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Economic value of skills

2008

The goal of this study is to analyze and evaluate the relationship between occupation and other characteristics of employees in wage-setting process.

More specifically, we look at correlations between the field of study by diploma (or any other education certificate) and actual occupation. The greater the gap between them, the larger is under-employment of human capital and total losses of society. This under-employment has two aspects. The first type of under-employment emerges if a person works in a field different from her education major, but which still requires her level of education so that her social status is preserved. The second type of under-employment is related to the situation when a person takes jobs with lower education requirements, regardless of the occupation and field of study. The former represents a mismatch between field of study and job, the latter is termed as over-education. However, in both cases substantial expenditures on education and training made by governments and households give no return and, therefore, are inefficient. For individuals educational mismatch may also contain social losses.

Analysis based on a large-scale survey of occupational wages conducted by Russian Federation Federal Statistics Service (Rosstat) revealed large differences in wages by types of ownership even within narrow occupation groups. The largest wage “premium” is paid by companies with foreign capital. At the same time workers employed at regional and municipal establishments are underpaid. The analysis controls for job and personal characteristics of employees. After adding these characteristics to equation, the magnitude of wage differentials shrank by 50-70%. This finding indicates that a bulk of wage differences across ownership types can be attributed to inter-industry wage differentials and differences in firm size.

Analysis based on the data from the Russian Labor Force survey revealed significant mismatch between formal educational qualifications and actual occupations. It is true for all education levels. Half of university graduates do not work in their field of study. Among employees with vocational education the share of mismatches approaches 80%. The most acute problem is that highly qualified people hold the jobs that do not generally require high level of education. This result is robust for various groups of workers distinguished by field of study, gender, age, and place of residence.

Interesting results were obtained from the analysis of occupational mobility of secondary vocational school and pedagogical college graduates. For these groups the results are insightful. Graduates of financial and economic vocational schools are promoted to managerial positions faster than their peers with diplomas in other fields. This finding indicates an obvious shortage of employees with such qualifications, at least until recently. On the contrary, graduates of pedagogical colleges have low level of upward occupational mobility and high level of downward occupational mobility. This result suggests their relative overproduction.

Economic return to basic education is relatively high in Russia, while a large part of the investment in vocational education and training brings no benefits and therefore is inefficient. The results of the research support our claim that in Russia demand for skills does not match supply of skills produced by the system of professional education and training. Some graduates are not employed in the field of their study because their qualifications are not in demand; while the others are have to do so because they have no other choice. This mismatch can be explained excessively narrow definitions of the field of study which do satisfy the requirements of a market economy and demands of the 21st century. The narrower the fields of study in the educational system are, the less chance students have to meet the changes in demand. This conclusion has straightforward policy implications for education reforms. The educational system has to develop universal competences that would allow for easy professional adaptation in a wide range of occupations throughout entire working life.   


 

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