Which skills protect graduates against a slack labour market?

• Author: Rolf van der VELDEN,Andries de GRIP,Martin HUMBURG
• Date: 01 March 2017
• Published date: 01 March 2017
• DOI: http://doi.org/10.1111/j.1564-913X.2015.00046.x

International Labour Review, Vol. 156 (2017), No. 1

Copyright © The authors 2017

Journal compilation © International Labour Organization 2017

Which skills protect graduates against

a slack labour market?

Martin HUMBURG,* Andries de GRIP** and Rolf van der VELDEN**

Abstract. This article explores the relationship between graduates’ skills and their

risk of over-education and unemployment in 17 European countries. Distinguish-

ing between eld-specic and academic skills, the authors nd that, as predicted by

the crowding-out hypothesis, eld-specic skills offer more protection against the

risk of over-education when the excess labour supply in the occupational domain

of the graduate’s eld of study increases. Conversely, academic skills have that ef-

fect when excess supply in the overall labour market is higher. Field-specic skills

also protect graduates against the risk of unemployment, whereas graduates’ level

of academic skills appears to be unrelated to the risk of becoming unemployed.

Several studies have analysed the cyclical crowding out of low-skilled

workers by high-skilled workers.1 In general, their ndings suggest that

having a higher level of education protects workers against unemployment in

slack labour markets: when overall labour demand decreases, higher-educated

workers will enter the jobs previously occupied by lower-educated workers and

these in turn will face a higher probability of becoming unemployed. While

previous studies have focused on workers with different levels of education,

we expect the same mechanisms to lead to competition for jobs among work-

ers with the same level of education but different skill endowments. Workers

with the lowest skill endowments within their level of education are the least

likely to secure a job which requires their level of education when excess la-

bour supply increases.

To the best of our knowledge, this study is the rst to focus on individ-

uals with the same level of education to investigate whether the protective

effect of a higher level of skills against over-education and unemployment

* ICF Consulting Services, email: martin.humburg@gmail.com. ** Research Centre for

Education and the Labour Market (ROA), Maastricht University School of Business and Econom-

ics, emails: a.degrip@maastrichtuniversity.nl and r.vandervelden@maastrichtuniversity.nl.

Responsibility for opinions expressed in signed articles rests solely with their authors, and

publication does not constitute an endorsement by the ILO.

1 See, in particular, Gautier et al. (2002), Devereux (2002), Gesthuizen and Wolbers (2010),

Keane and Prasad (1993), Pollmann-Schult (2005), Teulings and Koopmanschap (1989) and Van

Ours and Ridder (1995).

International Labour Review26

increases with the degree of over-supply in the labour market. For the purposes

of our analysis, we use data from a survey of graduates conducted in 17 Euro-

pean countries;

2

these data contain skill measures and offer variation in labour

market conditions across countries and elds of study. We examine whether

the extent to which graduates’ labour market risks are affected by their eld-

specic and academic skills depends on the ratio of labour supply to demand.

By focusing on individuals at the upper end of the educational distribution

around the time of their labour market entry, we are able to distinguish two

risks associated with excess labour supply: the risk of over-education and the

risk of unemployment. We examine eld-specic and academic skills because

these represent one of the most important skills dichotomies.3

This article contributes to the literature in two ways. First, we shed more

light on the relationship between eld-specic and academic skills and the la-

bour market outcomes of graduates. Second, we analyse how the protective

effect of eld-specic and academic skills varies with the labour supply and de-

mand ratio. In line with the predictions of the crowding-out hypothesis, we nd

that the level of protection afforded by eld-specic skills against the risk of

over-education is higher when the degree of excess labour supply in the occu-

pational domain of the graduate’s eld of study is higher. Conversely, academic

skills offer more protection against the risk of over-education when excess la-

bour supply in the overall labour market is higher. Further, eld-specic skills

also protect graduates against the risk of unemployment, whereas graduates’

level of academic skills appears to be unrelated to the risk of unemployment.

The remainder of this article is structured into ve sections. The rst pre-

sents our conceptual framework, and the second, our hypotheses. In the third

section, we discuss our data and denitions, and in the fourth, we present our

estimation results. The nal section then sets forth our conclusions.

Conceptual framework

The crowding-out hypothesis is compatible with the job competition model

(Thurow, 1975) and is based on the idea that when jobs become scarce, vacancies

previously lled with low-skilled workers are lled with higher skilled workers,

pushing the former into ever lower skilled jobs or even into unemployment. This

process — also referred to as “skill bumping” (Borghans and de Grip, 2000) —

2 Throughout this article, the term “graduates” refers to individuals who have graduated

from a higher education institution, including both universities and universities of applied sciences.

3

The economic literature usually distinguishes between rm-specic and general skills. While

the former augment productivity only in a specic rm, the latter are productive across multiple

rms. In our analysis of the labour market outcomes of graduates, the unit of analysis is the eld

of study rather than the rm. Following Heijke, Meng and Ris (2003), we therefore deviate from

the standard dichotomy by referring to eld-specic instead of rm-specic skills. We dene eld-

specic skills as skills which are productive in jobs related to a graduate’s eld of study and which

are transferable to the occupational domain of other elds of study only with considerable depre-

ciation in value. Academic skills, on the other hand, are productive in all occupational domains and

do not depreciate when transferred from one domain to another.