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

Abstract

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.

Citation

McGowan, M.A. and Andrews, D. (2017), "Labor Market Mismatch and Labor Productivity: Evidence from PIAAC Data ^☆ ", Skill Mismatch in Labor Markets (Research in Labor Economics, Vol. 45), Emerald Publishing Limited, Leeds, pp. 199-241. https://doi.org/10.1108/S0147-912120170000045006