MisMatch in Human Capital Accumulation

Russell Cooper and Huacong Liu

No 22010, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the allocation of heterogeneous agents to levels of educational attainment. The goal is to understand the magnitudes and sources of mismatch in this assignment, both in theory and in the data. The paper presents evidence of substantial mismatch between ability and educational attainment across 21 OECD countries, with a focus on Germany, Italy, Japan and the US. In the model, mismatch originates from: (i) taste shocks, (ii) binding borrowing constraints and (iii) noisy measures of ability in test scores. The model is estimated using a simulated method of moments approach. The main finding is that measured mismatch arises largely from noise in test scores and does not reflect borrowing constraints. Differences in tastes for education across households play a minor role in explaining mismatch. Further, the estimation allows us to decompose the college wage premium, isolating cross-country differences in selection effects from the return to education.

JEL-codes: E24 I26 J24 O43 (search for similar items in EconPapers)
Date: 2016-02
New Economics Papers: this item is included in nep-edu, nep-hrm, nep-lma and nep-mac
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Published as Russell Cooper & Huacong Liu, 2019. "MISMATCH IN HUMAN CAPITAL ACCUMULATION," International Economic Review, vol 60(3), pages 1291-1328.

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