Using Job Vacancies to Understand the Effects of Labour Market Mismatch on UK Output and Productivity

Abstract

Mismatch in the labour market has been implicated as a driver of the UK’s productivity ‘puzzle’, the phenomenon describing how the growth rate and level of UK productivity have fallen behind their respective pre-Great Financial Crisis trends. Using a new dataset of around 15 million job adverts originally posted online, we examine the extent to which eliminating occupational or regional mismatch would have boosted productivity and output growth in the UK in the post-crisis period. To show how aggregate labour market data hide important heterogeneity, we map the naturally occurring vacancy data into official occupational classifications using a novel application of text analysis. The effects of mismatch on aggregate UK productivity and output are driven by dispersion in regional or occupational productivity, tightness, and matching efficiency. We find, contrary to previous work, that unwinding occupational mismatch would have had a weak effect on growth in the post-crisis period. However, unwinding regional mismatch would have substantially boosted output and productivity relative to their realised paths, bringing them in line with their pre-crisis trends.

Keywords: vacancies, matching, mismatch

JEL Classification: E24, C55, J63