Over-education, Knowledge Unemployment and Economic Growth
Jun Liang, Yang Zhou, Jiao Cai
Business School of Shandong University
No.180 West Culture Road Weihai, 264209,China
(liangjunsong@sdu.edu.cn, youngera.2008@163.com, yiyi_388@qq.com)
Abstract - Scholars believe that both over-education and
knowledge unemployment will produce unfavorable effects
on economic growth, but most of them ignore that the
interaction of over-education and knowledge education will
also imperil economic growth. The over-education and
knowledge unemployment coexist and interweave with each
other at present in China, which have produced an adverse
impact on labor productivity and economic growth. In order
to promote economic growth and eliminate the coexistence of
over-education and knowledge unemployment, it is
necessary to deepen education reform, improve education
system, and at the same time introduce relevant policies and
measures, such as to speed up the development of service
industry in order to avoid over-education and knowledge
unemployment worsen.
Keywords - Over-education; Knowledge unemployment;
Economic growth.
I. INTRODUCTION
Since implementing the admissions policy to enlarge
the higher education scale, the students’ scale of China
higher education has expanded rapidly: it increases from
7.423 million in 1990 to 1.05 million in 2010. The gross
entrance rate for higher education exceeded the elite
education threshold, which is 15%, in 2002, and with a
steady rising, it reached 26.5% in 2010, which indicates
China has officially entered the popular education stage
[1]
. But subsequently college student employment
becomes austere, the graduation even means
unemployment for many college students and the wage
level has been general reduced .Some scholars prove that
the relationship between the expansion of higher
education and economic growth is not always positive
correlate by empirical research [2]. Based on these
phenomena, some scholars believe that China already has
a common over-education problem, namely there is a big
gap between education development level and the social
economic development level due to excessive education
investment. However, other scholars, who hold
knowledge unemployment theory, disagree on that. In
their opinions, Chinese problem is the knowledge
unemployment other than over -education, generally
speaking, knowledge unemployment is an inevitable
product due to the increase of the education level in
developing countries, and only when the education level
of individual is higher than work-needed education level.
Can it be called over -education. Besides, over-education
usually exists in developed countries, Since China is a
developing country whose education is in deepening stage
at present and is still far below the over-education level.
For all these reasons, China has not appeared
over-education yet [3]. we think over-education and
knowledge unemployment coexist and interweave in
China currently and produce great influence on Chinese
economy, neither over-education nor knowledge
unemployment
could
describe
the
situation
comprehensively, so it is not helpful to understand the
problems precisely and completely and also not contribute
to find the real “key” to solve the problems from the
respect of either over-education or knowledge
unemployment.
II. THE COEXISTENCE AND INTERACTION OF
OVER-EDUCATION AND KNOWLEDGE
UNEMPLOYMENT
Over-education theory was first proposed in 1976 by
the U.S. Labor economists R. B. Freeman, and it was used
to explain the fall in education yields of United States
since the early 1970s. Freeman pointed out that the
inflated expectations on future labor market made the
higher education labor supply, whereas the increased
labor force could not be absorbed by the labor market
matched with the education level, thus the higher
education workers occupied the jobs of low level
technology workers [4]. Henry Levin (Henry M. Levin,
1985) defined three specific measuring standards of
over-education in detail: (a) after being educated, the
worker’s economic status drops compare to the higher
level worker in history; (b) educated people fail to meet
the expectations of career success; (c) workers have
higher education skills than its work demanded[5].
However, the above three measuring standards are too
general to be operated in practice, so scholars continue to
develop other theories to measure the degree of the
over-education.
Among
these
theories,
the
groundbreaking research on over-education posted by
Greg Duncan and Saul Hoffman provided an correct
thinking way to study this problem for successors, that is,
before further measuring over-education, we must
measure the work demanded education. The methods to
measure demanded education can be roughly divided into
the work analysis method, the worker self-assessment
method, the actual matching method and so on [7].
As for the cause of over-education, scholars give
theoretical explanations from different point. Considering
from the perspective of economic analysis, there are
Human Capital Theory and the Screening Hypothesis.
Human Capital Theory first defines an ideal labor market,
namely an completely competitive market without system
obstacle, transaction costs and incomplete information. In
this market, labor supply and demand depends only on
changes in wage rate, over-education is a temporary
phenomenon appears in incomplete labor market. The
education investment return will affect the individual's
investment in education, when education is excessive, the
labor wage rate will fall and lead to a decline of return on
investment in education, this avoids the excessive
investment in education. Therefore, education and job will
match each other in the long term. Moreover, this theory
believes that the real labor market does not meet the
assumptions of completely competition is another reason
why over-education are produced, and lead to the job
seekers could not always find jobs that match their
education level in labor market[8].
