Educational mismatch and productivity: evidence from LEED data on Italian firms

Over the past years, the role of the potential mismatch between the demand and supply of skills and qualifications has received considerable attention in Italy. However, the empirical evidence about the impact of this mismatch onto firms’ productivity has not been fully documented so far. In the present paper, we investigate this issue empirically, exploiting the information available from the System of Statistical Registers built within the Italian National Institute of Statistics (Istat). In particular, we focus on the “educational mismatch”, defined as the difference between the educational attainment of workers (the highest level of education the worker has completed) and that “needed” for their job. In this way, over (under) education refers to situations where the individual’s educational attainment is higher (lower) than the “required” level, thereby producing a surplus (deficit) of education. Indeed, this mismatch is the result of several overlapping factors, ranging from the adequacy of training to the (in)efficiency of the labour market or the ability of the economic system to absorb skilled labour. The latter issue increasingly depends on the speed at which technological change, and in particular the digitalization process, has changed the demand for skills in the last decades, especially for high-tech and knowledge-intensive industries. The role of human capital as a key factor in improving firm’s competitiveness has been already highlighted by Istat (Istat, 2018); investments in this area have been also recently found to be associated with an increase in firms resilience during the pandemic crisis (Istat, 2021). An analysis of the skill and qualification mismatch for the Italian economy is proposed by OECD (2016) and Monti e Pellizzari (2016), which aimed to provide statistical evidence of the roots of skill mismatch, based on the PIAAC survey results. More recently, the correlation between the ability to match the skills need and labour productivity has been pointed out by Fanti et al. (2021) for a representative sample of Italian firms based on the INAPP PEC survey. In this paper we explore the effect of over/under education of employed workers on firms’ productivity for the Italian economy on the basis of the work of Kampelmann and Rycx (2012), which provides evidence about the direct impact of educational mismatch on productivity using linked employer-employee data for a panel of Belgian firms covering the period 1999-2006.2 By means of the Istat System of Statistical Registers, we are able to adapt the same analytical framework to Italian data, to contribute filling the gap in the literature about the link between human capital and firms’ competitiveness in our economy. The results suggest that over/under education affects productivity growth in both manufacturing and services firms: in particular, over-education rises firm’s productivity in medium and high-tech manufacturing firms as well as in less knowledge-intensive services, whereas under-education hampers productivity in manufacturing and services industries with a higher intensity of technology and knowledge. This paper is organized as follows: section 2 presents the dataset and the empirical methodology; section 3 offers some preliminary descriptive statistics, section 4 shows the results and section 5 draws conclusions.