College Majors and Labour Market Mismatch
Speaker: Michelle Rendall (Monash University)
Abstract:
This paper studies the extent of skill mismatch across college major-occupation combinations. We propose a general equilibrium framework to measure mismatch through output loss. The model relies on the estimation of college-occupation returns based on the Roy model. We use Australian administrative tax panel data merging employment history and university degree information. We control for selection at the occupation choice by taking advantage of the regional variations in labor market conditions. Wage penalties consistently increase when we control for selection. Using these estimates, we find sizeable output losses, up to 20 percent, from workers allocating to occupations not well linked to their majors. Our results suggest that (1) STEM-related fields (IT, Commerce, and Engineering) are the main drivers of mismatch, and (2) government education subsidies exacerbated mismatch, increasing output loss by up to 7 percent, and increasing the persistence of mismatch over the life cycle.