Labour market under-utilisation of recent higher education graduates: new Australian panel evidence

Purpose: This paper analyses the incidence of labour market under-utilisation amongst recent Australian higher education graduates and its effect on their wages, with an under-utilised graduate defined as a one who is in a job for which a sub-degree qualification would suffice. Originality: While other studies have investigated the under-utilisation of tertiary-educated workers in Australia, none have focused on the graduate labour market, i.e., graduates seeking appropriate work after the completion of their studies. This paper focuses specifically on these recent graduates, who tend to be rich in education-specific human capital but are generally poor in occupation-specific human capital. Key literature/theoretical perspective: Over-education; under-utilisation; human capital; signalling. Design/methodology/approach: This paper is based on panel data from the 2010 Beyond Graduation Survey, which surveyed recent graduates from Australian higher education institutions in 2007 and again in 2010. Wage effects are investigated using a combination of OLS and fixed-effects panel estimation techniques. Findings: Overall, 26% of graduates were under-utilised immediately after course completion and 15% were under-utilised three years later. Graduates were considerably more likely to remain under-utilised than become so later in their careers. Under-utilisation appears to affect the wages of different age groups in different ways. After controlling for unobserved heterogeneity, we find that young graduates tend to earn the same mean wages regardless of whether or not they are under-utilised, while older under-utilised bachelor degree graduates are at a significant wage disadvantage relative to their peers. Research limitations/implications: These findings have key implications for Australian higher education policy. With around a quarter of recent graduates finding themselves in jobs that require only a sub-degree qualification, policymakers may be well advised to encourage wider participation in vocational education and training and limit the supply of graduates from study fields with a persistent skills surplus. A potential limitation of this study is that a three-years-out perspective may not be sufficient basis on which to base conclusions on graduate under-utilisation in the longer term.