Output Costs of Education and Skill Mismatch

36 Pages Posted: 24 Feb 2020

See all articles by Pietro Garibaldi

Pietro Garibaldi

Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Pedro Gomes

University of London - Economics, Mathematics and Statistics; Charles III University of Madrid

Thepthida Sopraseuth

University of Cergy-Pontoise

Abstract

We propose a simple theory of under- and over-employment. Individuals of high type can perform both skilled and unskilled jobs, but only a fraction of low-type workers can perform skilled jobs. People have different non-pecuniary values over these jobs, akin to a Roy model. We calibrate two versions of the model to match moments of 17 OECD economies, considering separately education and skills mismatch. The cost of mismatch is 3% of output on average but varies between -1% to 9% across countries. The key variable that explains the output cost of mismatch is not the percentage of mismatched workers but their wage relative to well-matched workers.

Keywords: education mismatch, skill mismatch

JEL Classification: E24, J24

Suggested Citation

Garibaldi, Pietro and Gomes, Pedro M. and Gomes, Pedro M. and Sopraseuth, Thepthida, Output Costs of Education and Skill Mismatch. IZA Discussion Paper No. 12974, Available at SSRN: https://ssrn.com/abstract=3542643 or http://dx.doi.org/10.2139/ssrn.3542643

Pietro Garibaldi (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy
+39 02 5836 5422 (Phone)
+39 02 5836 5343 (Fax)

HOME PAGE: http://www.frdb.org/~pietrogaribaldi/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Pedro M. Gomes

University of London - Economics, Mathematics and Statistics ( email )

United States

HOME PAGE: http://www.eco.uc3m.es/~pgomes/

Charles III University of Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Thepthida Sopraseuth

University of Cergy-Pontoise ( email )

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