Skill Mismatch and the Costs of Job Displacement


Nedelkoska, L., Neffke, F. & Wiederhold, S., 2015. Skill Mismatch and the Costs of Job Displacement. Copy at


An increasing number of studies evidence large and persistent earning losses by displaced workers. We study whether these losses can partly be attributed to the skill mismatch that arises when workers’ human capital is underutilized at the new job. We develop a new method of measuring skill mismatch that accounts for asymmetries in the transferability of human capital between occupations, and link these measures to exceptionally rich German administrative data on individuals’ work histories. We find that displacement increases the probability of occupational switching and skill mismatch, primarily because displaced workers often move to less skill-demanding occupations. Event-study analyses show that these downskilled switchers suffer substantially larger displacement costs than occupational stayers. Workers moving to more skill-demanding occupations have similar earning losses as stayers, and do not experience any displacement costs conditional on being employed

CID Research Fellow & Graduate Student Working Paper: 122
Keywords: job displacement, human capital, skill mismatch, occupational change
JEL Classifications: J24, J31, J63, J65