We begin in this section with an overview of what existing theory and evidence tells us. From the neoclassical economic perspective, the public’s desire to participate in tertiary education is in anticipation of higher pay driven by employers’ demand for high skills. The state, being in full or partial control of the funding for and governance of higher education, was in many countries involved in kick-starting the massification process. Yet arguably the state has less independent influence in the era of ubiquitous mass participation; rather, from a political economy perspective the key driver is said to be middle-class, mainly urban aspirations, which are only loosely linked to economic imperatives (Marginson 2016). Eventually, most children from these socio-economic classes expect to complete higher education. With their aspirations beginning to reach satiation, the ceiling to participation could only be raised further by lifting the school achievements of more disadvantaged socio-economic groups. Yet that uplift and the necessary funding have their limits. With lagging nations catching up those ahead of the educational growth curve, we could expect “upward convergence” to emerge between nations (defined as a conventional ‘beta convergence’ combined with a rising average trend, for a desirable indicator). A trajectory of upward convergence of tertiary education achievement is found within Europe from 2007 onwards (Eurofound 2019, p. 18), a dynamic which sits comfortably alongside the intended policy and systems harmonisation in the ‘European Higher Education Area’ that is orchestrated by the Bologna Process.
The EU’s concerns, while they embrace employment, do not (at least explicitly) extend to convergence mechanisms in the availability of graduate jobs. Nevertheless, if the demand for graduate labour diverges, the differing experiences of graduates could be detrimental to a cohesive higher education area and wider cohesion objectives. Underpinning graduate labour demand is the theory of skill-biased technological change (SBTC) which characterises the predominant technologies of the modern era as leading to a proportionately increased demand for high-skilled labour. In its most recent form, SBTC has been supplemented by the ‘task-based’ theory of changing occupational skills demand. This theory holds that, with the development of recent technologies, many middle-level, ‘routine’ jobs are becoming more easily automated, displacing these employees and polarising the workforce—even while high-skilled, non-routine jobs are expanded (Autor et al. 2003; Goos et al. 2014), a process termed ‘asymmetric polarisation’. With further internationalisation of production through offshoring to lower-income regions, the thinning out of middle-level jobs is extended (Blinder and Krueger 2013). These theories inhabit a global domain, with similar occupational restructuring expected in all countries open to new technologies. As these technologies are diffused, so the occupational structures—including the demand for skilled labour—would converge. And while ‘high-skilled labour’ is not synonymous with ‘graduate labour’—indeed, graduate jobs are less prevalent in nations where there is an abundant stock of skilled non-tertiary labour (Henseke and Green 2017)—over time we can expect the demand for graduate labour to move in close parallel with the demand for high-skilled labour.
This universalism is challenged, however, by strategic human resource management theory, in particular the resource-based theory of the firm. In this approach, managerial cultures, industrial structures and labour market institutions are held to affect the pace and manner in which technologies are introduced (e.g. Boxall and Purcell 2011; Erez 2010; Green 2013, Chap. 5). Patterns of inter-country variation in these cultures and institutions have also been framed within production regime theory or within welfare regime theory (Gallie 2017). Added to this mix are inter-country variations in product demand structure. Empirically, the hypothesis that there has been a universal asymmetric polarisation of employment over recent decades is contested by Eurofound’s jobs monitoring observatory (Eurofound 2014). In consequence, some cross-national differentiation in the trajectory of the demand for graduate labour could be expected. The trend is potentially divergent if the cumulative paths of capitalist development are sufficiently differentiated by nationally varying managerial cultures and institutions.
What happens when the aggregate supply of graduate labour diverges from demand? If supply comes to exceed the demand for graduate labour, any market-induced fall in the supply, prompted by changes in employment prospects and/or falling graduate wages, would take place over a long horizon, given the duration of the higher education investment. Only inward or outward migration of highly-educated labour could speed up the adjustment, and this too is constrained. Similarly, if employers are to respond by changing to a high-skilled production strategy, this is also likely to be over the long term. With market-induced responses set to take place over a long time frame, the expected consequence is a persistent disequilibrium, with a proportion of graduates underemployed. That proportion would increase if the growth of aggregate supply exceeds the growth in demand. As expected, evidence confirms that the prevalence of underemployment is higher where there develops a greater excess supply of graduates (Verhaest and van der Velden 2013; Green and Henseke 2016b).Footnote 1
However, some part of graduate under-employment can be attributed, not so much to aggregate imbalance, as to heterogeneity among graduates. While the qualifications that underemployed graduates have gained signal a certain academic achievement, their work skills may be lower than those working in graduate jobs (Green and McIntosh 2007). Nevertheless, skill heterogeneity accounts for a relatively small proportion of the variation in graduate underemployment between nations (Green and Henseke 2016b). For the most part, underemployment for newly qualified graduates signals an underutilisation of their skills. Moreover, underemployment matters and is non-trivial for both individuals and society. Underemployed graduates have substantially lower wages than their fellow graduates who have obtained graduate jobs, even though they typically receive higher wages than their work peers who have lower education (Iriondo and Pérez-Amaral 2016); they are also more likely to be dissatisfied with their work (Allen and van der Velden 2001). Once scarred by being underemployed (their further skills development being thus inhibited), it is hard to break out into graduate employment: underemployment is individually persistent (Baert et al. 2013; Kiersztyn 2013; Meroni and Vera-Toscano 2017). The possibility of underemployment increases the risks for young people undertaking an investment in higher education, and (unless we factor in the wider educational value of a university life) there is a potential waste of society’s educational resources.
