Can the world be over-educated?

Education Directorate

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Third-level education brings many benefits, and not just for the most educated. Higher education has expanded greatly in OECD countries in the past few decades, and the result as expected has been a rise in the number of graduates. But has the increasing supply of well-educated labour been matched by the creation of an equivalent number of highpaying jobs? Or will more and more people with university degrees simply have to work for the minimum wage?

In most OECD countries, between 7 and 27% of 55 to 64-year-olds (adults who entered the workforce in the 1960s and early 1970s) have completed tertiary-level education.However, in Canada and the US that figure is over 30%. Among younger adults aged 25 to 34, at least 30% have obtained tertiary qualifications in a score of OECD countries, with 40% or more in six others–Belgium, Denmark, Ireland, Japan, Norway and Spain–and over 50% in Canada and Korea. By 2005 some 32% of all age groups in the OECD area had attained tertiary education. Much of this growth has come from periods of rapid, policy-driven expansion in countries such as Korea, Ireland and Spain, which more than doubled the proportion of tertiary graduates entering the workforce between the late 1970s and the late 1990s from initially low levels. In the US and Germany the proportion remained largely unchanged, albeit with relatively high levels in the US and comparatively low levels in Germany.Not surprisingly, in many countries there has been a significant growth of jobs and industries in sectors dependent on a more skilled workforce. However, the question remains–what will be the effect of increasing the supply of the well-educated on the labour market? Some of the new graduates will likely end up doing jobs that do not require graduate skills. And they may obtain these jobs at the expense of less highly qualified workers.This crowding out is not only associated with a relative rise in unemployment among people with low qualifications, but also a possible reduction in the pay premium associated with tertiary qualifications, as a rise in graduate supply outstrips any rise in demand for graduate skills.Thanks to insightful new data, this year’s Education at a Glance gets to the bottom of this issue in a way that was not possible in the past. A key lesson is that there are substantial rewards associated with attaining tertiary education and substantial penalties associated with failing to reach at least the upper secondary standard.In all OECD countries, the average earnings premium associated with tertiary compared to upper secondary education is more than 25% and in some cases is more than 100%. Also, in those countries that have not expanded their third-level education, a failure to complete upper secondary education is associated with an 80% greater probability of being unemployed, compared to less than 50% in those countries that have increased tertiary education the most.Equally important, countries expanding tertiary education attainment more in the late 1990s tended to have a greater fall (or smaller rise) in unemployment between 1995 and 2004 than countries with less tertiary expansion. For example, France, Ireland and Korea had the fastest growth in tertiary attainment and close to zero or negative growth in unemployment, whereas Germany, the Czech Republic and the Slovak Republic had low or no growth in tertiary attainment but substantial growth in unemployment among the unqualified.In short, the lesser qualified are not crowded out from the labour market as one might expect, whereas there appear to be better employment opportunities even for lower educated groups when more people enter higher education.Another point highlighted in Education at a Glance is that a higher supply of skills does not create unemployment among those with tertiary qualifications or even a slump in their pay. True, tertiary graduates may enter jobs that are not quite in line with their qualifications, but it still indicates that the benefits of higher education have not deteriorated with expansion. And while there have been some small rises in the relative risk of unemployment for graduates, this has been no worse where tertiary attainment has expanded fastest. Ultimately, graduates in all OECD countries face much lower levels of unemployment than do other groups. In terms of pay, where their supply has risen fastest, there is some curbing in the premium graduates earn, but no general fall. If anything, the positive effects seem to have been more pronounced in recent years, suggesting that tertiary education is not expanding too rapidly.Can the dividend last? Will there be an everrising demand for the highly skilled, or will that demand level off and cause their relative earnings to ease back? It is hard to say. However, at the beginning of the 20th century, few would have predicted that upper secondary education would be largely universal in OECD countries by the century’s end.What is clear, for now at least, is that the demand for more and better education continues to rise, with still substantial payoffs in terms of earnings and productivity gains. Enrolments in OECD countries are up, with more than 75% of high school graduates in some countries now entering university-level education. How will countries pay for this expansion, given that spending per student has already begun to decline in some countries as enrolments rise so fast? Establishing innovative financing and student support policies that mobilise additional public and private funding will certainly be part of the answer. There is the example set by the Nordic countries, for instance, where massive public spending on higher education is considered a solid investment in society’s future. Or Australia, Japan, Korea, New Zealand and the UK, which have expanded tertiary-level education by getting students to pay admission fees, backed by, for instance, lowinterest loans. In contrast, several European countries have neither increased their public investments nor introduced tuition fees, with the result that the European average for spending per tertiary student is now well below half the level of spending in the US. Money alone is not enough, of course. Investments in education will need to become much more efficient too.For tertiary education, this means creating and maintaining a system of diverse, sustainable and high-quality institutions, with the freedom to respond to demand and accountability for the outcomes they produce. It means ensuring that the growth and development of tertiary educational systems are managed in ways that improve access and enhance quality. And it means that universities will have to evolve so that their leadership and management capacity matches that of modern enterprises.Institutions must be governed by bodies that have the ability to think strategically and reflect a much wider range of stakeholder interests than the sole academic community. Such change may not come easily, but the reward will be more value for money, and the prospect of more students of all levels looking forward to brighter futures.Note: This article is based on Ms Ischinger’s editorial in Education at a Glance 2007. For more, see (2007), Education at a Glance 2007, Paris.Visit©OECD Observer No 263, October 2007

Economic data

GDP growth: -9.8% Q2/Q1 2020 2020
Consumer price inflation: 1.3% Sep 2020 annual
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Unemployment: 7.3% Sep 2020
Last update: 10 Nov 2020

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