Skill Mismatch in Labor Markets

Solomon W. Polachek, Konstantinos Pouliakas, Giovanni Russo, Konstantinos Tatsiramos, Solomon W. Polachek, Konstantinos Tatsiramos

• Publisher: Emerald Publishing Limited
• Year: 2017
• Print ISBN: 9781787143784
• eBook ISBN: 9781787149212
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

The 2008 global financial and economic crisis led to a significant increase in unemployment rates in most developed economies, yet despite the rising supply of labor, a high share of employers claim that they cannot find the right talent and skills. Concerns that economic restructuring and changing skill needs associated with new technologies and workplace organization practices will not be met by an adequately skilled workforce, has placed the issue of skill mismatch – the incongruence between skill supply and skill demand – high up in the policy agenda. This volume contains eleven original research articles which deal with the linkages between education and skills and the causes and consequences of different types of skill mismatch. Topics include the way graduate jobs can be defined, the labor market decisions and outcomes of graduates, the determinants of the overeducation wage penalty, the determinants and consequences of underskilling, the wage return of skills, the impact of skill mismatch on aggregate productivity, and the role of work-related training and job complexity on skill development.

WORK-RELATED LEARNING AND SKILL DEVELOPMENT IN EUROPE: DOES INITIAL SKILL MISMATCH MATTER?*

Maria Ferreira^a,b, Annemarie Künn-Nelen^a,c and Andries De Grip^a,c

^aMaastricht University

^bIndustrial University of Santander

^cIZA

ABSTRACT

This paper provides more insight into the assumption of human capital theory that the productivity of job-related training is driven by the improvement of workers’ skills. We analyze the extent to which training and informal learning on the job are related to employee skill development and consider the heterogeneity of this relationship with respect to workers’ skill mismatch at job entry. Using data from the 2014 European Skills and Jobs Survey, we find – as assumed by human capital theory – that employees who participated in training or informal learning show greater improvement of their skills than those who did not. The contribution of informal learning to employee skill development appears to be larger than that of training participation. Nevertheless, both forms of learning are shown to be complementary. This complementarity between training and informal learning is related to a significant additional improvement of workers’ skills. The skill development of workers who were initially underskilled for their job seems to benefit the most from both training and informal learning, whereas the skill development of those who were initially overskilled benefits the least. Work-related learning investments in the latter group seem to be more functional in offsetting skill depreciation than in fostering skill accumulation.

Keywords: Training; informal learning; skill development; skill mismatch; human capital

JEL classifications: J24; M53

*We gratefully acknowledge comments from Jim Allen, Sara de la Rica, Rolf van der Velden, and participants at the Cedefop/IZA Workshop on Skills and Skill Mismatch (2015); the Workshop on Education, Skills, and Labor Market Outcomes (2016); and the ESPE and EALE conferences (2016). We thank two anonymous referees for their insightful comments, who have helped us to significantly improve the paper. We are solely responsible for any remaining errors.

1. INTRODUCTION

To deal with the challenges of rising global competition, the European Union has set itself goals with respect to formal training and informal learning in the workplace to “acquire and develop new skills throughout the lifetime of individuals” and increase their productivity (European Commission, 2010, p. 16). This idea that lifelong learning improves workers’ skills builds on human capital theory (Becker, 1964; Ben-Porath, 1967; Heckman, 1976; Mincer, 1962). Several empirical studies have shown that job-related training is associated with higher wages and productivity (Acemoglu & Pischke, 1999; Blundell, Dearden, Meghir, & Sianesi, 1999; Görlitz, 2011; Leuven & Oosterbeek, 2008). However, due to lack of data on skill development, there is hardly any empirical literature on the contribution of different forms of human capital investments to workers’ skill development.

In this paper, we provide more insights into the relevance of the assumption that the productivity of training is driven by the improvement of workers’ skills. We analyze the extent to which work-related learning is related to the skill development of workers in 28 European countries. We thereby distinguish between formal training participation and informal learning on the job and examine whether the substitution or complementarity between these two types of learning plays a role in workers’ skill accumulation. To better understand these relationships, we allow for heterogeneity with regard to employee skill mismatch at job entry.¹

The 2014 European Skills and Jobs Survey shows that, at the start of a job, a significant proportion of the labor force in Europe has skills that either exceed the demands of their job or are insufficient for adequate job performance: 24 percent of all workers report that some of their skills were initially lower than what was required in their job, whereas 25 percent report that their skills were initially higher than required. In comparison with well-matched workers, those who are underskilled, on the one hand, probably need more training or informal learning on the job to perform at an adequate level. We therefore expect job-related learning to add more to these workers’ skill level. On the other hand, workers who are overskilled could be more likely to have other reasons to engage in job-related learning, such as keeping their skills up-to-date, which might not reveal skill improvement as such. Because of these differences in the degree of workers’ skill utilization on the job and in the underlying reasons for participating in job-related learning, the skill development of initially mismatched workers is expected to differ from that of workers whose skills fully matched the skill demands in their job.

