Evidence of cross-country qualification mismatch demonstrates that overqualification is even more pervasive in developing Asia than in advanced economies such as the US and other members of the OECD. However, the prevalence of over qualification relative to job requirements masks heterogeneities in skills, jobs, and labor market institutions. Nevertheless we find no evidence to support the idea that current skills are insufficient to meet the demands of the existing labor market. To date, there has been little literature which demonstrates that individual mismatch has ramifications on aggregate productivity or that the current allocation of workers is suboptimal. We make advances on the latter by empirically establishing the link between search costs and mismatches in the labor market in developing countries.
From a policy perspective, our findings indicate scope for a concerted policy response in reducing impediments to search and alleviating credit constraints. Both of these are potentially a far more pressing issue in labor markets in developing countries. This is because in the absence of unemployment insurance, credit constraints, and higher search costs among the poor can result in them more immediately entering jobs for which they are less well matched. This is further exacerbated by the greater absence of easy access to information that is often facilitated through employment service websites and credible skill certification programs that would provide a clearer signal of an individual’s ability. The significance of both search costs and socioeconomic status in determining mismatch underscores the potential and economically significant role of reducing impediments to search among the poorer population set. This can ultimately help improve the allocation of labor that leads to gains in average wages and productivity.
Chosen excerpts by Job Market Monitor. Read the whole story at In search of a better match: qualification mismatches in developing Asia