Labour Market of the United Kingdom - Literature review Example

Business Executive Summary This study aims to review the literature on the over-education in the graduate labour market of the United Kingdom (UK). The report is meant for the government authorities and concerned establishments who looks after the country’s employment opportunity and development. Several researches have been conducted to study the behaviour of the labour market for graduates, and how this has been affected by the prevailing over-education among the students. For this particular report, data was fetched from various authentic electronic sources, books, journal articles and recent publications pertaining to the topic. It was found that, in most of the cases the individual were not satisfied with their jobs. This also resulted in huge unemployment rate. Over-education also influenced the wage earning rate and the stability condition in the labour market. Government initiatives played a crucial role in mitigating the consequences of over-education in the graduate labour market of the UK. The overall growth of the overall economy was also influenced by the prevalence of over-education. Table of Contents Introduction 4 Analysis of the Graduate Labour Market 4 Over-Education and Its Incidence in the UK Graduate Labour Market 5 Causes of over-education 6 Impacts of over-education 7 Implications on government policy makers 8 Recommendations 9 Conclusion 10 Reference List 11 Introduction The aim of this study is to evaluate the presence of over-education in the graduate labour market of the UK. Several studies have been conducted to understand the implications of over-education in the graduate labour market. There have been several debates over the issue and attempts have been made to identify whether over education is an efficient way to determine the behaviour of labour economics. Over-education generally refers to the circumstances when an individual has achieved an educational qualification which is more than what is required for a specific job. Disequilibrium occurs in the labour market for graduates as workers are over qualified for the required job (Dolton and Silles, 2001). Analysis of the Graduate Labour Market Chevalier defined over-education as a combination of occupational codes and self-reported measures. This helped to understand the appropriateness between the job and the qualifications. Over education in the market is the main objective of the study. Investigations were done to identify the implications of this expansion and its affect on the labour market. Conditions in the graduate labour market are heading towards the betterment with time; yet, over-education is a cause of concern. It was found that the level of over-education varied with the techniques of measurement. Over-education is therefore a dynamic phenomenon. It was also found that the impact of over-education was same for job satisfaction and earnings. There was also no evidence of significant increase in mismatches among education required and education supplied in the last 20 years. It was also found that, growth in labour force had a positive impact on the occurrence of over-education and rate of unemployment had a negative impact on the return from education rate. In the next section, over education in UK graduate market will be discussed in detail. Over-Education and Its Incidence in the UK Graduate Labour Market The analysis of the graduate labour market in the UK reveals various interesting facts and figures. This marks the significance of studying the prevalence of over-education in the labour market. The total number of graduate in the UK stands at 12 million (Office for National Statistics, 2013). The trends in the data involving the number of graduates show that a steady rise has been experienced over the last decade. Chevalier (2003) tried to show the conditions prevailing in the United Kingdom (UK) market and how over-education and skills in the labour market affected the equilibrium conditions. The study focused on the labour market conditions in the nineties. During that period, the number of UK graduates increased exponentially within a very short span time. Three groups were formed within the graduates. These groups were mainly divided into genuinely over-educated, apparently over-educated and matched. It was formed to compare post and pre expansion period in the labour market. It was found that, wage penalties for over-education remained stable but the number of over-educated graduates doubled. The study suggested that, most of the graduates were accommodated by the labour market. It was seen that, apparently over-educated individuals could not be differentiated from the matched graduates. However, it was noticed that, the graduates who were genuinely over-educated significantly lacked non-academic skills. They had no knowledge about leadership and management. This increased unemployment rates but it did not affect the jobs that were already held (Chevalier and Lindley, 2009). Causes of over-education There are various causes that have led to over-education in the graduate labour market of the UK. In order to identify