Labor Market Mismatch and Labor Productivity: Evidence from PIAAC Data☆

This paper explores the link between skill and qualification mismatch and labor productivity using cross-country industry data for 19 OECD countries. Utilizing mismatch indicators aggregated from micro-data sourced from the recent OECD Survey of Adult Skills (PIAAC), the main results suggest that higher skill and qualification mismatch is associated with lower labor productivity, with over-skilling and under-qualification accounting for most of these impacts. A novel result is that higher skill mismatch is associated with lower labor productivity through a less efficient allocation of resources, presumably because when the share of over-skilled workers is higher, more productive firms find it more difficult to attract skilled labor and gain market shares at the expense of less productive firms. At the same time, a higher share of under-qualified workers is associated with both lower allocative efficiency and within-firm productivity – that is, a lower ratio of high productivity to low productivity firms. While differences in managerial quality can potentially account for the relationship between mismatch and within-firm productivity, the paper offers some preliminary insights into the policy factors that might explain the link between skill mismatch and resource allocation.