The Dynamics of Overqualification: Canada’s Underemployed University Graduates

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by Chris Li, Ginette Gervais and Aurélie Duval
Income Statistics Division

Analysis in Brief

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Summary
Increase in overqualified workers
Always overqualified: account for one-third of overqualification
Older workers: higher chances of remaining overqualified the entire period
More than half of recent immigrants were overqualified
High educational level: less overqualified and less always overqualified
No gender and regional differences in overqualification
Full-time workers: less likely to experience overqualification, but more likely to stay overqualified

Summary

You’re a guy with a master’s degree from a prestigious university, but all you can get is a job driving a taxi.

You’re an immigrant woman who graduated from an overseas university, and you’ve had to settle for selling clothes in a department store.

You’re not alone. Thousands of people in Canada are in the position of having a job for which they are overqualified and sometimes getting the low pay and frustrations that go along with it.

This study, which examines the phenomenon of overqualification, used data from Statistics Canada’s Survey of Labour and Income Dynamics (SLID) to profile the individuals who are most susceptible.

It found that nearly one out of every five people in the workforce who had a university education had worked in a job that required at most high school education at some point during 2001.

On one hand, younger workers were more likely to be overqualified, as were immigrants and people who had studied commerce as well as arts and humanities in school. Across industries, overqualified people were most likely to work in the retail/wholesale sector.

On the other hand, the higher the university certification, the less likely workers were to experience a job requiring at most high school education. Others who were less susceptible included unionized workers, those working on a full-time basis and people who had studied sciences and health in school.

Overqualification is an important issue for employees, employers and policy makers. On a personal level, it has a psychological dimension. Underemployed university grads often experience the frustration of lower earnings and job dissatisfaction. It could be a personal choice for some to work in a lower skilled job because of better career opportunities, higher family responsibilities, or to improve the quality of life such as being less stressed. For the nation as a whole, however, it represents an underutilization of human capital.

For the purpose of this study, an overqualified worker was defined as someone who held a university degree and had worked between 1993 and 2001 in an occupation that required at most a high school education for at least one month. The definition of overqualification was inspired by the definition used in a recent published article “Immigrants: Settling for less”.¹ The present study created a longitudinal concept by taking into account the length of time people experienced overqualification, which could not be done using Census data. The ever overqualified workers were then further split into seldom, chronically and always overqualified.

This study uses data from two separate panels of 30,000 adults surveyed for SLID. The first panel spanned six years from 1993 to 1998; the second panel spanned six years from 1996 to 2001. Data from the first year of follow-up from the first panel was combined with data from first year of follow-up from the second panel. Data from the second year of follow-up from the first panel was combined with data from second year of follow-up from the second panel. The two panels were combined this way for each year of follow-up. Consequently, the study will refer throughout to a “six-year” period of follow-up.

Increase in overqualified workers

Using data from the National Occupational Classification (NOC), it is possible to estimate skill levels required to work in more than 500 occupations. Codes assigned to the NOC can be used to associate both the education level usually required in the labour market and some criteria covering experience, specific training and responsibility related to health and safety, as in the case of police officers and nurses.

The number of university-educated workers² who were overqualified for their job was nearly one-third higher in 2001 than in 1993.

An estimated 331,100 workers had experienced this situation at some point in 2001, up from 251,600 in 1993.

Proportionally, however, due to an increase in the stock of workers with university degrees between 1993 and 2001, their share of all university-educated people in the workforce remained virtually unchanged. These people accounted for about one-fifth (19%) of the all university-educated people in the workforce in 2001, up marginally from 18% in 1993.

The rest of this study exploits the longitudinal nature of the SLID to estimate the persistence of overqualification among workers with university degrees. It examines only the group who had strong attachment to the labour market, that is, they worked for more than 4.5 years³ of the six-year period and at least one month in an occupation that required at most a high school education.

For this group, the study shows that the percentage of workers overqualified is much higher than the 18% or 19% in 1993 and 2001 respectively. The percentage of people strongly attached to the labour market with a university degree and who worked at least one month between 1993 and 2001 in an occupation that required at most a high school education was 30%.

Always overqualified: account for one-third of overqualification

A significant proportion of university-educated workers had worked in a job for which they were overqualified during their entire work period.

The study also found that a small group of people who were overqualified for most of their time in the labour force were also responsible for a disproportionate share of time spent in overqualification.

Those who were overqualified for 100% of their work period accounted for 20% of the ever overqualified workers. However, they accumulated more than 11 million months of overqualification.

During this six-year period, people with a university degree who worked at some point in a job that required at most a high school education had accumulated a total of 34 million months of overqualification.

