wilton, 2011). Graduate Vacancies At the start of 2011-2012 recruitment season, it was anticipated that the rate would increase further with the leading UK employers targeting to employ over 17500 graduates, representing an increase by about 1300 vacancies from the year 2011. However, as the recruitment season continued, the employers recruitment targets reasonably changed and the aggregate number of vacancies on offer plummeted. The accounting and professional firms downgraded their hiring numbers by thirty percent in 2012, slashing almost 800 vacancies compared to the initial targets in 2011(The Graduate Market 2013). Following the small decrease in the number of recruitment vacancies for graduates in 2012, it was projected that the top 100 graduate employers in the UK would expand their graduate employment vacancies by 2.7% in the fiscal year 2013(The Graduate Market 2013). Graduate Salaries According to 2011/2012 survey data, the average salary of a full-time employment UK graduate, half a year after employment was approximately £21,000. In addition, graduates were expected to earn £160,000 more than those without a degree over their employment life (Wlv.ac.uk, 2014). Law firms, investment banks and oil and energy companies paid the most generous salaries while the public sector had the lowest pay rates according to the 2011-2012 survey data (The Graduate Market 2013). In addition, analysis on the 1999 Business and Management graduates noted that on average, fully employed women earned over £3400 less than their male counterparts after four years in the labour market,. This is a gender gap pay of 15%. Further, there was substantial vertical and horizontal discrepancies in employment. For instance, more than one third of males were employed in managerial positions, compared to females approximately one in four females (Wilton, 2011). Over-Education and Its Incidence in the UK Graduate Labour-Market One of the most crucial socio-economic changes in the modern economic history is the increased availability/accessibility to higher education. Over the years there have been education upgrading of workforce in the UK. However, several studies show that a considerable number of university graduates are working in jobs for which university education is not needed. Some literature has shown that there is a widespread and substantial skill shortage particularly at the intermediate category of skills. As higher education continues to expand, the research findings continue to trigger uncertainty on the universally held view that university education or degree is the sure way to economic success (Dolton and Sillies, 2001). Over Education is simply defined as the difference between an employee’s actual level of education and the required level of education for a particular job. Over-education leads to downward occupational mobility and subsequently reduces the rate of return of the employee’s investment in education (Dolton and Sillies, 2001). There are few studies in Britain that have assessed the incidence of over-education in the graduate labour market in UK, with most past surveys reporting the over education incidence to be as high as 30 or 40%. This analysis was based on the University of Newcastle alumni study particularly commissioned to allow research in the over education field (Dolton and Sillies, 2001). According to 2009 survey data, the incidence of under-education in the UK was 22% indicating that past studies had overly stated the incidence of over-education in the labour market (McGuinness and Sloane, 2009). Why Over-Education Happens There are a couple theories explaining the existence of over-education in the labour market. Human Capital Theory The human capital theory argues that productivity is an increasing function of the human capital level of the employee. Human capital encompasses not only formal education but also experience and training on the job. Under this theory, labour is compensated according to the value of its marginal product, and subsequently, salaries are determined according to the workers’ level of education, training and experience. Over-education happens when education attainment of employees increases. This causes the relative salaries of high skilled employees to fall. The employers, faced with a cheaper supply of highly skilled labour replace the low-skilled workers with the highly skilled workers, who they place in the positions that were previously held by the low-skilled workers that are under-educated relative to the low education or skills positions they hold (Taylor & Francis, 2014). Career Mobility Theory Career mobility theory argues that labour market new entrants, who possess high levels of education, accept lower job positions in comparison with their level of education because they require experience and job specific human-capital that is acquired through training (ODonnell, 2005). Assignment Model The model is based on the assumption that the productivity of a worker is directly related to education. However, not all equally educated workers have equal productivity in all jobs. In actual fact, workers have a comparative advantage in particular jobs. Over-education arises when workers are not assigned jobs for which they have a comparative advantage. Therefore, over-education is a form of allocative inefficiency where skills are underutilized (Linsley, 2005). Labour-Market Rigidities Another explanation for occurrence of over-education is that people are caught in between the labour market rigidities in over-educated jobs. This may happen, for instance, as a result of family responsibilities and regional immobility that forces some workers to voluntarily take jobs for which they are over -qualified. For instance, a couple sharing a house might decide to locate in a regional labour market where the spouse with the higher human capital can optimize his/her earnings resulting to other spouse being forced to take a job for which they he/she is over-educated. (Linsley, 2005). Impact of Over-Education on Job Satisfaction of Graduates Increase in job dissatisfaction is the most common effect of over-education. The dissatisfaction arises from the fact that advanced education raises workers expectations for interesting, challenging and high remuneration jobs (Dolton and Silles, 2008). When these expectations are not fulfilled in the job market, the worker suffers frustration and dissatisfaction. Early literatures on the topic of job dissatisfaction argue that over-education is one of the main and most regular causes of dissatisfaction among employees in low-skilled jobs (Burris, 2002). Further, survey also indicates that the most dissatisfied workers are those in jobs for which they feel they are over-educated (Dolton and Vignoles, 2002). Over-Education as a Short-Term Phenomenon Over-education is a short-term phenomenon. Under the human capital theory of existence of over-education discussed above, over-education arises when education attainment of the workers increase thereby reducing the comparative wage of the high skilled workers. Since there is cheap supply of educated labour, educated workers are assigned jobs that were previously held by low-skilled workers. Individuals cut-off their investment in education in response to the comparative low earnings of high-skilled workers, hence over-education is reduced over time (ODonnell, 2005). In career mobility theory, individuals hold jobs for which they are over-educated as they acquire experience and job specific skills through training. As individuals continue to gain more experience and skills, they progress to higher level occupations in which they fully utilize their educational qualifications; therefore, over-education is a temporary phenomenon as in human capital theory (ODonnell, 2005). In addition, under the assignment model, over-education continues until a more efficient assignment to jobs arises through enhanced matching processes and policies to reduce assignment inefficiencies. Further, labour market rigidities can be overcome with time (Amihud, Mendelson and Pedersen, n.d.). Implications of Over-Education for Universities and Government Policy Makers Over-education implies that Universities ought to review the quality of degrees they offer. Such a review would reduce instances where some graduates fail to attain adequate academic skills, despite undergoing through the higher education system, which translates to over education in the job market (Campbell, 2013). In addition, the universities should concentrate in offering degrees whose skills are in demand in the labour market to reduce instances where graduates take low-skilled jobs for which a degree is not even required simply because their skills are not in demand. Thus, the government should enact policies to reduce allocative inefficiency of graduates to jobs through enhanced matching processes (Econbiz.de, 2014). Conclusion There is evidence of existence of over education in the UK labour market. The various strategies formulated to increase access to higher education although aimed at economic development have not fully achieved the intended purpose. Some graduates work in jobs for which they are over-educated thereby reducing their returns on investment in education (Groot and Maasen Van Den Brink, 2003).The causes of over-education are explained by various theories, but basically it is a phenomenon where an individual works in a job where he/she is over-qualifies regardless of the causative factors. Therefore, over-employment is generally a short term phenomenon. Bibliography Agcas.org.uk, 2014. AGCAS: Association of Graduate Careers Advisory Services. [online] Available at: http://www.agcas.org.uk/search_tags?tag=graduate+labour+market [Accessed 20 Oct. 2014]. Amihud, Y., Mendelson, H. and Pedersen, L., n.d. Market liquidity. BBC News, (2013). Graduate jobs 85 applicants each. [online] Available at: http://www.bbc.com/news/education-23247176 [Accessed 20 Oct. 2014]. 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