Graduates push school leavers out of low-skill jobs
In the past three decades Iran has experienced a sharp increase in the annual enrolment of university students. The annual admission to institutions of higher education rose from 146,115 in the 1991-92 academic year to 1,174,897 in 2015-16, while the total number of students in higher education institutions rose from 588,228 in 1991-92 to 4,348,383 in the 2015-16 academic year.
This sharp increase was a result of a strong social demand for university education. Policy-makers reacted positively to this growing demand by rapidly expanding the admissions capacity of universities. Moreover, the government was able to limit the fiscal burden of this policy by allowing for the creation and expansion of private and non-profit universities such as the Islamic Azad University.
As a result of these developments the number of university graduates has sharply increased, but the quantity of new job vacancies has not kept pace with this growing supply. The impact of this labour market imbalance is visible, reflected in a high unemployment rate for university graduates. While overall unemployment has oscillated between 10% and 12% in the past decade, the unemployment rate for young university graduates has been between 15% and 20%.
This situation has received considerable attention in the domestic media and it is often referred to as a graduate unemployment crisis. The 2016 labour market statistics indicate that there were 1.185 million unemployed university graduates – some 36% of the total number of unemployed people. They included 797,000 graduates with four-year (bachelor) degrees and 224,000 with two-year (associate) degrees. The remaining 163,000 had masters and doctoral degrees.
This condition represents a substantial waste of higher education resources and human capital for the Iranian economy.
The high unemployment rate among university graduates, however, is not the only adverse consequence of the excess supply of university graduates in Iran. A growing number of university graduates who manage to find a job are employed in jobs that do not require university skills or do not match their university skills. As a result they are securing these jobs at the expense of less educated workers. In other words, a growing percentage of employees in low-skilled and semi-skilled jobs are university graduates who are overeducated for these positions.
A domestic online news site attracted attention to the plight of these university graduates by posting several photos in a July 2016 article.
For a more accurate investigation of the growing number of overeducated persons who are active in Iran’s labour market, we have calculated the share of employees in various occupations who hold at least a two-year associate degree from a higher education institution. The data for our analysis comes from the annual Households Income and Expenditure Survey database that is produced by the Statistical Center of Iran.
In this annual survey the level of education and job categories of wage-earning workers and self-employed individuals are available and allow us to calculate the share of overeducated workers in each occupation category. Our findings show that the share of economically active individuals in low- and unskilled jobs who have a university degree is on the rise.
We observe that in all of these occupational categories the share of employees with at least a two-year degree has consistently increased. Occupations in the service and retail sector have experienced the largest replacement of less educated workers with university graduates.
We observe that by 2015 nearly 57% of employees in office work and customer service occupations had at least an associate degree. For sales-related occupations, the share of workers with university degrees grew from 4.3% in 2001 to 17.3% in 2015.
As for lower skill categories, such as vehicle drivers, or unskilled workers, the share of employees with university degrees is relatively small, but an upward trend is noticeable.
Among unskilled service sector workers, for example, the share of university graduates increased from 0.7% in 2001 to 7.1% in 2015. These are mainly manual and routine tasks for which no university degree is required and a university graduate will rarely work in these occupations if a more skilled job is available.
We have calculated that the share of workers with at least an undergraduate degree in semi-skilled and unskilled categories is substantial in several categories, such as office and retail workers.
Furthermore, in all unskilled occupations that do not require even a high school diploma, we observe that the share of workers with undergraduate degrees ranged between 1% and 4% in 2015. While these university graduates must have felt fortunate to be employed, they are clearly not using their university skills in these occupations.
As for the self-employed in semi-skilled and unskilled economic activities, the number who have completed at least a two-year university degree is also rising in Iran. This growth is particularly noticeable in agriculture, industry and construction, rising from under 1% in 2001 to more than 6.5% in 2015. Furthermore, at least 5% of the self-employed working in unskilled industrial and agricultural activities hold four-year degrees.
One of the undesirable consequences of the trends that we have observed is that the trickle down of higher-educated jobseekers into low-skilled jobs is crowding out the less educated workers from low-skilled positions. This process pushes a share of high school graduates from employment in low-skilled jobs into unemployment.
The reduction of job opportunities and the higher risk of unemployment for high school graduates might compel them to enrol in a university degree programme in order to improve their chances of employment, even in occupations that do not require university degrees.
This adverse incentive will lead to a high rate of participation in higher education without any direct connection to a labour market demand for university skills.
Photo credit: IranKhabar online news
* The employment data presented in this article are available in this online file.
Nader Habibi is Henry J Leir Professor of Practice in Economics of the Middle East at the Crown Center for Middle East Studies and senior lecturer in the department of economics, Brandeis University, United States. Gholamreza Keshavarz Haddad is visiting faculty at the Crown Center for Middle East Studies at Brandeis University and is associate professor at the Graduate School of Management and Economics, Sharif University of Technology, Iran.