For this study, we use data on more than 37,000 employees from the European Skills and Jobs Survey, conducted in 2014 by the European Centre for the Development of Vocational Training (Cedefop). This survey is one of the first in which different types of job-related learning as well as employees’ skill development and mismatch are measured.² Although these data are not sufficient to establish causality, we provide relevant empirical evidence on the expected relationship between different forms of workplace learning and employee skill accumulation, which has, until now, been a black box in the empirical human capital literature that has mainly focused on workers’ wages (De Grip & Sauermann, 2013).

Our study contributes to the literature in three more ways. First, whereas most empirical studies focus on training participation, we are able to differentiate between formal training and informal learning to investigate in more detail the extent to which workers’ participation in different forms of work-related learning contributes to the improvement of their skill levels. Second, we provide more insights into the complementarity between training and informal learning on the job by analyzing their interaction in the development of workers’ skills. Third, we examine the heterogeneity of the relationships between training and informal learning and workers’ skill development with respect to the initial job–worker mismatch status.

In line with the hypotheses derived from skills production models, we find that employees who participate in training or who are more often involved in informal learning show greater skill improvement. The relationship between informal learning on the job and employees’ skill development appears to be stronger than that between training participation and skill development. Nonetheless, there is complementarity between these two forms of work-related learning. This complementarity seems to favor a significant additional improvement of workers’ skills. This finding is consistent with the notions of the complementarity and cross-productivity of human capital (Cunha & Heckman, 2007) in an on-the-job context. We also find that skill mismatches induce heterogeneities and moderate the previous outcomes. Thereby, we find that well-matched, underskilled, and overskilled employees differ in the extent to which investments in training and informal learning – and their complementarity – are associated with the accumulation of their skills during their working life. A stronger relationship between work-related learning and skill development suggests that initially underskilled employees benefit the most from both training and informal learning, whereas overskilled employees benefit the least. Human capital investments in the latter group seem to be more functional in counteracting skill depreciation and maintaining their skill level than in fostering skill accumulation, as suggested by literature on skill obsolescence (De Grip & van Loo, 2002). Our study then suggests that being employed in a skill-challenging job or a job that underutilizes a worker’s skills has important implications on the returns to investment in both training and informal learning.

We also analyze the contribution of different types of training and informal learning to workers’ skill development. We find that, among well-matched and underskilled employees, training during working hours and training paid by the employer are more strongly related to workers’ skill development than training outside working hours and training paid by the employee. Among overskilled workers, however, these differences are rather small and statistically insignificant. With respect to informal learning, we find that, for workers in well-matching jobs, informal learning from colleagues and supervisors seem to contribute to their skills as much as informal learning by trial and error and self-study. Underskilled workers, however, show greater skill improvement when learning by self-study. In contrast, overskilled workers seem to benefit more from informal learning by trial and error and learning from colleagues and supervisors than from self-study, which appears to be insignificant for their skill improvement.

The remainder of the paper is structured as follows. Section 2 discusses the relevant literature. Section 3 describes the dataset and the definitions of skill development and skill mismatch as well as the other variables used in the analyses. Section 4 describes the estimation method we use – ordered probit models with interaction effects – and explains how to interpret the results. The results are presented in Section 5. Section 6 concludes the paper.

2. LITERATURE

2.1. Human Capital Investments and Skill Development

Human capital theory considers on-the-job learning an investment that increases workers’ productivity and wages via the accumulation of skills (Becker, 1964; Ben-Porath, 1967; Heckman, 1976; Mincer, 1962). First, at the individual level, most of the empirical literature deals with the relation between training and wages, since hard measures of individual productivity are rare (Acemoglu & Pischke, 1999; Blundell et al., 1999; Görlitz, 2011; Leuven & Oosterbeek, 2008; O’Connell & Byrne, 2012). An exception is the study of De Grip and Sauermann (2012), who assess the ef...

Table of contents

• Cover
• Title Page
• To Be or Not to Be a Scientist?
• Cross-National Deployment of “Graduate Jobs”: Analysis Using a New Indicator Based on High Skills Use
• Deconstructing Theories of Overeducation in Europe: A Wage Decomposition Approach
• The Changing Occupational Distribution by College Major
• Skilled or Educated? Educational Reforms, Human Capital, and Earnings
• Labor Market Mismatch and Labor Productivity: Evidence from PIAAC Data
• Much Ado about Nothing? The Wage Penalty of Holding a PhD Degree but Not a PhD Job Position
• Rethinking Under-Skilling in Europe
• Are Skill Deficits always Bad? Toward a Learning Perspective on Skill Mismatches
• Work-Related Learning and Skill Development in Europe: Does Initial Skill Mismatch Matter?
• Job Design and Skill Development in the Workplace
• Index