Education-occupation mismatch and its effect on unemployment in Sweden

Abstract: Educational investments are made with the expectation that the acquired skills and knowledge will be applied on the labour market. Matching education and occupations lead to lower unemployment and vacancy rates and higher productivity and wages, but several imperfections of the labour market hinder the matching process. Education-occupation mismatch has been found to be positively linked with the structural component of unemployment. This paper explores mismatch in Sweden from a macro level perspective. A Skill Mismatch Index (SMI) is constructed from county-level educational and occupational structures, based on three education/skill levels. It appears that from 2001 to 2011 mismatch has notably declined in all counties, mostly due to a constantly increasing share of higher education. The most part of the mismatch is indeed structural; little can be attributed to lack of geographical mobility. Regressions of unemployment on the SMI indicate that around 20% of the relative changes in skills mismatch are translated into relative changes in unemployment. This result is principally similar to the few previous works of the same approach. Education-occupation mismatch has been mostly researched on micro level, and thus using a SMI is the first step towards exploring macro-level mismatch and its links to unemployment. Future research could inter alia make use of a similar index based on educational fields instead of levels.