In Europe, around 30 percent of employees hold a position for which they are over-qualified (see meta-analyses of Leuven/Oosterbeek, 2012): they have accumulated more years of education than the position required. Research findings show, that over-education is negatively correlated with job satisfaction and earnings (for a review, see Quintini, 2011). One surplus year results in a pay penalty of around 4% compared to the equally educated in a well matched job. The risk of being over-educated is, however, not at random. Findings indicate that factors such as ability as well as socio-demographic, institutional and structural factors determine the probability of being over-educated (e.g., García-Espejo/Ibáñez, 2006; Groot/Maassen van den Brink, 2000; Verhaest/Omey, 2010).

The previous research about over-education is mainly based on countries and contexts where the share of tertiary education is high. Our objective is thus to study the phenomenon of over-education in the country of Switzerland, where access to universities is restrictive (less than 20% per cohort) and the share of over-educated people accounts for only about half of the European average (Bundesamt für Statistik, 2011; Frei/Sousa-Poza, 2012), and to discuss the results in the light of the findings of other European countries. In our research, we examine the following research questions: 1) What factors determine the risk of being over-educated among Swiss university graduates? 2) How large is the pay penalty of over-educated graduates? 3) Does it pay off to study from a monetary view, if one does not get an adequate job after graduation?

The theoretical background of the over-education literature is situated somewhere between the human capital theory and the job competition model, which both define extreme positions. The human capital theory (Becker, 1964), on the one hand, predicts that the skills of the workforce are fully utilized by firms. As a result, the wages equate the worker’s productivity, which in turn is determined by the level of human capital accumulated by formal education and on the job training. In this framework, no mismatch exists (but in the short run), as firms adapt their production processes based on the skills of the workforce. On the other hand, the job competition model (based on Thurow, 1975) predicts that the income is solely determined by the characteristics and requirements of the job. The wages are determined by the productivity of the job and are independent of worker’s education level. This implies that the return of surplus education years is zero. The education level is, however, important for the determination of the position an employee obtains. We expect that the true model lies somewhere in between these two extreme positions (see e.g., assignment model or ORU model (Duncan/Hoffman 1981)).

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