Skill mismatch is a characteristic common to most knowledge-based (education intensive) economies that generates significant costs at the individual and aggregate level, especially for graduate workers. It is unknown however whether (and how) talent misallocation changes in response to unexpected shocks.
Using UK individual-level data between 2017 and 2020, we address these issues through two different lenses: by identifying graduates that are employed in non-graduate occupations or overqualified (in the wrong job) and graduates earning the lowest premium in their sector (in the wrong industry). Our approach allows us to capture different dimensions of graduate misallocation and help explain wage differences across jobs and geographical areas.
Our results show that graduate mismatch based on occupation declines steadily from 2018, whilst industry-specific mismatch is generally lower but more volatile over time. However, the gap between the two measures narrows over time. Using a pseudo-panel regression approach, we estimate that mismatched graduates earn between 8% and 19% less than workers with similar qualifications who are not mismatched: one third of the wage penalty is due to graduates being in the wrong job, two thirds to graduates in the wrong job and the wrong industry. Our work therefore emphasizes the role of the sector of activity, along with that of occupation, when designing policies that target improved labour market efficiency.
Authors Catherine Robinson, Michela Vecchi