The impact of overeducated and undereducated workers on establishment-level productivity : First evidence for Germany

Purpose – Many contributions to the educational mismatch literature address the productivity effects of both excess and deficit educational attainments for workers at the individual level. Due to the limited transferability of their results to establishment-level performance, especially when allowing for the possibility of spillover effects from mismatched workers to their well-matched colleagues, from an employer’s point of view, it is highly important to know the net effect of educationally mismatched employees on productivity at the establishment level. The paper aims to discuss these issues. Design/methodology/approach – This paper analyses the impact of overeducated and undereducated workers among an establishment’s workforce on its productivity, providing first representative evidence for Germany. Using linked employer-employee data from Germany, the author estimates dynamic panel production functions using a system GMM estimator. Findings – The author finds that undereducated workers among an establishment’s workforce impair its (establishment-level) productivity, implying that an establishment’s HR management should avoid the recruitment of undereducated workers, at least if they follow a short-term personnel policy. The effect for overeducated employees is also negative, albeit small and insignificant. Originality/value – The consideration of the phenomena of over and undereducation from the employer’s point of view provides further insight into the consequences of educational mismatch.