This paper attempts to explain why, according to the 2001 UK Skills Survey, 37% of employees are apparently over-qualified for the job that they do.

· Initially, three possible explanations are considered. First, are there simply too many skilled workers for the available number of skilled jobs in the economy? We argue that such an explanation would at present be inconsistent with several pieces of evidence currently available in the economics literature, such as widening wage inequality and increasing returns to education, and the skills deficiencies often reported by employers. If there were too many skilled workers, in a market economy we would expect that wage inequality would become narrower, and the returns to education would become lower.

· A second theory is one of mismatch, whereby the skills distribution of the workers matches the skills distribution of the available jobs, but due to imperfect information or labour market rigidities, workers do not find the most appropriate jobs for their skills. Inthis theory, some workers are under-utilising their skills

· A third possible theory is that employee skills are heterogeneous within qualification groupings. Individuals can be over-qualified in terms of formal qualifications, even though their skills or abilities are appropriate for the jobs that they do. The difference between this theory and the mismatch theory is that in this theory over-qualification is not associated with skill under-utilisation.