Can Skill Mismatch Explain Geographic and Time Variation in the Returns to College Majors? Evidence from Online Job Postings
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2018-05-31
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In this paper, we study how skill-specific initial labor market conditions affect early career outcomes of college graduates. Exploiting data on the near-universe of online job postings in the U.S. between 2010 and 2016, we build a new measure of skill mismatch which captures how well an individual’s college major matches the occupational composition of local labor demand around the time of graduation. Intuitively, a college graduate experiences skill mismatch when only a small fraction of online job postings in her city are suitable for her major in the year she graduates. Exploiting variation in skill mismatch across majors, cities and graduation cohorts, we find that a one standard deviation increase in our measure leads to a 3 percent decline in initial wages. Skill mismatch is also associated with a greater probability of being initially unemployed or employed in a part-time job, as well as a lower probability of being employed in a college occupation or one of the top occupations by college major. While the effects on unemployment, part-time employment and employment in college occupations gradually fade over time, the effects on wages and major-occupation fit persist up to 6 years after graduation. Our findings highlight the importance of having the right skills in the right place at the right time.