Moving beyond Supply-Side Arguments to Explain Over-Qualification: The Ability to Absorb Graduates in Different Models of Capitalism

This study examines how the rise in the share of higher education graduates leads to over-qualification, by focusing on the demand-side drivers. We propose that the benefits of investments in higher education depend on the levels of innovation and economic growth in each national economy. We use a configurational method (Fuzzy Set Qualitative Comparative Analysis) to identify combinations of factors that lead to a high incidence of over-qualification in 17 European countries. The results show that over-qualification is greater in countries in which an increase in the number of graduates is accompanied by a failure to transition to a knowledge-based economy and poor economic growth. Furthermore, a low weight of high-tech manufacturing sectors in the GDP is a necessary condition for over-qualification to occur. These arguments explain the more pronounced mismatch in Southern Europe and Austria compared to other European countries. As for policy implications, this study shows that investment in education did not lead to expected benefits in some countries because this investment did not boost competitiveness in high-tech sectors. Thus, alternative policies must be implemented. Besides investment in education, some kind of industrial policy seems necessary in a number of European countries.