The Productivity Benefits of Overeducation

Overeducation is an issue of concern in the public discourse that has implications for aggregate labor productivity. Extending a literature focused on individual outcomes, we find productivity-enhancing effects in Canadian data by province and industry spanning 1997–2015. Dynamic panel models with external instruments show that productivity increases by about 3% for each 1% increase in the overeducation shares. Effects are largest among industries with more intangible capital investment or with more jobs that require university education and among small-firm employees that are not unionized. Our results provide yet another argument for the benefits of postsecondary education.