College graduates are, in fact, not in short supply. Indeed, some college graduates are now forced to take jobs requiring only high-school educations. The Bureau of Labor Statistics projects that, for the next decade, only 22 percent of job vacancies will require a college degree or more. Forty percent will require only one month or less of on-the-job training, and could be filled by high school graduates or, in many cases, by dropouts — retail salespersons and waiters and waitresses, for example.
Rothstein's obviously right that people are often overqualified for their jobs. But can anyone come up with a microeconomic model in which this occurs? As far as I can tell, the prevalence of overqualification is a puzzle for both human capital and signaling theories of education.
Compounding the puzzle is the fact that despite overqualification, the return to education is historically very high. Lots of economists agree with Brad DeLong that this is a clear sign that we should invest more in education. But if many of the college grads who already exist aren't using their skills, what's the point of spending resources to make more of them?
One possible explanation is that "overqualified" college grads were low-quality students who didn't learn anything. But in that case, shouldn't we expect that encouraging more people to attend college will give us more of the same?