the causes, it becomes imperative to understand the circumstances that drive over-education and how the labour market adjusts with it. In the macro sense, the labour market has more graduates than the number of jobs. This results in an unstable situation. Freeman (1971 cited in Diebolt and El Murr, 2004) developed a cobweb model that helped to illustrate the relationship between education and labour market in context of higher education. The main objective of the model was to observe the market that contained highly educated job seekers. The figure below tries to reflect on the main perspectives of the model: Figure 1: Cobweb Model (Source: Diebolt and El Murr, 2004) The figure helps to explain how the graduate employment and wage, respond to the supply and demand conditions. Supply is a lagged variable in this model. It is based on previous period expectations. Wage rate acts as the market clearing factor and helps the market to adjust with respect to the present demand and the preset supply. Future payments are based on the current payments. Freeman found that, market was more sluggish for over educated manpower or for individuals with higher education. Elias and Purcell (2004) tried to capture the experiences in the labour market for graduates. The paper explored the experiences of the individuals who graduated in 1990s and 1980s. During this period, it was noticed that majority of the graduates were unemployed and failed to find appropriate jobs. The changes in occupational structure of the UK were studied in this regard. It could be concluded from the study that, even if there was a fall in the earning premium of the older graduates, the individuals graduating in 1995 had an average earnings premium. Impacts of over-education Over-education influences the labour market and has a significant impact on wage distribution. It also effects job satisfaction among the graduates. Green and Zhu (2010) studied the prevalence of increased dispersion from the returns of graduate education in the UK. This was related to the increasing over qualification among the students. The study tried to define formal and real over-qualification to identify whether it was accompanied by underutilisation in skills. Workers in the latter group experienced increased penalties in pay than those present in the former group. It was found that, real over-qualification was associated with career dissatisfactions, and this type of over-qualification increased in a slow rate as compared to formal over-qualification. There arises mismatch in skills and education and its effects on job search, job satisfaction and wages becomes severe. It was seen that mismatch in education has severe impact on the wages. However, skill mismatches did not show similar results. It was found that; skill mismatch was able to predict job satisfaction and job search in an effective way. Educational mismatch on the other hand affected wages. The unemployment rate of graduates in the UK had severe consequences on the economic growth, policies related to education and economical reforms. It was found that for many job seekers, appropriate job options were limited as they tend to look for job only in the local market. Over-education can be explained with the help of restrictions at micro level (the level of restrictions prevailing in the local market) and opportunities at macro level (local characteristics of market). Thus, labour market size is an important factor that can help to avoid over-education. Battu and Sloane (2004) examined how education was utilised in the UK by the different ethnic minorities. A mismatch between occupational attainment and educational qualification was found. Battu and Sloane used a model and studied 60 occupations. It was found that, varied ethnic groups had varied intensity of over-education and the highest incidence was found amongst African –Asian groups and the Indians (Battu and Sloane, 2002). After including several constraints in the analysis, it was also found that African-Asians had more chances of being under and over-educated than the Indians. However, the conditions got reversed for the individuals born inside the UK (Lindley, 2009). Thus it can be seen that over-education is a serious problem that needs immediate attention. This is because the causes behind the occurrence of over-education destabilise the labour market leading to various consequences which can negatively affect the overall growth of the economy. It not only affects the job conditions and the wage earnings of the graduates, but also creates a situation where major macro economic problems arise. Unemployment is one such problem. The graduates do not find the appropriate jobs which match their skills or education level. They are most often not happy with the pay and the work culture which leads to dissatisfaction and eventually they resign from their position. This aggravates the conditions in the labour market (Belfield and Harris, 2002). Implications on government policy makers Tomlinson (2008) analysed the situation in the UK and how the government regarded higher education as an investment that can fetch direct benefits within the