Educational Mismatch, Work Outcomes, and Entry into Entrepreneurship

Abstract

A growing body of research explores how employees’ organizational context shapes their entrepreneurial activity. We add to this work by examining how “educational mismatch” – when a job does not utilize the skills an employee has acquired during education – relates to subsequent transitions into entrepreneurship. While prior research has focused on mismatch due to labor market frictions, workers may also enter mismatches for other reasons such as family obligations or a change in career interests. Different reasons, in turn, may relate in distinct ways to wages and job satisfaction and thus to the opportunity costs of entering entrepreneurship. Moreover, mismatch may also affect human capital development, including the formation of a broader range of skills that is beneficial in entrepreneurship. Using longitudinal data from over 25,000 scientists and engineers, we document a broad range of reasons for educational mismatch and show that the relationships between educational mismatch and wages, job satisfaction, and skill variety differ significantly depending upon the reason for a mismatch. Mismatched individuals are more likely to enter into entrepreneurship in a subsequent period, an effect that goes beyond higher labor mobility per se. Both lower opportunity costs – primarily low job satisfaction – and greater skill variety appear to link educational mismatch to subsequent entrepreneurship. We discuss implications for research, managers, and policy makers.

Keywords: entrepreneurship, human capital, STEM careers, labor markets

JEL Classification: I26, J24, L26, M13