Walking Wounded – The Causal Welfare Loss of Underemployment through Overeducation

Using data from the SOEP, we analyze the wellbeing impact of underemployment through overeducation to examine a broader definition of employment loss. Persons leaving a job through exogenous reasons but entering directly into immediate employment may not find a perfect employment match and cannot use their skills fully in the new job. We demonstrate that a 'downchange', although welfare reducing, may be more desirable than suffering the large welfare losses associated with unemployment whilst searching for a more suitable job match. Nonetheless, underemployed persons do not enter into the official job statistics, whilst their welfare loss due to 'downchange' is approximately 50% of the welfare loss of entry into unemployment.