graduate labour market. The study also showed that, how returns from educational credentials continuously evolved with time. The outcomes of the study showed that the students perceived their educational qualifications to have an insignificant role towards developing their employment opportunities in the labour market which is highly competitive and congested in nature. However, it was seen that even if the estimated returns from over-education was perceived to be high, the actual outcomes presented a mismatch (Lindley, 2006). This created problems of unemployment. Government involvement became necessary to minimise the severity of the consequences because the overall growth of the economy would be affected otherwise. The government policy makers should make effective strategies in order to ensure equilibrium in the labour market (Mayhew, Deer and Dua, 2004). The government is trying to influence the financial activities in order to create opportunities in the labour market. The universities and institutions have started designing their courses in such a way that the student finds it easy to understand their capabilities and requirement while applying for it. The courses are more skill oriented which ensures that students acquire an understanding of the structure of the labour market and how effectively they can adjust with it (Mason, 2002). Recommendations The literature suggests that, over-education is a serious issue which has been affecting the graduate labour market in the UK. In such a situation, initiatives from the government become imperative. The government should take measures in order to see that equilibrium is maintained in the labour market for graduates. The economic activities in the country should be able to create jobs that would match the qualifications of the students. The labour market should also be structured appropriately so that job seekers identify jobs that are compatible with their skills and educational qualifications. Conclusion The literature shows vast evidence of the prevailing over-education in the graduate labour market of the UK. The impact of over-education also varies with time and region. Over-education also influences a number of macro variables starting from wages to employment conditions in a country, and the studies depict the consequences by conducting an empirical analysis and evaluations in the labour market of the UK. Steps should be taken to minimise the problems associated with over-education and the government can play a vital role. The labour market should adjust with the economic developments and the graduates should be able to match their qualifications with appropriate job opportunities. Reference List Battu, H. and Sloane, P. J., 2002. To what extent are ethnic minorities in Britain over-educated?. International Journal of Manpower, 23(3), pp. 192-208. Battu, H. and Sloane, P. J., 2004. Over‐education and ethnic minorities in Britain. The Manchester School, 72(4), pp. 535-559. Belfield, C. R. and Harris, R. D., 2002. How well do theories of job matching explain variations in job satisfaction across education levels? Evidence for UK graduates. Applied Economics, 34(5), pp. 535-548. Chevalier, A. and Lindley, J., 2009. Overeducation and the skills of UK graduates. Journal of the Royal Statistical Society: Series A (Statistics in Society), 172(2), 307-337. Chevalier, A., 2003. Measuring over‐education. Economica, 70(279), pp. 509-531. Diebolt, C. and El Murr, B., 2004. A cobweb model of higher education and labour market dynamics. Brussels economic review, 47(3-4), pp. 409-430. Dolton, P. and Silles, M., 2001. Over education in the graduate labour market: some evidence from alumni data. London: Centre for the Economics of Education, London School of Economics and Political Science. Elias, P. and Purcell, K., 2004. Is mass higher education working? Evidence from the labour market experiences of recent graduates. National Institute Economic Review, 190(1), pp. 60-74. Green, F. and Zhu, Y., 2010. Over qualification, job dissatisfaction, and increasing dispersion in the returns to graduate education. Oxford Economic Papers, 62(4), pp. 740-763. Lindley, J., 2006. The over-education of UK immigrants: Evidence from the Labour Force Survey. Lindley, J., 2009. The over-education of UK immigrants and minority ethnic groups: Evidence from the Labour Force Survey. Economics of Education Review, 28(1), pp. 80-89. Mason, G., 2002. High skills utilisation under mass higher education: graduate employment in service industries in Britain. Journal of Education and Work,15(4), pp. 427-456. Mayhew, K., Deer, C. and Dua, M., 2004. The move to mass higher education in the UK: many questions and some answers. Oxford Review of Education,30(1), pp. 65-82. Office for National Statistics, 2013. Full Report - Graduates in the UK Labour Market 2013. [online] Available at: < http://www.ons.gov.uk/ons/dcp171776_337841.pdf > [Accessed 1 November 2014]. Tomlinson, M., 2008. The degree is not enough: students’ perceptions of the role of higher education credentials for graduate work and employability. British Journal of Sociology of Education, 29(1), pp. 49-61. Read More