Overqualification and Skills Mismatch: A Growing Challenge for the UK Labour Market?

The UK’s workforce is more qualified than ever before. In 2024, around half of young people aged 25–29 held a degree or higher qualification—up from just 28% two decades ago. While this expansion in higher education was intended to drive economic growth and social mobility, it has instead exposed a growing structural weakness in the labour market: overqualification and skills mismatch. Too many young people are now working in roles that don’t require a degree, while employers simultaneously struggle with skills shortages in key technical and vocational occupations.

There has been considerable public, political, and academic debate over the economy’s capacity to absorb the sharp increase in graduate numbers. This has sparked questions about the prevalence of graduate overqualification and the impact on productivity on one side of the spectrum, and the continued returns relative to non-graduates on the other. For instance, a recent paper by The Policy Institute, authored by David Willetts, has suggested that discussions about whether we now have too many graduates overlook the long-term advantages of higher education, despite citing evidence which shows the erosion of the graduate wage premium.

The Rise of Overqualification

The UK has rapidly expanded its higher education system based on the assumption that more graduates would translate into a more innovative and prosperous economy. However, the evidence suggests otherwise. OECD data shows that England has one of the most overqualified and over-skilled workforces in the world, with their recent research finding that nearly four in ten (37%) workers are overqualified for their job, and overqualified workers suffer an 18% wage penalty compared to their well-matched peers.

This has significant consequences. According to CIPD research, overqualified workers often experience lower job satisfaction, slower wage growth, have fewer progression opportunities and are more likely to want to quit their jobs. They are also much more likely to report that they are bored at work and lack motivation. These factors produce a further knock-on effect on the organisations they work for, manifesting in poorer staff retention and reduced workforce productivity. The problem is particularly acute for many young people, who are increasingly finding that the expected returns from higher education of a well-paid, graduate level job are failing to materialise.

Rebalancing the System

So how do we fix this? The answer is not to discourage young people from pursuing degrees but to create a more balanced education system that values academic and vocational routes equally. Apprenticeships and technical education must be strengthened to provide young people with credible alternatives to university. The current apprenticeship system is failing to deliver for school leavers, with participation rates stagnating and too many opportunities being taken by older workers already in employment.

The Government’s recent commitment to rebalancing apprenticeships towards young people is a step in the right direction, but more action is needed, as their new reforms risk undermining efforts to improve the quality of the apprenticeship pathway.

Recent Reforms Might Boost Uptake But Risk Undermining the Apprenticeship Brand

The Government recently announced changes to apprenticeships. They plan to shorten the current 12-month minimum duration by four months starting in August, pending the legislative schedule, initially ‘trailblazed’ in key shortage occupation areas. At the same time, they announced the removal of the English and maths functional skills exit requirements for adult apprentices with immediate effect.

There may be some cases where an apprentice’s learning could be accelerated, however there’s an overall risk to the apprenticeship brand if shorter apprenticeships become more widespread. We’re already an international outlier in terms of apprenticeship duration. In most other countries two years, or longer, is the norm. Where shorter duration provision is needed, the Government should focus on making progress on the promise to open apprenticeship levy funds for other forms of accredited training and development, that can more effectively meet business needs. They should also accelerate action to provide more flexible and modular learning options—via the proposed Lifelong Loan Entitlement— to enable workers to upskill and reskill throughout their careers, rather than frontloading education in their late teens and early twenties.

While the relaxation of the functional skills requirements might boost uptake and completions, the OECD have previously noted weaknesses in general education in England’s apprenticeships system, with functional skills requirements already at a low level compared to our international peers.

A Broader Industrial Strategy is Needed to Boost the Demand for Skills in the Economy

More broadly, it’s important to acknowledge that maintaining a primary focus on the supply side of skills policy is unlikely to lead to the creation of more high-quality jobs or increase workplace productivity. This requires coordinated action to foster a business culture where leaders view their workforce not as a cost to be managed but as a key value driver to be invested in. There needs to be enhanced business support and a renewed approach to industrial strategy.

Yet, there are concerns about the narrow focus of the Government’s industrial strategy set out in its recent green paper. The strategy prioritises eight high-growth sectors, including digital technology and renewable energy, to drive long-term sustainable growth. These sectors are without doubt important to the UK’s growth ambitions, however, they collectively account for only about a quarter of UK jobs. By concentrating on a select few industries, the strategy risks overlooking the challenges faced by the wider economy and will not be sufficient to improve overall productivity or living standards in every part of the UK. The key high-growth sectors are also disproportionately located in London and the south east of England so a plan to raise growth in these sectors, which largely ignores the wider economy, will increase regional inequalities.

If the Government is to meet its objective of raising living standards across every part of the country there is a need to augment its narrow industrial strategy, with a complimentary plan to improve skill development and use across the workforce.

As part of this, there’s an urgent need to strengthen apprenticeship and other vocational pathways into work to address technical skills shortages and provide a meaningful alternative to university. A more balanced approach to skills development will not only help many more young people secure fulfilling careers, but also strengthen the UK’s workforce and economy for generations to come.

By Lizzie Crowley, Senior Skills Adviser at the CIPD