In this blog, NERI economist, Ciarán Nugent discusses his NERI Report Series no. 19, on 'Overqualified third-level graduates in the Irish labour market'.
Using Labour Force Survey data, NERI’s latest report presents the evidence of trends in the share of tertiary graduates among the adult population, the working population, by gender and for younger people as well as the occupational breakdown of Irish employment broken down by the same groups. The analysis then identifies trends in overqualification among younger working third level graduates, by gender, by economic activity or sector (NACE), by field of Education and by Nationality.
The evidence suggests that since 2008, there has been a large increase in the share of working age adults and the share of workers with tertiary qualifications in Ireland. At the same time, since the collapse of Construction and return to growth in 2012, the breakdown of Irish employment by broad occupational group (as categorised by the level of investment in education required) has changed little, with the share of ‘high-skill’ jobs remaining largely static. The share of jobs in Skilled Trades for instance, increased by just over 1 percentage point in those seven years, the biggest change of nine occupational groups.
In addition, approximately 3 in 10 third level graduates employed in Ireland are working in occupations where their qualifications are unutilised or underutilised with higher incidence among young workers. Approximately 333,500 workers were overqualified third level graduates in 2019, around 15 percent of employment. Women are also more likely to be overqualified among third level graduates and make up a higher share of all overqualified workers (185,000 or 56 percent). Graduates from the Central and Eastern EU member states bloc are substantially more likely to be overqualified than any other group or demographic explored in the analysis.
In 2019, LFS data suggests that more than half of all overqualified tertiary graduates in Ireland were working in four out of 14 economic sectors; Industry, Wholesale/Retail, Human Health and Social Work Activities and Other Service Activities.
The majority of overqualified workers identified studied in four broad areas; Business, admin and law, Arts and humanities, Engineering, construction and manufacturing and Health and welfare. Working graduates with qualifications in Education, Natural sciences, mathematics and statistics, Information and communications technologies and Health and welfare are least likely to be overqualified.
The report also examined overqualification rates of workers experiencing various conditions of precarious employment and found much higher rates of overqualified third level graduates among each of these groups of workers.
However, from an economic point of view there are clear policy considerations in how and where the state spends its revenue in terms of maximising potential employment and productivity and by extension the collective welfare and material living conditions of our society.
To quote Paul Krugman, ‘Productivity isn't everything, but, in the long run, it is almost everything’.
Productivity relates to how efficiently we produce in terms of the use of resources, which in turn is a function of investment. Education is one area of importance in investment in the productive capacity of the economy. Living standards are underpinned by skilled workers producing goods and services in high value sectors competitively in an economy.
However, the data show that Irish people and the Irish state often invest resources in skills that could (arguably) be better spent, both in terms of the effect on individual earnings potential and the long-run productivity and resilience of the Irish economy.
Almost three quarters (73.9 percent) or 90,000 of the net increase in overall employment between 2008 and 2019 (123,000) were taken by tertiary graduates underutilising their skills. A reassessment of our approach to further education spending and incentives for school-leavers would be welcome.
The entrepreneurial state could have a role on the demand side to fill gaps and create employment in areas of strategic importance where the market cannot, such as in the Just Transition to a low carbon economy and long-term energy security. Some of the tens of thousands of Business, administration and law as well as Engineering, construction and manufacturing with underutilised skill sets could be activated more appropriately with government intervention in the roll out of renewable energy and the retrofitting of the built environment for example.
Where skill shortages are a problem as is the case currently in Construction, secure and decent work with adequate wages in a state home building agency could attract more school leavers to pursue a career in a sector renowned for its precariousness and provide a floor in working conditions across the sector. This approach would also address competitiveness issues at the macro level related to the high cost of housing in Ireland.
At the same time, targeted interventions like this could maximise returns to Irish education spending through better matching (higher wages) and by extension higher productivity, improving collective welfare, material living standards and higher individual level job satisfaction generally.