According to human-capital theory, individuals’ investment in education and training can be explained in terms of their expected returns to that investment. It holds that workers contribute to the production process according to their knowledge and skills and are rewarded accordingly. What happens, if high investment is paired with an unmet expected pay-off in terms of employment and income?
Human Capital Mismatch is the combination of unemployment with advanced education and the percentage of unmatched in the labor force. It can be caused by barriers to worker and job mobility, the expansion in higher education creating excess supply of qualified workers, social and ethnic capital contributing to overeducation, the saturation of labor markets for specific fields of study, and the focus on attributes such as family background and social class when hiring. Common consequences are wage penalties, fixed term or casual contracts and part-time work, and credential inflation.
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The production of human capital that bypasses the needs of the labor market makes the interaction of labor and capital more inefficient. The individual dimensions of Human Capital Mismatch, and Human Capital Mismatch itself are associated with lower total factor productivity and lower income.
What is the economic significance of changes in Human Capital Mismatch? Public policy can adress barriers to worker and job mobility. Market oriented higher education can adjust the supply of qualified workers, reducing overeducation and avoiding market saturation. What happens, if high investment is paired with the expected pay-off in terms of employment and income?
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