In other words, those who were always overqualified accounted for just one-fifth of all overqualified workers but for one-third of the total period of overqualification accumulated by all individuals during the study period.

Chart
The seldom overqualified accounted for a disproportionately lower share of time spent in overqualification

In comparison, the study examined the group of respondents who held a university degree and who seldom worked in a lower-skilled occupation, that is, for less than 50% of their work period.

This group accounted for 66% of the overqualified workers. But they accumulated only 43% of the total time spent in overqualification, about 15 million months.

Older workers: higher chances of remaining overqualified the entire period

Younger workers were more likely to work in a position for which they were overqualified. However, older workers had higher chances of remaining overqualified during the entire work period, once they were in an overqualified situation.

Among young people under the age of 30 at the beginning of the six-year follow-up, almost one-half (48%) experienced overqualification at some time during the study period. This was three times higher than the proportion of 18% among older workers aged 50 and over.

Chart
Overqualification falls with age

Another Statistics Canada study, “I still feel overqualified for my job”, supported this finding.⁴ The article quoted data from the 2000 General Social Survey showing that 33% of young workers aged 20 to 29 felt overqualified, compared with 23% of their counterparts aged 30 to 64.

However, longitudinal data from SLID takes the analysis one step further. Once workers were in a situation in which they were overqualified, the older workers showed a tendency to stay there. In other words, the incidence of being overqualified 100% of the time increased with age.

Among older workers who had been overqualified at least some point during the six-year period, almost one-half (47%) were in the situation all of the time. However, among their younger counterparts, only 18% were overqualified all of the time.

Chart
Older workers more likely to remain always overqualified than younger workers

Labour market researchers have at least two theories to explain this situation for young workers. The first, known as the career mobility theory, predicts that workers may temporarily work in jobs that provide them with skills to be used later in a different, higher-level job.

Therefore, it might be optimal to spend a limited period of time in a job in which the worker appears to be overqualified. Overqualification may substitute surplus education for other forms of human capital young workers may lack, such as work experience or training.

The second theory, known as the matching theory, holds that young workers are still inexperienced in finding the right job. Because of imperfect information, it results in a bad match between the firm and the employee.

More than half of recent immigrants were overqualified

The study showed that recent immigrants—those in Canada for 10 years or less—had a higher incidence of overqualification than their Canadian-born counterparts. In addition, their period of overqualification lasted longer.

Much of this problem may have to do with recognition of their foreign educational credentials and their workplace experience.

More than one-half (52%) of recent immigrants with a university degree worked in a job requiring only high school education at some point during the six-year period. This was almost twice the proportion of 28% among their Canadian-born counterparts.

Chart
One in two recent immigrants experienced overqualification

When other factors such as individual and workplace characteristics were taken into account the study found that recent immigrants were not only twice as likely to experience overqualification. They were also twice as likely to stay overqualified 100% of the time.⁵

Among the overqualified workers, recent immigrants had a 72% chance of being overqualified all of the time, compared with 36% for Canadian-born, when the other factors were taken into account.

Another Statistics Canada study using the census data showed similar findings.⁶ Recent immigrants were twice as likely to be in jobs requiring low education as their Canadian-born counterparts. It pointed to factors such as institutional and language barriers; difficulties related to recognition of foreign credentials and experience; and a variety of incidental factors such as discrimination encountered by some immigrants.

In addition, data from the 2003 Longitudinal Survey of Immigrants to Canada showed that even after two years of living in Canada, the most serious problem or difficulty for prime working-age immigrants in finding employment was their lack of experience in the Canadian workforce.⁷ Many also reported that their most serious problem was difficulty in getting acceptance or recognition for their foreign professional credentials or educational qualifications, such as diplomas or degrees obtained in their homeland.

Higher educational attainment: less overqualified and less always overqualified

The higher the university certification, the less likely workers were to experience overqualification and to remain always overqualified.

Empirical analysis showed that workers with a bachelor’s degree or less had a 30% chance to be overqualified, compared with a 19% chance for people with a master’s degree or a doctorate, when other factors were taken into account.⁸

Among workers with a bachelor’s degree or less, one-third experienced overqualification during their work period. Moreover, these people were almost evenly distributed across the entire spectrum, from those seldom overqualified to those always overqualified.

In comparison, one out of five workers with more than a bachelor’s degree experienced overqualification.

Chart
Workers with more than a bachelor’s degree over-represented by seldom overqualification

Holders of a bachelor degree were twice as likely to remain overqualified 100% of the time as people with higher degrees, holding other personal and workplace characteristics constant.⁹

Overqualification also varied greatly depending on the type of studies that were completed. For example, the incidence was lower among workers who had studied science and health.

