Overeducated: Germany & The Role of Performance Pay 

1 min read
October 17, 2023
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Overeducated workers outperform and earn more than their coworkers in similar roles. Still, they lag behind peers with matching job qualifications in earnings. The big question? How they adjust to the pitfalls of overeducation. This working paper (Overeducation, Performance Pay and Wages: Evidence from Germany by Mehrzad B. Baktash) dives into the idea that these workers might lean into performance pay roles as a solution and how such roles could impact their wages.

Why it matters

Overeducation is a notable issue in the job market after the Great Recession of 2008, bolstered by the COVID Crisis. Overeducated workers exceed their coworkers in productivity in the same job. However, they often earn less than their peers in well-matched employment, which causes a whole host of issues.

What They’ve Found:

  • German Study Insights: Data from a German survey offers a revelation. Overeducated workers are gravitating towards performance-pay jobs. This trend remains consistent across various factors. Demographics, job complexity, employment history, and personality traits were all considered.
  • Wage Implications: Performance pay boosts wages for these workers, especially for overeducated women. They experience a pronounced wage improvement, pointing to a potential solution for gender wage discrepancies.
  • Employer-Employee Dynamics: Performance pay is more than just beneficial for the workers. Overeducated workers on performance pay are more valuable to German firms. This is seen when wages, which often reflect productivity, are considered.

What They’re Saying

The preference for performance pay goes beyond just wages. Overeducated workers face job dissatisfaction. They also tend to quit jobs more frequently. Performance pay roles might be their adjustment mechanism to these challenges.

What’s next:

  1. Unpacking Performance Pay: The nuances of performance pay need exploration. Future research will scrutinize categories like piece rates, commissions, and team-based incentives.
  2. Expanding the Horizon: Overeducation isn’t limited to one country. Upcoming studies aim to dissect its relationship with wages globally, given the varied levels of overeducation in different countries.

Our Thoughts: 

The debate around higher education often misses a critical point, as seen in recent findings from Germany. Even when facing overeducation, workers with higher qualifications don’t lose value. These individuals bring additional skills to any field they go into (just ask Steve Jobs and his calligraphy courses). This paper reinforces their adaptability and the diverse skills gained through higher education. 

Critics often focus on short-term job mismatches (in hopes of avoiding social programs or legislative fixes in spite of the benefits). However, they need to pay more attention to the long-term benefits of a workforce ready for more complex challenges and the fact job markets can and will change unexpectedly. 

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