Skills are the new “global currency of 21st-century economies” and skill mismatch occurs when skills possessed by the workers exceed or do not meet the skills required at their workplace. It can lead to skill depreciation and slower adaptation to technological progress, from a macroeconomic perspective, and impacts workers’ earnings and job satisfaction, from a microeconomic perspective. Recently, the issue of skill mismatch has gained importance in the policy sphere. For instance, the European Union’s Agenda for New Skills and Jobs identifies skill mismatch as one of the core challenges faced by today’s labor markets. Similarly, the OECD stresses the importance of understanding the causes and consequences of skill mismatch.
However, measuring skill mismatch is problematic, because objective data on skills at the individual level are often not available.
Recently published data from the Program for the International Assessment of Adult Competencies (PIAAC) provide a unique opportunity for gauging the importance of skill mismatch in modern labor markets.
Measuring Skill Mismatch
Most often, self-reports are used to measure skill mismatch. Information on self- reported skill mismatch is obtained by asking workers to what extent their skills correspond to the tasks performed at work. Self-report measures have the advantage of being easily implementable in a survey; thus, up-to-date information on skill mismatch can be obtained. However, self-reports are prone to biases. Respondents may have the tendency to overstate the requirements of their workplace and upgrade their position at work.
Skill mismatch can also be measured directly, which provides a more objective measure. In all direct skill mismatch measures, workers’ skills are compared to skills required at their workplace. For instance, required skills can be measured using the Job Requirement Approach. However, biases can also arise from this approach if respondents overstate their skill use at work. Alternatively, required skills can be measured by obtaining a general, occupation-specific skill level, similar to the “Realized Matches” approach applied in education mismatch research.
Both direct approaches for measuring skill mismatch require data on skills actually possessed by the workers. These are typically available in large-scale assessments, such as the International Adult Literacy Survey (IALS), the Adult Literacy and Lifeskills (ALL) Survey, or, most recently, PIAAC. National competency assessments, such as the German National Education Panel Study (NEPS), also provide such information. However, the implementation of large-scale competency assessments is costly. Data on workers’ skills are therefore scarce and only available for a limited number of countries and time periods. Nevertheless, direct skill data provide a compelling avenue for measuring skill mismatch.
We also provide a new measure that addresses an important limitation of existing measures, namely, assigning a single competency score to individuals. We find that the importance of skill mismatch for individual earnings differs greatly, depending on the measure of mismatch used.
Chosen excerpts by Job Market Monitor. Read the whole story at How can skill mismatch be measured?: new approaches with PIAAC