Unlike Human Capital Theory, Screening Hypothesis
explains the cause of over-education from the perspective
of employing units. According to this theory, as the
external manifestation of personal basic information,
education plays a role of screening device to help
employers to identify and find the demanded employee
and decide wage, occupation distribution and assignment
when they have difficulty in obtaining their
comprehensive information. Consequently, in order to
obtain a good job more easily, job seekers have to
improve the education level constantly. But with the
expansion of the scale of higher education, there are more
and more highly educated holders whereas the job supply
has only changed a little in labor market, and employing
unit has more and more demanding on job seekers.
Therefore, under the same work requirements condition,
the labor education level has a relative upward trend,
which means the appearance of over-education
phenomenon [9].
Knowledge unemployment is a state that highly
educated workers are not employed. It can be expressed
as the modernized talents cultivated by higher education
have a larger amount than the jobs the modern sector can
accommodate. As a result, part of knowledge workers
cannot find jobs. Strictly speaking, knowledge
unemployment is an economic phenomenon between
voluntary unemployment and involuntary unemployment,
it is a embarrassing situations in which the job seekers
cannot find a higher post but unwilling to take a lower one
relative to their expectation. Actually, as long as the job
seekers adjust their employment mentality and career
anchors a little, they can still find ordinary jobs. After all,
these knowledge workers are younger, educated, and have
a strong ability to accept new things [10].
Generally speaking, knowledge unemployment is
affected by the following factors: (a) oversupply of
knowledge labor force. This can usually be linked to
above-mentioned over-education theories as the
over-education extremely likely will contribute to the
knowledge unemployment in the short run; (b) structural
asymmetry of supply and demand. We usually ascribe this
to unreasonable setting of university majors, and
education contents and cultivated goal departure from the
market needs [11]; (c) analysis based on the job search and
its extension model indicates that knowledge workers
regard knowledge unemployment as a waiting
unemployment. According to the Signal Transmission
Theory, a person's work experience will transmit signals
about his or her ability to employers in the next job
hunting, thus most knowledge workers are unwilling to
condescend to those unsatisfactory jobs [12]; (d) the
economic system arrangement maybe has the potential
influence on the knowledge unemployment, [13].
Knowledge unemployment theory and over-education
theory
have
different
emphasis:
knowledge
unemployment mainly indicates the unemployment of
higher educated labor force with a structural surplus,
while over-education involves not only the higher
education graduates can't find work smoothly, but also the
mismatch between the education level of employee and
the education level the job required, which shows as an
overall surplus. It can be said that the knowledge
unemployment is a necessary stage of education
deepening process, while over-education appears only
when a country's national education reaches a certain
level as a whole in the strict sense. However, the
over-education and knowledge unemployment coexist
with each other at present in China. Over-education
cannot happen overnight, it needs a development process,
so whether a country has entered the universal education
stage (gross entrance rate for higher education > 50%) or
not cannot be taken as the only necessary condition for it.
Besides, the education levels and supply and demand
status for labor market are various in different areas in
China. For the top-tier cities like Beijing, Shanghai, labor
supply exceeds demand, which is more likely the overall
surplus rather than just structural surplus. Facing the
unbalanced development situations, we believe that the
knowledge unemployment has become a common
phenomenon, and the over-education has appeared in
local region at the same time.
III.
IMPACT ON ECONOMIC GROWTH
Both knowledge unemployment and over-education
will affect economic growth, but considered separately,
over-education has more negative impacts on economic
growth due to its wider influence. As knowledge
unemployment is the result of structural surplus in some
modern sectors, its negative influence on economic
growth is not very serious relatively. In the reality,
knowledge unemployment always interacts with
over-education, and affects economic growth together.
A. The interaction of over-education and knowledge
unemployment may cause "adverse selection" in
education investment and a huge waste in human
capital
First of all, over-education and knowledge
unemployment may promote each other, and dim
education signal, trigger education investment adverse
selection behavior. According to Screening Hypothesis, as
a screening device of labor market, education degrees not
only decide whether the job seeker could get jobs
successfully or not, but also will affect the future salary
and post arrangement, and this will drive some educated
to chase highly education degrees in order to get better
jobs. In addition, we should realize that quite a part
people with higher education continue their education not
because they want to or they hope to get a higher
education degree to proof their ability, but because they
have to as they do not have any advantage in talent market
competition, it is a kind of adverse selection. Therefore,
knowledge unemployment may promote over-education
and adverse selection, and the over-education and adverse
selection will make unemployment knowledge more
serious.
