Graduate Overeducation in Australia

Australia has witnessed a massive increase in tertiary educated labour force participants, and especially so in the last 30 years. Thus, a study into graduate overeducation in Australia is pertinent in understanding this increasingly important subset of the labour force. This thesis is the first investigation of graduate overeducation in Australia. It seeks to investigate the depth of this phenomenon among various graduate sub-groups in the labour market, including females and immigrants. The thesis hopes to broaden current knowledge by offering a comprehensive account of graduate overeducation in Australia from various perspectives. There is no universalistic theory of overeducation from which a multitude of theories and assumptions can be tried and tested. Hence, this thesis begins by defining the phenomenon before discussing the various theories and methods used to study overeducation. This is especially necessary given the paucity of research into overeducation in Australia. This thesis utilises a variety of measures and datasets to study graduate overeducation in Australia. The commonly employed Over, Under and Required (ORU) earnings function is used as the main measure of calculating returns to overeducation while the Job Analysis / Objective measure is the main method utilised in calculating incidences of graduate overeducation. The thesis does however depart from standard tests of overeducation in a number of respects. First, it controls for self selection into employment in determining the causes of graduate overeducation by using bivariate probit models. Second, it uses a synthetic panel dataset to control for unobserved heterogeneity which potentially bias results obtained from cross-sectional datasets. Third, it utilises an immigrant-specific longitudinal dataset that provides a natural experiment to assess changes in policy and their effect on graduate overeducation in Australia among immigrant groups. Fourth, it provides some of the first econometric evidence on the relationship between various measures of workplace satisfaction and graduate overeducation. Incidences of graduate overeducation are sensitive to measurement method used but it is clear that it is pervasive in the labour market. The likelihood of graduate overeducation is influenced by characteristics and background. For example, younger graduates are more prone to mismatch, which may suggest that overeducation is a temporary phase for some graduates. The returns to required and surplus education largely match the stylised facts except for young males, who enjoy better returns to surplus rather than required education. The use of a synthetic panel dataset illustrates that cross-sectional datasets are subject to possible bias. Specifically, it appears that the returns to required and surplus education from the cross-sectional datasets used are downwardly biased. An examination of overeducation amongst tertiary educated immigrants produces results showing diverse outcomes based upon their backgrounds. English speaking background (ESB) immigrants perform well in the labour market, at times better than native-born Australians while Asian non-English speaking background (NESB) immigrants do very poorly, with very high incidences of overeducation. Returns to surplus education are small, and at times insignificant, indicating that overeducated immigrants are particularly heavily penalised for their excess education. The analysis also identifies that the tightening of entry requirements and restricting access to welfare that occurred during the period of analysis increased the incidences of overeducation. Bivariate probit models control for potential endogeneity when investigating links between job satisfaction and graduate overeducation. Results indicate that overeducated graduates are less satisfied with pay, work, job flexibility and overall job satisfaction compared with job-matched graduates but have higher levels of satisfaction with job security. However, overall levels of satisfaction remain high; this indicates that satisfaction should be viewed from a relative, rather than absolute perspective. Together, these results illustrate various factors that have contributed to the rise in graduate overeducation in the last decade and some of the implications that may arise from this. Moreover, the findings indicate that policy development in a number of areas is required to address issues of misallocation of Human Capital resources.