Do companies lose by hiring over-educated workers?

5:35 min

Manufacturing companies that employ workers with more formal education than necessary can lose out in terms of productivity and profitability, according to preliminary findings by the independent, Stockholm-based Ratio Institute, which researches how to improve conditions for enterprise.

Patrik Tingvall and Daniel Halvarsson, who work at Ratio and presented some of their research at a seminar on Tuesday, have been researching the phenomenon of "mismatching," when the education of the labor force doesn't match the needs of companies. 

The researchers examined some 7,300 companies within the manufacturing industry to find out the effects of employing workers with more or less formal education than needed, during the course of 2001-2010.

They found that productivity sank by 0.6 percent when companies employed people who had a longer formal education than necessary, and that the cost rose by 2.4 percent, whereas if an employee had a shorter formal education, productivity rose by 2.9 percent and costs sank by 1.9 percent.

Ultimately Tingvall and Halvarsson said that over-educated workers led to a net loss as companies in the manufacturing sector spent more without seeing a significant gain in productivity, while the reverse was true if they hired under-educated workers.

Nils Karlson, the CEO at Ratio Institute, said to Radio Sweden:

"There was a fundamental mismatch in many of these companies. The competencies didn't fit the occupations that the individuals had.

"It turned out, very interestingly, for the companies, it was better - that is, they became more productive, more profitable if they had under-educated workforce," said Karlson. 

He also called the research "quite unique", adding that it "hasn't been done in any other European country."

In his view, building competence means combining formal and informal education, but he feels Sweden has overemphasized formal education.

"I think in Sweden at least ... we have invested too much in formal education, prolonging the system, making it more academic and so on, and disregarding practical experience, good judgment and so on for being able to do a good job."

Gösta Karlsson, an economist with the biggest Swedish trade union in the private sector Unionen, bristled at the study though, telling Radio Sweden that he felt it was short-sighted and didn't take into account possible career changes or advancements that a person might eventually make, and that extra education can always come in handy later on.

"What really bothers me is that the research, as I understand it, doesn't take into consideration things you learn which is not in the formal education, and the phrase of over-education or over-qualification means that basically you don't use all your skills at the job you're in, but at present, there is no way that anyone is going to stay in the same profession all their lives, so to be over-educated or over-qualified means that you've got a chance to go somewhere else," said Karlsson.

Over-educated employees are not a problem for Swedbank, Patricia Kempff head of societal engagement for the bank, told Radio Sweden. The bank makes a special effort to recruit people with academic educations who were born abroad through a program called Job At Last (Äntligen Jobb), and Kempff said the only danger for an overqualified employee is that they can feel frustration, but that a managerial track can be a solution.