Approximately 20% of workers who had studied science or health were overqualified at some point in their career, similar to findings from a previous study.¹⁰ This was significantly lower compared to the 37% of those who had studied commerce and who were overqualified at some point, as were 32% of those who had studied arts, humanities or social sciences.

Chart
Overqualification lower among those who completed science or health studies

Analysis showed, however, that there were no significant differences among the different fields of study in terms on the probability of being 100% overqualified.

No gender and regional differences in overqualification

According to this study, there was no statistically significant difference between the proportion of men and women who were strongly attached to the labour market and who had ever experienced overqualification at some point during the study period. Another recent Statistics Canada study supports these findings and showed results leading to the same conclusions.¹¹

About 31% of men who had a university degree occupied a job that required at most a high school diploma, compared with 26% of women.

Furthermore, the study found no significant apparent differences of overqualification rates regionally in Canada even after controlling for other personal and workplace characteristics.

In the west—British Columbia, Alberta, Saskatchewan and Manitoba—30% of workers experienced overqualification at some point. In central Canada – Ontario and Quebec – about 28% were in this situation, and in the Atlantic provinces—Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New Brunswick—the proportion was 25%.

Full-time workers: less likely to experience overqualification, but more likely to stay overqualified

Overqualification was more frequent among part-time workers. About 42% of part-time workers (those working less than 30 hours per week) experienced overqualification compared to only one-quarter of full-time workers. However, proportionally, full-time workers were more than twice as likely to stay overqualified 100% of the time compared to their part-time counterparts.

This may be because full-time overqualified workers may have been more attached to their job and less willing to leave because of higher opportunity costs.

Chart
Full-time workers at least twice as likely to remain always overqualified

Across industries, overqualified Canadian workers were mostly in the distributive trades sector, either retail or wholesale. One out of two workers in the distributive sector experienced overqualification during the study period.

In the other sectors, the overqualification rate ranged from 23% in the consumer services sector to 34% in the manufacturing and construction sectors.

Again, the analysis showed that there were no significant differences among different industrial sectors in terms of the probability of being overqualified 100% of the time, once personal and workplace characteristics were taken into account.

Chart
One out of two workers in distributive services sector experienced overqualification

Workers who were part of a union or collective agreement were less likely to be overqualified than their counterparts.

Less than one-quarter of unionized workers experienced overqualification compared with 38% of non-unionized employees. However, unionized workers had a much higher chance of remaining overqualified for 100% of the time than their non-unionized counterparts.

Chart
Members of a union or collective agreement were less likely to experience overqualification, but more likely to remain always overqualified

Overqualification also varied with the size of the enterprise. About 25% of workers employed in larger firms, those with 500 employees or more, were overqualified at some point during the study period, compared with about 30% in small and medium-sized firms. However, the probability of employees working in small firms remaining overqualified 100% of the time was twice that of medium-sized firms.

Chart
Medium sized firms have lower incidence of always overqualified workers

Table
Cross-sectional counts and percentages of overqualified workers among university degree holders in 1993 and 2001

Table
Logistic regression results for the never versus ever overqualified workers

Table
Logistic regression results for the seldom versus always overqualified

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Footnotes

1. See Diane Galarneau and René Morissette, “Immigrants: Settling for less?”, Perspectives on Labour and Income, Vol. 16, No. 3, Autumn 2004, Statistics Canada, Catalogue no. 75-001-X.
2. For all results shown in this analysis, managers were excluded, given the great diversity of their experience and education level.
3. Includes both part-time and full-time workers.
4. See Susan Crompton, “I still feel overqualified for my job,” Canadian Social Trends, No. 67, Winter 2002, Statistics Canada, Catalogue no. 11-008-X.
5. See technical details about logistic regression in the Sample and method section. These results are statistically significant at least at the 90% significance level. Regression results are available at the end of this document See logistic regression variables in the Sample and Method section. These results are statistically significant at least at the 90% significance level. Regression results can be obtained at the end of this document.
6. See Diane Galarneau and René Morissette, “Immigrants: Settling for less?”, Perspectives on Labour and Income, Vol. 16, No. 3, Autumn 2004, Statistics Canada, Catalogue no. 75-001-X.
7. See Tina Chui and Kelly Tran, “Longitudinal Survey of Immigrants to Canada: Progress and Challenges of New Immigrants in the Workforce”, October 2005, Statistics Canada, Catalogue no. 89-615-X.
8. See technical details about logistic regression variables in the Sample and method section. These results are statistically significant at least at the 90% significance level. Regression results are available at the end of this document.
9. Ibid.
10. See Marc Frenette, “The overqualified Canadian graduate: the role of the academic program in the incidence, persistence, and economic returns to overqualification”, Economics of Education Review, Vol. 23, 2004.
11. Ibid.