Periodic Reporting for period 1 - MAStErS (Making Sense of Education and Skills in a World of Super-Mobility)
Reporting period: 2016-08-15 to 2018-08-14
At present more than 230 million people, i.e. one out of every 33 persons in the world is a migrant. Given the unprecedented scale of recent flows, immigration will continue to be a relevant mechanism that has a huge transformative power to change the composition of labour markets. Labour migration policies in developed countries increasingly attract highly skilled immigrants through offering generous subsidies and funding schemes for employees and talented students. The migration literature documents that many skilled people however struggle to find jobs within host countries or take jobs well under their educational level. When workers are overqualified for their jobs there are substantial private and social losses in economic welfare such as deferred labour market assimilation, growing earnings inequality and crowding-out. Moreover, recent technological developments and the changing nature of the tasks of the workers at their workplaces, especially for those who are in routine occupations, act as an additional mechanism that may lead to pockets of over-qualification in the labour markets. Nevertheless coupled with technological developments, areas with greater absorptive capacity and higher human capital are likely to attract diversified skills, and benefit from positive human capital externalities. Therefore, role of dense urban areas (agglomeration economies) and location-specific factors are likely factors on decreasing or escalating skills mismatch in the form of overeducation.
Skills mismatch can be challenging for society and economies in number of ways. The potential issues can be listed as job (dis)satisfaction of employees; poor productivity at the individual level; poor productivity at the firm level; lack of sustained employment; and poor integration of immigrants into labour markets in host countries. Eurostat (2011) highlights this well by showing a skills mismatch for 19 % for natives and 39 % for foreign workers in the EU-27. The employees’ country of origin can influence the magnitude of the mismatch through transferability of hard (credentials) skills and soft (language, ability, cultural factors) skills. When the home country of immigrants’ differs significantly from the host in terms of development level the incomers may even face state dependency for being over or under-qualified in the long term, hence depressing integration into the labour market.
The overall aim of this research is to develop new knowledge on the individual and regional level impacts of skill mismatch. By integrating firm, location, tasks-complexity and cultural attributes into the skills mismatch literature, this program builds an agenda comprising of four lines of inquiry on the firm specific determinants and firms’ pricing of skills mismatch. The specific research objectives are as follows:
1. To investigate whether particular types of firms or sectors reward skill surpluses of employees differently
2. To investigate whether technological change through routinisation has caused overeducation and a respective wage penalty for the overeducated workers
3. To examine whether wages of overqualified employees vary with respect to country of origin
4. To determine whether the utilization of skill surpluses of workers differ between urban and non-urban areas.
Skills mismatch can be challenging for society and economies in number of ways. The potential issues can be listed as job (dis)satisfaction of employees; poor productivity at the individual level; poor productivity at the firm level; lack of sustained employment; and poor integration of immigrants into labour markets in host countries. Eurostat (2011) highlights this well by showing a skills mismatch for 19 % for natives and 39 % for foreign workers in the EU-27. The employees’ country of origin can influence the magnitude of the mismatch through transferability of hard (credentials) skills and soft (language, ability, cultural factors) skills. When the home country of immigrants’ differs significantly from the host in terms of development level the incomers may even face state dependency for being over or under-qualified in the long term, hence depressing integration into the labour market.
The overall aim of this research is to develop new knowledge on the individual and regional level impacts of skill mismatch. By integrating firm, location, tasks-complexity and cultural attributes into the skills mismatch literature, this program builds an agenda comprising of four lines of inquiry on the firm specific determinants and firms’ pricing of skills mismatch. The specific research objectives are as follows:
1. To investigate whether particular types of firms or sectors reward skill surpluses of employees differently
2. To investigate whether technological change through routinisation has caused overeducation and a respective wage penalty for the overeducated workers
