"We provide first evidence regarding the direct effect of over‐, required, and undereducation on the bottom lines of firms across work environments. We use detailed Belgian linked employer–employee panel data, rely on the methodological approach pioneered by Hellerstein et al. (1999), and estimate dynamic panel data models at the firm level. Our findings show an ‘inverted L' profitability profile: undereducation is associated with lower profits, whereas higher levels of required and overeducation are correlated with positive economic rents of roughly the same magnitude. The size of these effects is amplified in firms experiencing economic uncertainty or operating in high‐tech/knowledge sectors."

Support: Digital