The effects of macroeconomic conditions at graduation on overeducation

This article shows that unfavorable economic conditions at graduation decrease the likelihood of a good job-worker match over a worker's subsequent career. Mismatch is quantified in terms of overeducation by both industry and occupation. The German Socio-Economic Panel and region-level unemployment rates from 1994 to 2012 are used. Instrumental variables estimates account for endogenous graduation timing. A single percentage point increase in regional unemployment causes an increase in the probability of overeducation of 1.6-1.7 percentage points for university graduates. Effects for technical tertiary education and apprenticeship graduates are smaller. Labor market entry conditions affect workers for up to 9 years after graduation. (JEL J23,322, E32,123)
I. INTRODUCTION Research has identified the importance that initial career conditions, such as graduation during recessions, have on workers' long-term earning capability (Kahn 2010; Oreopoulos, von Wachter, and Heisz 2012). [...]