Expansion of Higher Education and Underemployment of College Graduates : Evidence from China

This paper examines the effect of China’s college expansion on the underemployment of college graduates, specifically referring to the scenario where a worker’s educational attainment exceeds the education level required for the job. We implement a difference-in-differences extension of propensity score matching (DD-PSM) to identify the causal effect of higher education expansion on underemployment. Our results show that college expansion increases the likelihood of college graduates being underemployed by about 28 to 49 percentage points. Our findings are robust to alternative construction of comparison groups based upon various matching techniques, to incorporating an extensive set of fixed effects, and, particularly robust to age restrictions that limit the sample to cohorts born a few years apart from the first affected cohort. In addition, we fail to find suggestive evidence that lowered quality of college graduates in the wake of the expansion is the main reason that led to their worsened employment outcomes