The study uses the OHS, LFS and QLFS data from 1995 to 2016 to examine of the nature, extent, incidence, and likelihood of underemployment in South Africa in line with the first objective of the study. The findings revealed that Africans, females, individuals aged between 25 and 44 years at the time of the survey, and those living in urban areas constitute a greater proportion of underemployed workers. Moreover, the majority of time-related and income-based underemployed workers are involved in elementary jobs and domestic work while the overeducated were mostly managers and workers in elementary occupations. Also, the prevalence of overeducation and income-based underemployment was found to be higher than the incidence of time-related underemployment. Overall, overeducated workers were presented with better working conditions than the individuals who were affected by time-related and income-based underemployment.
The results from the various probit models reveal that the likelihood of experiencing underemployment is higher for females47, Africans, informal sector employees, workers in the private households industry, and the self-employed. It was also discovered that experience significantly decreases the likelihood of being underemployed in at least one of the types of underemployment by 1 to 4 percent, albeit a diminishing effect. The observation that workers in the informal sector are between 10 to 14 percent more likely to experience underemployment is consistent with the labour market segmentation theory’s proposition that the secondary sector is characterised by bad jobs with inadequate working conditions.
Workers involved in low-skill jobs account for the highest proportion of both time-related and income-based underemployed workers. This is because such jobs may be temporary in nature and offer lower remuneration. On the other hand, managers and technicians have the highest share of overeducated workers while for most of the periods, workers involved in skilled agriculture and professionals account for the lowest proportion of underemployment across all the three approaches. The vast majority of underemployed workers work in the private sector across all the three definitions (between 68 and 99 percent). This suggests that the private sector
employs highly educated workers and offers a lot of part-time employment relative to the public sector. As expected, the time-related underemployed have the lowest mean usual weekly work hours. Furthermore, several overeducated and income-related workers indicated that they are not willing to work longer hours. The above observation gives credence to the fact that the overeducated and income-related underemployed workers are full-time employees.
Moreover, workers with primary and secondary education constitute the highest proportion of the time-related and income-related underemployed across all the observed periods while workers with a degree and secondary school certificate are the most overeducated. The proportion of overeducated degree holders has increased from approximately 15 percent in 1995 to 71 percent in 2016. This upsurge in educational attainment and the inability of the economy to create the employment opportunities commensurate to the increased supply of graduate has led of the overeducation phenomenon. Whereas, most overeducated workers can be found in bigger establishments made up of 50 or more workers, time-related and income-related underemployed workers mostly work for smaller firms. This is consistent with the findings of Cam (2014) that workers in small-sized firms are susceptible to be time-related underemployed. The results seem to suggest that bigger firms attract highly skilled individuals to fill up positions that require a relatively lower qualification while smaller establishment usually employ workers on part-time basis.
In addressing the second research objective, the study compared the earnings profile of matched and mismatched workers, using labour force survey data from 1995 to 2016, to ascertain the differences in earnings. An analysis of the characteristics of mismatched workers revealed that a greater share of overeducated and undereducated workers were males, Africans, and workers in elementary occupations. Moreover, the proportion of overeducated workers was found to be negatively related to years of work experience, which seems to suggest that overeducation may exist at the start of a worker’s career but fades away as the worker gains the relevant work experience. On the contrary, the likelihood of workers being undereducated increases in line with the years of experience because undereducated workers try to make up for the lower level of education with more work experience.
Using three variants of the earnings function, the empirical findings indicated that skilled workers, young workers between 15 to 24 years, workers who live in the Western Cape, and workers in industries other than agriculture earn significantly more. Likewise, living in an urban area, working in the public sector or the formal sector, and being self-employed are associated with relatively higher earnings. Furthermore, there appears to be increasing returns to education, but the effect of experience although initially positive, diminishes over time.
In general, although the returns to overeducation were found to be positive, overeducated workers receive substantively lower wages than what they would earn if they were employed in a job which adequately matches their education. Conversely, the rate of return to undereducation was found to be negative. However, as the results from the Duncan and Hoffman model show, undereducated workers may receive a wage premium relative to being well-matched. By only including the human capital variables, the results from the Verdugo and Verdugo model also confirms the wage premium associated with undereducation. It therefore seems that the earnings of workers in South African can be explained by the assignment theory.
Finally, the study uses the first four waves of NIDS panel data to examine the dynamics of income-related underemployment and overeducation in relation to the third research objective. It was observed that income-related underemployment is short-lived, and mostly affect individuals in the bottom-end of the income distribution. With regard to overeducation, close to 60 percent of affected workers find adequately matched jobs six years later, and most workers who move out of the overeducation spell change occupation from low skilled to high skilled jobs. Moreover, only a smaller percentage of workers are affected by chronic overeducation or income-related underemployment. This points to the fact that overeducation is temporary as predicted by the career mobility and matching theories.
The results from the random effects probit model show that the probability of experiencing overeducation or income-related underemployment is higher for workers from the African and Coloured population groups, casual workers, and informal sector workers. Moreover, the estimated results from the multinomial logit model reveal that while age decreases the odds of moving from overeducation to adequate education, work experience allows workers to move out
of overeducation into adequately matching jobs. This is plausible because the career mobility theory suggests that workers use overeducation as a stepping stone to move to well-matched jobs.