Media Briefings

HIGH COSTS OF MISMATCH BETWEEN WORKERS AND JOBS: Lessons from economic research

  • Published Date: November 2016

Instead of worrying about unemployment as the main challenge for modern labour markets, we should consider more carefully the problems of mismatch of skills to jobs. Too many people are in the ‘wrong’ job: ones that either use too few of their skills for which they are over-qualified, or ones for which they are under-qualified. The costs of these mismatches can be high – not just for the individuals themselves but also for society as a whole.

These were among the messages of the 2016 Royal Economic Society annual public lecture (#RESlecture) delivered by Professor Philipp Kircher of the University of Edinburgh at the Royal Institution in London on Tuesday 29 November, and again at the Whitworth at the University of Manchester on Wednesday 30 November.

Professor Kircher discussed ‘In Search of the Perfect Match: The economics of picking our partners and jobs’ in a lecture that can be watched here:

http://royaleconomicsociety.wavecast.io/public-lecture-2016/in-search-of-the-perfect-match-the-economics-of-picking-our-partners-and-jobs

Professor Kircher noted that unemployment has dominated the policy debate on labour markets for decades – and it is the main measure of dysfunction of these markets. But while unemployment is clearly important, other measures of labour market performance may require the same amount of attention.

In particular, recent research points out that the number of individuals who find themselves in positions where they are either over- or under-qualified is large. This mismatch of skills and jobs seems to be present both at the place of employment as well as at the stage where people are looking for work.

A large number of people are in employment where their skills are not fully used, and many individuals seem to search for work in occupations that do not supply most jobs, especially in the case of the UK in times of recession. The magnitude of these mismatches has the potential of amounting to economic losses similar to those of unemployment.

Professor Kircher went on to show that the issue of matching is not just confined to labour markets. Matching in the ‘marriage market’ also displays features of bringing together partners with an interest in each other.

While marriage has many factors that might not be driven by traditional economic motivations, still basic arguments of ‘supply’ and ‘demand’ apply. And if some individuals are more desirable than others (for reasons that are likely to be non-monetary and possibly beyond the exact specification of economists), they will have more choice in this ‘market’.

Recent policy evidence also suggests that incentives do matter for marriage. For example, when subsidies to marriage (such as preferable tax treatment) are about to be suspended, marriage rates spike up.

Professor Kircher reviewed the evidence on these points and then laid out some current economic thinking on matching and mismatch. How are individuals and organisations allocated to one another in markets like these? And what could be possible measures of mismatch?

He explained some core concepts that are slowly becoming mainstream in economics, and some more recent theories about the assessment of mismatches and their economic magnitude. While these are still in the process of development, some work suggests for the labour market that mismatch might have similar or possibly even larger economic costs than unemployment.

ENDS