At any time in a complex economy, a certain minimum proportion of graduates will be under-employed—a consequence of mismatches in the labour market, or restrictions on labour mobility. Some are more likely to experience underemployment than others—the probability depends, for example, on an individual’s spatial mobility (Jauhiainen 2011). Since there is no consensus on a single best way of classifying underemployment one cannot easily determine what national rate of underemployment would be high enough to raise policy issues. By contrast, concern is certainly warranted where there is an increasing rate of underemployment since, as noted above, such a rise could be a sign of rising imbalance in the aggregate between supply and demand for graduate labour.
Whether graduate underemployment is rising, in the context of HE massification and potentially divergent graduate labour demand, is an empirical issue, as is the question of whether there is a divergence in the experience of under-employment among European nations. Spells of increasing graduate underemployment have been documented, but only for a few countries for irregular intervals: in Germany, Poland and Sweden during the 1990s, in Poland again between 2006 and 2016, and in the UK between 1992 and 2006 (Rohrbach-Schmidt and Tiemann 2011; Kiersztyn 2013; Korpi and Tåhlin 2009; Green 2013, p. 131; Baran 2019). By contrast, graduate underemployment fell in Germany between 1999 and 2012, especially among women (Henseke 2019).
While tracking overall graduate labour supply, labour demand and disequilibrium will reveal much of what matters for graduates’ prospects, it needs to be complemented by the trend in graduates’ wages. We might expect rising graduate wages on average, given the positive economic growth experienced by most countries and the presumption of a developing knowledge economy. However, the intervention of the financial crisis in 2008–9, subsequent slow growth in many countries, and the long-term decline in labour’s share of GDP (ILO and OECD 2015) could be expected to be reflected in lower graduate wages.
Also informative is the evolution of the graduate wage premium, the difference between graduates’ wages and those educated to the next level down, that is, upper secondary. The graduate wage premium is typically seen as the bellwether for the prospective student evaluating the potential gains from a financial investment in higher education. Whether this premium will rise or fall will depend on the relative states of the labour markets for graduate labour and less skilled labour. Underemployed graduates typically work at one level down the skill hierarchy, displacing some of those educated to upper secondary level who in turn are obliged to take up lower-paid jobs. Thus, rising underemployment of graduates is not necessarily accompanied by a downward adjustment of the wage premium, if the average wages of those with upper secondary education fall as far or further than those of graduates. Moreover, relative wages may be ‘sticky’ (slow to adjust), even in flexible employment regimes. According to recent studies, while for some countries the graduate wage premium remained high or even increased during the 1990s and beyond, the premium notably fell for significant spells in Poland, Portugal, Italy, Taiwan (Strawinski et al. 2018; Figueiredo et al. 2013; Crivellaro 2016; Almeida et al. 2017; Huang and Huang 2015). Again, this evidence is patchy.
Finally, the incentive to participate in tertiary education is affected not only by the expected trajectories of the average graduate wage, but also its distribution: risk averse students will have an incentive to choose paths with lower average—yet less uncertain—rewards, such as high-level apprenticeships. Several papers have documented increasing differentiation among graduates along various domains: the subjects taken, grades achieved, or level reached; some of this dispersion is manifested through variation in occupational attainment, and in particular through underemployment because of the wage penalty that attaches to it (Martins and Pereira 2004; Hoekstra 2009; Green and Zhu 2010; Green and Henseke 2016a; Altonji et al. 2012; Figueiredo et al. 2013; Lindley and Machin 2014).
Given that there is, therefore, only a piecemeal scattering of evidence about how modern graduate labour markets have evolved, we pose the following specific questions, with the focus on Europe and the wider concerns with social cohesion within the European Union (Eurofound 2009):
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i.
Are the recent graduate labour supply trends universally positive, and also convergent among Europe’s countries?
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ii.
Is the share of graduate jobs increasing universally, and also convergent among nations?
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iii.
Is there a predominant or universal and convergent trend towards increasing graduate under-employment?
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iv.
Have graduates’ wages been growing or falling?
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v.
Has the graduate wage premium been rising or falling?
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vi.
Has the wage penalty from being underemployed been increasing?