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Labor market implications of education mismatch

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  • Cervantes, Carla Varona
  • Cooper, Russell

Abstract

This project studies the impact of education mismatch on labor outcomes. Across our sample of OECD countries, there is evidence of mismatch in educational attainment, defined by a lack of assortative matching on ability in terms of educational attainment. Labor market outcomes are not independent of education mismatch. Our framework for analysis is a dynamic choice model, focusing on education and training decisions. From the estimation of model parameters, the main factor explaining education mismatch is dispersion across individuals in the perceived value of education. The estimated model is used to determine both the magnitude of the output loss from education misallocation and the transfer needed to compensate those whose educational attainment is independent of their tastes. From simulations of lifecycle dynamics and counterfactual experiments, among four key countries, education undermatch in Japan is sustained through labor market mechanisms while in Germany, Italy and the US, education undermatch is largely resolved in that these individuals are eventually employed in skilled jobs. Training plays a key role in these dynamics.

Suggested Citation

  • Cervantes, Carla Varona & Cooper, Russell, 2022. "Labor market implications of education mismatch," European Economic Review, Elsevier, vol. 148(C).
    • Handle: RePEc:eee:eecrev:v:148:y:2022:i:c:s0014292122001015
    DOI: 10.1016/j.euroecorev.2022.104179
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