The scarring effect of graduate underemployment: evidence from the UK

Matt Dickson, Michael Donnelly, Kalyan Kumar Kameshwara, Predrag Lazetic

Research output: Working paper / PreprintWorking paper

Abstract

The UK has one of the highest proportions of tertiary educated workers in Europe, but also one of the highest rates of graduates not attaining graduate level jobs i.e. being underemployed, and the highest wage penalty for graduate underemployment. Little is known however about the extent to which there is a scarring effect of early graduate underemployment for future graduate labour market outcomes. In this paper, we use linked survey and administrative data to examine the scarring effect of graduate underemployment for 55,000 graduates from undergraduate degrees in the UK in 2013. Graduate outcomes at 6-months and 42-months post-graduation are recorded and linked to their detailed education records covering their higher education, school prior attainment, demographics and family background. We find that compared to attaining a graduate job 6-months post-graduation, early experience of underemployment increases the probability of being underemployed three years later by 0.24 after controlling for a rich set of covariates. This is a large effect relative to the base risk of underemployment at 42-months for those in a graduate job at 6-months which is just 0.08. We then construct Oster (2019) bounds for the causal effect of the early underemployment and under realistic assumptions find a range of 0.18-0.24, suggesting that early underemployment causally increases the chances of later underemployment by at least 0.18. This is an important finding as early graduate underemployment is both much more prevalent and much more persistent than early unemployment, and has similar negative effects on the prospects of attaining a graduate job in the future.
Original languageEnglish
Publication statusUnpublished - 1 Apr 2023

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