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Addressing Skill Mismatches : Economic Costs and Policy Solutions for Aligning University Education with Labor Market Needs in Australia

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  • Banze, Amanda Alexandra

    (Monash University)

Abstract

Skill mismatches between university education and labour market demand impose substantial costs on individuals and the wider economy, yet systematic evidence for Australia is scarce. Using nationally representative data from the HILDA Survey, the Australian Bureau of Statistics, and the Quality Indicators for Learning and Teaching, this study examines the impact of vertical mismatches, where workers are overeducated for their roles, and horizontal mismatches, where their field of study does not align with their occupation. Regression models, informed by the labor economic literature, indicate that mismatched workers earn between 10 and 21 percent less than well-matched peers, report lower job satisfaction, and are concentrated in sectors with weaker productivity performance. These findings are consistent with international evidence and highlight mismatches as a structural inefficiency in the labour market. Building on these estimates, policy simulations suggest that curriculum alignment, stronger industry-academic collaboration, and reskilling programs could reduce mismatch rates by 3 to 4 percentage points, translating into measurable gains in wages and productivity, especially in fast-evolving industries. By combining empirical estimates with forward-looking simulations, the study provides new evidence on the economic implications of skill mismatch in Australia and offers a framework for evaluating the potential impact of education and labour market policy interventions.

Suggested Citation

  • Banze, Amanda Alexandra, 2025. "Addressing Skill Mismatches : Economic Costs and Policy Solutions for Aligning University Education with Labor Market Needs in Australia," Warwick-Monash Economics Student Papers 87, Warwick Monash Economics Student Papers.
    • Handle: RePEc:wrk:wrkesp:87
    as

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    References listed on IDEAS

    as
    1. Ian W. Li & Mark Harris & Peter J. Sloane, 2018. "Vertical, Horizontal and Residual Skills Mismatch in the Australian Graduate Labour Market," The Economic Record, The Economic Society of Australia, vol. 94(306), pages 301-315, September.
    2. Kostas Mavromaras & Seamus Mcguinness & Yin King Fok, 2009. "Assessing the Incidence and Wage Effects of Overskilling in the Australian Labour Market," The Economic Record, The Economic Society of Australia, vol. 85(268), pages 60-72, March.
    3. Kostas Mavromaras & Seamus McGuinness & Nigel O'Leary & Peter Sloane & Zhang Wei, 2013. "Job Mismatches and Labour Market Outcomes: Panel Evidence on University Graduates," The Economic Record, The Economic Society of Australia, vol. 89(286), pages 382-395, September.
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    Keywords

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    JEL classification:

    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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