Abstract
This paper examines a problem of worker misallocation into jobs. A theoretical model, allowing for heterogeneous workers and firms, shows that job search frictions generate mismatch between employees and employers. In the empirical analysis, the British Household Panel Survey (BHPS), the UK household Longitudinal Study (UKHLS) and British Cohort Study 1970 (BCS70) data are used to measure the incidence of mismatch, how it changes over time and whether it can be explained by unobserved ability. Results show that (i) the incidence of mismatch increases after the Great Recession. (ii) Individual transitions to/from matching take place due to workers’ occupational mobility and over-time skills development. (iii) Employees can find better jobs or their mobility occurs earlier than the aggregate change of skills. (iv) Controlling for individual heterogeneity, measured by cognitive and non-cognitive skill test scores throughout childhood, does not decrease the incidence of mismatch. This suggests that unobserved productivity does not generate mismatch in the labour market.
Key words: Human Capital Mismatch; frictions; individual heterogeneity
JEL Classification: I26, J24, J31, J64
Key findings
Pros
Job mobility occurs earlier than the aggregate change of skillsSkills do not generate mismatch
Cons
Frictions are related to the privilege of a particular group of workers to access certain jobs
Search frictions generate mismatch
Mismatch increases after the Great Recession
How are people sorted in jobs?
Illustration of identification: a novel measure of mismatch
An example between middle- and high-skilled occupations. The dashed vertical line is the median estimated human capital $\Big(\widetilde{\widehat{HC}}\Big)$ of the high-skilled occupation.
Incidence of mismatch
Using the BHPS/UKHLS (also known as “Understanding Society”) data, the instance of mismatch between 1991-2015 is:
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