Second, knowledge unemployment and over-education
will cause a huge waste of human capital undoubtedly.
Generally speaking, apart from the opportunity cost or
other costs, cultivating a college student will cost country
and family about 5-8 million RMB even if just calculate
college education investment. Knowledge unemployment
and over-education will reduce the return on education
investment, so some poor families maybe reduce or even
terminate the education investment. Even if the well-off
families who blindly pursue the higher education degree
increase the education investment, their other family
consumption will be influenced inevitably. Moreover,
unlike physical capital, human capital cannot be stored,
any unnecessary leave-unused is a kind of value waste.
Considering the limitation of national financial resource,
the education resources, especially the higher education
resource, is allocated in proportion of the national
economy development, thus the waste of investment in
education will inevitably affect other development of
society, and further may make China's real growth rate far
lower than the potential economic growth rate.
Furthermore, we should know that either knowledge
unemployment or over-education is a unstable factor in
society, it is easy to bring about the public anxiety and
social instability, after all, going to university has always
been the main way to improve economic conditions and to
achieve higher social status situation for ordinary people
in China. If knowledge unemployment and over-education
cannot be solved, more and more knowledge labor will
join the team of unemployment, and as a result, people
and families will have an uncertain pessimism on the
future and be discontented with society. In addition to
that, it also gives a great psychological pressure on
employees, and the expansion of unemployment scale will
cause social instability, too.
B. Over-education has a more serious effect on
economic growth than knowledge unemployment as it
will cause "lemon effect"
Firstly, over-education has a more serious effect on
economic growth than knowledge unemployment,
over-education includes not only the current dominant
unemployment but also the unemployment of job hunters
with low education degree because the high education
degree holders occupied their position. Besides, the
mismatch of education level and post makes them prone
to produce a psychological gap because of the failure in
meeting their expectation on careers, therefore
over-education has a wider negative influence on
economic growth, and it mainly shows as followings:
over-education may let employees get a attitude and
inimical behavior which is not conducive to the
improvement of labor productivity. The studies of Simon
Kuznets have shown that, the high GNP growth rate of
developed capitalist country is not primarily determined
by the growth of labor or capital input, but is determined
by the substantial growth in labor productivity, so if the
labor productivity could not be improved to an
appropriate level, a burden on economic growth will come
into being.
Secondly, over-education may also generate lemon
effect in high-end employment market. The lemon effect
mainly emphasizes that when we treat education degree as
a screening device, its signal function has the possibility
to be distort due to the existence of adverse selection. In
the first place, the job-seekers can be divided into
over-educated and job-matched educated, we can prove
that, in an oversupply labor market, people who has low
ability are often more likely to be over-educated and to
get a better job because of the opportunity cost. Because
compared with the high ability, people with the low
ability is more difficult to find a education-matched job
under the education-matched condition, so these people
have more motivated to accept over-education while the
people with the high ability has a greater opportunity cost
to give up a ideal job to continue education. Eventually,
the education degree signal as the personal capacity of job
seekers will be distorted. When these low ability
over-educated graduates enter into the labor market, the
supply will further exceed the demand, the employers are
always in a advantage position and are very likely to
reduce the starting salary of the recruitment. At this time,
the high-ability candidates will lose enthusiasm to apply
the jobs because of the dissatisfaction with starting salary.
However, considering their own conditions and the
opportunity cost without the jobs, the low-ability
candidates tend to accept the lower conditions given by
employers. As a result, the low-ability applicants will
have more competitive advantages than the high-ability
applicants, then the lemon effect (bad money drives out
good) phenomenon appears in high-end employment
market and produces adverse effects on social economy
development. This is because the quality and capacity of
the employment in high-end labor force market who are
the main body of knowledge innovation, is the key to
improve labor productivity and economic growth [14].
IV.
COUNTERMEASURES
In view of the coexistence of over-education and
knowledge unemployment currently in China, we think
we should take appropriate measures to alleviate their
negative impacts on economic growth firsty, we must
break the interrelated chain between knowledge
unemployment and over-education. Certainly, we should
proceed in an orderly way and step by step so as not to
affect China to achieve its goal of becoming a strong
human resources nation. According to the above analysis,
we can reduce the negative influence of knowledge
unemployment and over-education on economic growth
from the following two aspects:
First of all, we should reform and improve the
education system, optimize education resource allocation.
