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Educational mismatches and skills: New empirical tests of old hypotheses

This article empirically explores how the often reported relationship between educational mismatches and wages can best be understood. Exploiting the newly published Programme for International Assessment of Adult Competencies (PIAAC) data, we are able to achieve a better estimation of the classical Duncan and Hoffman ORU model than previous papers by controlling for heterogeneity of observable skills. Our findings suggest that (i) a considerable part of the effect of educational mismatches can be attributed to skills heterogeneity, and (ii) that the extent to which skills explain educational mismatches varies by institutional contexts, particularly the extent to which collective wage bargaining is regulated. These observations suggest that skills matter for explaining wage effects of education and educational mismatches, but also that the extent to which this is the case depends on collective wage bargaining.