This study analyses the persistence and true state dependence of overqualification, i.e. a mismatch between workers' qualifications and their jobs' educational requirements. Employing individual-level panel data for Germany, I find that overqualification is highly persistent among tertiary graduates over the first ten years of their career cycle. Accounting for unobserved heterogeneity, results from dynamic random-effects probit models suggest that only a small share of the observed persistence can be attributed to a true state dependence effect. Unobserved factors are found to be the main driver of the high persistence of overqualification. In particular, selection into initial overqualification at the start of the career is of high importance. Furthermore, overqualification persistence is shown to be partly attributable to observed heterogeneity in terms of ability and study characteristics.
overqualification overeducation persistence state dependence dynamic random-effects probit