(a) The government should guide and improve the current
education system, increase investment in education, and
the investment should tilt to the private universities and
vocational and technical colleges which have finance
shortage problems. Only in this way, can the financial
pressure of related schools be reduced. And it might
contribute to solve the “enrollment thirst disease” of these
schools, too. Moreover, we should integrate the existing
education resources and concentrate these resources on
building a number of world advanced key universities at
the same time [15]. On the one hand, we should
encourage knowledge workers to start their own business
by making preferential policies in the aspect of credit,
land, tax revenue and so on. On the other hand, we should
give students more advices to improve their prediction
ability, reduce their job expectation, and build a correct
self-employed value and employment value. (b)
Universities should figure out the supply and demand
situation in the labor market of each major, timely adjust
the majors’ direction and teaching plan, set up majors that
society demanded and cancel the obsolete courses at the
same time. In order to help students to meet the
job-application requirements, the universities should try
their best to strengthen practice teaching, enhance
students’ abilities of practical operation and business
management and improve the way they treat people and
things. It is also important for universities to do a good
job in employment guidance, so that they can help
students adapt to the changing requirements of society
and satisfy the needs of choosing careers or establishing
businesses. Furthermore, setting up their own businesses
can not only make entrepreneurs employed, but also can
provide jobs for society. (c) The knowledge workers not
only need to adjust their mentality and to cope with harsh
reality of knowledge unemployment actively, but also
need to adjust their employment expectations according to
the change in supply and demand situation of labor
market.
Secondly, we should accelerate the development of
high-end services, absorb more well-educated labor force,
avoid the further deterioration of knowledge
unemployment, thereby slowing down and cut off the
knowledge
unemployment
and
over-education
intertwined, vicious spiral roots. Under the current
economic circumstances, the government should publish
corresponding policy to accelerate the high-end service
industry development to reduce or even eliminate the
over-education phenomenon. A typical characteristic of
service industry is its huge capacity for labor force. From
the respect of employment quantity, the amount that
China’s service industry absorbed has increased most
rapidly compare to the first and the second industry since
1978. According to the National Bureau of Statistics, the
average growth rate of labor force in service industry
from1978 to1996 is 7. 6%, while the rates of the primary
industry and the industry are 1. 6% and 5. 0%
respectively. In 1990s, when the average growth rate of
labor force in the primary industry had a negative growth
(-1. 8%) and the second industry had a slow growth
(3.0%), the service industry still maintained a growth rate
of 7. 6%. This fully shows that the services industry has
become the main industry to absorb labor force in China
[16]
. But in general, the employment structure of China’s
service industry is still not reasonable, the financial
industry and the science and technology industry only
make up a small share, and compared with the developed
countries, there is still a big difference. The government
should introduce relevant policy to rationalize the service
structure, and to absorb excessive labor force to mitigate
the negative impact of over-education and knowledge
unemployment exert on economic growth.
V. CONCLUSION
At
present,
over-education
and
knowledge
unemployment are coexistence in China, simply divide
this phenomenon into over-education or knowledge
unemployment isolated cannot describe the current
situation comprehensively, it is not helpful to grasp the
problems precisely and completely, and it is difficult to
find the real key to solve the problems correctly. In order
to
eliminate
over-education
and
knowledge
unemployment, we should recognize the profound impact
that the interaction of over-education and knowledge
unemployment produces. What’s more, only to deepen
education reform, improve education system, optimize
allocation of education resources and in the meanwhile to
introduce relevant policies and measures, such as to speed
up the development of service industry to eliminate the
source of coexistence and interaction between knowledge
unemployment and over-education fundamentally, can the
problem be solved eventually and thus to promote the
sustained growth of economy.
ACKNOWLEDGMENT
The writing of this paper got my wife Dr. Ying-chun
Song's support, and the discussion with her lets me get a
lot of inspiration, she helped me polish the words in the
text, without her support, this paper could not be
completed successfully. At the same time, I also got my
graduate students Yang Zhou, Jiao Cai, Ting-ting Huang ,
Chunlin Sun and Fang-yuan Zhao and other students
various forms of help and support, they are always well
complete the work which I hand to them and their
excellent makes me feel very proud. I want to express my
sincere gratitude to them.
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