The role of human capital and technological change in overeducation

We employ Portuguese data to test two competing hypotheses about the impact of overeducation and undereducation on earnings. First, undereducation is the outcome of a process in which market-acquired capital substitutes for insufficient school-supplied qualifications, whereas overeducation is associated with excess schooling but short tenure and job experience. The second hypothesis calls upon changes in the technology of production and marketing to explain why some workers end up as inadequately educated for the tasks that they perform, while at the same time, others (holding identical jobs but more schooling) are perceived to be overeducated. Our findings appear to leave little room for explanations of the overeducation/undereducation phenomenon rooted in the trade-off between different forms of human capital. The hypothesis of technology-induced pockets of overeducation and undereducation is consistent with Portuguese reality, characterized in the last decade by intensive efforts to promote economic growth, to modernize the industrial structure and to upgrade educational qualifications. [JEL J24, I21, O30] (C) 2000 Elsevier Science Ltd. All rights reserved.