3. To examine whether wages of overqualified employees vary with respect to country of origin
4. To determine whether the utilization of skill surpluses of workers differ between urban and non-urban areas.
The backbone of the empirical analysis rests on a number of confidential administrative data obtained from the Statistics Netherlands. Since 2017, I have started to build a unique dataset by linking Dutch Labour Force Surveys with Tax and Municipal Registers in order to create an employer-employee dataset. In other words, the analysis incorporates the worker characteristics such as demographics, occupation, education, immigration background; job characteristics like wage, sector, and location of the firms. This linked dataset enabled us to analyse in detail the effect of firm and employee characteristics on prevalence of overeducation and a potential wage penalty for the overeducated workers. Similarly, the analysis of the impact of technological change on causing overeducation became possible once this new dataset was constructed. Currently, two main research papers are undertaken: i) In the first paper, I tried to address how the changing demand-side conditions with respect to technology (e.g. firms’ decision to outsource routine tasks) influence the prevalence and persistence of overeducation; and secondly, simultaneously, what the response of wages to evolving technological changes for these over-educated employees is. Our approach enables me to extend the standard discussion beyond education and occupation mismatches and provides further knowledge on describing a mechanism of how becoming over- and under-educated is shaped by external technological changes; ii) Second paper focuses on how the accessibility to jobs of own skill level mediates the probability of being overqualified. It is likely that dense urban areas offer job opportunities for a larger spectrum of skills people possess. Therefore, we explore the static effect of urban density on over-qualification for workers.
The research programme introduced a number of innovative departures from the existing literature. Firstly, conceptually, it contemplated the completely ignored demand side effects by introducing firm characteristics, agglomeration economies and by exploring job and task-complexity impacts on skills mismatch in labour markets. It explicitly incorporated the effects of technological change as a potential mechanism to deepen skills mismatch. Secondly, on the methodological side, this research dealt with a number of measurement and definition issues on skills mismatch.
By constructing a measure of routine task intensity (RTI), we were able to create a unique dataset that enabled me to explore the impact of the routinization of jobs on workers’ propensity of being under-educated or over-educated for the job at hand. Within this framework, I also explored the impact of under-education and over-education on earnings. One of my contributions to the literature has been to show that workers in routine-task intensive occupations are in higher risk of taking jobs lower than their level of educational attainment. Secondly, I model the education deficit and education surplus and their impact on earnings using systems of limited-dependent variable equations, which proves to be more efficient than other methods that have been used in this literature. The Second study shows that urban density reduces the probability of being overeducation, although this effect is valid only for high-skilled workers.
Finally, this research contributes to evidence-based immigration policy that quantifies the cost and mechanisms of overeducation affecting healthy labour market integration of newcomers. The findings show that second generation immigrants catch up and are less likely to be overeducated. This finding is also reflected in the wage returns such that they do not face a wage penalty unlike first generation immigrants. The papers have been presented in various workshops conferences and at invited lectures. Cooperation with CEDEFOP (as the secondment organization) provides insights into my work to understand the employers’ attitude to skills formation and help dissemination of the findings to public policy practitioners and other international organisations.
By constructing a measure of routine task intensity (RTI), we were able to create a unique dataset that enabled me to explore the impact of the routinization of jobs on workers’ propensity of being under-educated or over-educated for the job at hand. Within this framework, I also explored the impact of under-education and over-education on earnings. One of my contributions to the literature has been to show that workers in routine-task intensive occupations are in higher risk of taking jobs lower than their level of educational attainment. Secondly, I model the education deficit and education surplus and their impact on earnings using systems of limited-dependent variable equations, which proves to be more efficient than other methods that have been used in this literature. The Second study shows that urban density reduces the probability of being overeducation, although this effect is valid only for high-skilled workers.
Finally, this research contributes to evidence-based immigration policy that quantifies the cost and mechanisms of overeducation affecting healthy labour market integration of newcomers. The findings show that second generation immigrants catch up and are less likely to be overeducated. This finding is also reflected in the wage returns such that they do not face a wage penalty unlike first generation immigrants. The papers have been presented in various workshops conferences and at invited lectures. Cooperation with CEDEFOP (as the secondment organization) provides insights into my work to understand the employers’ attitude to skills formation and help dissemination of the findings to public policy practitioners and other international organisations.