Objective over-education and worker well-being: A shadow price approach

This paper examines, for a sample of Flemish school leavers, the relation between objective over-education and job satisfaction by applying a shadow price approach. We differentiate between direct effects of over-education and indirect effects via other job characteristics that are associated with over-education. Additional fixed-effects estimates are executed to account for individual heterogeneity. The utility consequences of over-education are found to be large and cannot be compensated by a reasonable wage increase at the start of the first employment. These outcomes suggest that, at labour-market entry, over-education is largely involuntary, and is likely to induce negative productivity costs. The negative consequences of over-education are also found to diminish with years of work experience. (C) 2008 Elsevier B.V. All rights reserved.