Educational Mismatch, Skills, and Wage Penalty: Evidence from US Heterogeneous Labor

This study investigates the relationship between educational mismatch and wage penalties, with a specific focus on the moderating influence of skill proficiency across various occupational contexts in the United States. Utilizing data from the OECD’s Program for the International Assessment of Adult Competencies (PIAAC), the analysis examines how literacy and numeracy skills shape the economic outcomes of workers whose educational qualifications exceed the requirements of their positions. The findings reveal that educational mismatch is frequently associated with wage penalties; however, the extent of these penalties varies considerably across occupational categories. Furthermore, workers with stronger literacy and numeracy skills are shown to experience smaller wage penalties, as their advanced proficiencies enable them to meet job demands more effectively and demonstrate greater productivity. However, the degree to which skill proficiency reduces wage penalties depends on the specific requirements and structures of different occupations. By analyzing the interaction between educational mismatch, skill proficiency, and occupational variation, this study contributes to a more detailed understanding of wage disparities and highlights the importance of targeted skill development programs. These findings have significant implications for workforce policies, suggesting the need for initiatives that align skill enhancement with labor market demands to mitigate the economic challenges posed by educational mismatch.