Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 16/2012: Good Skills in Bad Times: Cyclical Skill Mismatch and the Long-term Effects of Graduating in a Recession.

Kai Liu (), Kjell G. Salvanes () and Erik Ø. Sørensen ()
Additional contact information
Kai Liu: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Kjell G. Salvanes: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Erik Ø. Sørensen: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway

Abstract: We show that cyclical skill mismatch, defined as mismatch between the skills supplied by college graduates and skills demanded by hiring industries, is an important mechanism behind persistent career loss from graduating in recessions. Using Norwegian data, we find a strong countercyclical pattern of skill mismatch among college graduates. Initial labor market conditions have a declining but persistent effect on the probability of mismatch early in their careers. We provide a simple model of industry mobility that is consistent with our empirical findings. The initially mismatched graduates are also more vulnerable to business cycle variations at the time of graduation.

Keywords: Skill mismatch; business cycles

JEL-codes: E32; J31; J62

40 pages, August 17, 2012

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