The Effect of Digital Economy’s Development on Over-Education in the Labor Market

【Authors】

PENG Jun, ZHAO Xiliang

【WorkUnit】

PENG Jun （Anhui University of Finance & Economics, 233030）;ZHAO Xiliang （Xiamen University, 361005）

【Abstract】

Over-education, a phenomenon where workers’ education levels exceed the requirements of their job positions, has become a global issue in labor markets. In labor markets, massive over-education will drive up social costs for it reflects a mismatch between the human capital supply and the work skills demand. Besides, for the macro-economy, over-education also hinders the growth of social productive forces and development efficiency. 
Addressing over-education is particularly critical for China, which seeks to implement an innovation-driven strategy and sustain economic growth. Achieving these goals requires not only a sufficient supply of high-quality human capital but also the efficient and rational allocation of human resources to appropriate positions. To this end, identifying the causes of over-education is essential. This paper studies the impact of the digital economy’s development on the incidence of over-education in the labor market. 
Leveraging data from the China Family Panel Studies （CFPS） 2014-2020 and the Chinese Urban Statistical Yearbook, this paper empirically examines the effect of the digital economy’s development on the incidence of over-education in the labor market and how. The results show that the digital economy’s development obviously reduces the incidence of over-education in Chinese labor market. Mechanism analysis reveals that the digital economy’s development reduces the likelihood of over-education through three primary channels: （1） promoting the upgrading of workers’ employment skill structure, （2） fostering the upgrading of employment industry structures, and （3） boosting the share of non-routine skill occupations in the labor market. Specifically, the digital economy’s development drives the upgrading of the industrial structure and the occupational structure and creates more jobs requiring high-level education, thereby reducing over-education. Meanwhile, it incentivizes workers to raise their education level to keep pace with the rapid technological advancements. Furthermore, the digital economy increases the matching degree between workers and job positions by upgrading workers’ employment skill structure and employment industry structure and increasing the share of non-routine skill occupations. Therefore, it reduces the likelihood of over-education in the labor market by increasing the matching degree between workers and job positions. Heterogeneity analysis results suggest that the impact of digital economy’s development on over-education varies across regions, birth cohorts, and industries. 
This study makes several important contributions. First, it enriches the literature on digital economy’s development and human resource allocation efficiency in the labor market, providing insights into the broader social and economic effects of the digital economy. Second, the findings provide theoretical support and policy suggestions for China to further develop the digital economy, promote the integration of industry and education, and achieve higher-quality development in the new era. Last but not the least, as over-education reflects the efficiency of human resources allocation, the findings provide policy reference for China to build a talent-strong nation.

【KeyWords】

Digital Economy, Over-Education, Employment Skill Structure, Employment Industry Structure