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School-to-work linkages, educational mismatches, and labor market outcomes

A recurring question in public and scientific debates is whether occupation-specific skills enhance labor market outcomes. Is it beneficial to have an educational degree that is linked to only one or a small set of occupations? To answer this question, we generalize existing models of the effects of (mis)match between education and occupation on labor market outcomes. Specifically, we incorporate the structural effects of linkage strength between school and work, which vary considerably across industrialized countries. In an analysis of France, Germany, and the United States, we find that workers have higher earnings when they are in occupations that match their educational level and field of study, but the size of this earnings boost depends on the clarity and strength of the pathway between their educational credential and the labor market. The earnings premium associated with a good occupational match is larger in countries where the credential has a stronger link to the labor market, but the penalty for a mismatch is also greater in such countries. Moreover, strong linkage reduces unemployment risk. These findings add nuance to often-made arguments that countries with loosely structured educational systems have more flexible labor markets and produce better labor market outcomes for workers. An institutional environment that promotes strong school-to-work pathways appears to be an effective strategy for providing workers with secure, well-paying jobs.