IPP Report n°26 - January 2020

Education, skills and skill mismatch: a review and some new evidence based on the PIAAC survey

IPP Report n°26 – January 2020

Authors: Kentaro Asai, Thomas Breda, Audrey Rain, Lucile Romanello, Marc Sangnier

Contacts: thomas.breda@ipp.eu, audrey.rain@ipp.eu

Funding: This work was done in the context of a research partnership between the Institut des politiques publiques and the Direction de l’Animation de la Recherche, des Etudes et des Statistiques (Dares) at the French Ministry of Labor. We thank the Dares for its financial support that made it possible to realise this study.

Summary

The report focuses on skills and their measurement in the working-age population. It first provides an overview of the literature on skill mismatch on the labor market, i.e. the discrepancy between workers’ actual skills and the skills needed by firms. The possible sources of skill mismatch and the existing approaches to quantify skill mismatch are described. In particular, we discuss the country-level indicators of skill mismatch constructed from the OECD Program of International Assessment of Adult Competencies (PIAAC) using both workers’ subjective assessment of their own skill mismatch and measures of their general skills in numeracy, literacy and problem solving based on actual tests.

To understand better the informational content of the measures of skills in numeracy and literacy provided in PIAAC and used to build some of the main indicators of skill mismatch, the report then studies their relationship to educational attainment and labor market outcomes. It shows that initial education has a positive and long-lasting impact on adults’ skills in numeracy and literacy, as measured in PIAAC. This impact is found for adults that are around 45 years old and that have therefore finished their initial education more than twenty years ago. It is identified from a large reform of compulsory schooling in Belgium.

The study finally shows that skills in numeracy and literacy have limited predictive power for labor market outcomes. For example, they can account for less than 4% of the variance in wages. In comparison, initial education appears to be a much better predictor of individuals’ employment status and wage. Altogether, our results suggest that initial education enables people to acquire the general skills measured in PIAAC, but also many others. Consequently, diplomas provide more information on adult competencies than do a few selected measures of general skills, and they are therefore more able to predict labor market outcomes.

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