Firm Productivity and Matching Frictions in th Labor Markets: Is This an Unending Curse to Employers?
Keywords:
Firm productivity, labor market, friction, over-education, undereducation, mismatch
Abstract
The productivity behavior of firms is significantly influenced by labor market frictions in both emerging and established economies. Kenya persistently advocates for enhanced strategies to bolster productivity. The precise impact of labor market friction remains ambiguous. This paper focuses on assessing the influence of qualification and skills mismatch on firm productivity within the context of Kenya. The study utilized secondary crosssectional data obtained from the World Bank database, specifically from the 2016-2017 Skills Toward Employment Productivity (STEP) Household Survey conducted in Kenya. The full specification of the maximum likelihood model under the endogenous switching regression (ESR) was estimated. The results of the study indicate that insufficient education and a mismatch between skills and job requirements have a significantly negative impact on firm productivity. The impact of excessive education on firm production was found to be minimal. The essential finding regarding the marginal treatment effect, which holds significant implications for policymaking, indicates a strong positive association between over-education and firm productivity. A negative association is observed between education and skills mismatch and firm productivity. The policy implications underscore the necessity of aligning graduates with employment opportunities that correspond to their educational background and level of expertise.
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References
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4. Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of econometrics, 68(1), 29-51.
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9. Braconier, H., Nicoletti, G., & Westmore, B. (2014). Policy challenges for the next 50 years.
10. Brave, S. & Walstrum, T. (2014). Estimating marginal treatment effects using parametric and semiparametric methods. The Stata Journal, 14(1), 191-217.
11. Carneiro, P., Heckman, J. J., & Vytlacil, E. J. (2011). Estimating marginal returns to education. American Economic Review, 101(6), 2754-2781.
12. Chevalier, A. (2003). Measuring over‐education. Economica, 70(279), 509-531.
13. Cockx, B. & Dejemeppe, M. (2002). Do the Higher Educated Unemployed Crowd out the Lower Educated Ones in a Competition for Jobs?. Available at SSRN 323595.
14. Dalton, R. J., Scarrow, S. E., & Cain, B. E. (2003). New forms of democracy? Reform and transformation of democratic institutions. Democracy transformed? Expanding political opportunities in advanced industrial democracies, 1-22.
15. Dolado, J. J., Felgueroso, F., & Jimeno, J. F. (2000). Youth labour markets in Spain: Education, training, and crowding-out. European Economic Review, 44(4-6), 943-956.
16. Dudek, J., Cheng, I. F., Chowdhury, A., Wozny, K., Balleininger, M., Reinhold, R., & Rehling, P. (2016). Cardiac‐specific succinate dehydrogenase deficiency in Barth syndrome. EMBO molecular medicine, 8(2), 139-154.
17. Duncan, G. J. & Hoffman, S. D. (1981). The incidence and wage effects of overeducation. Economics of education review, 1(1), 75-86.
18. Erosa, A., Koreshkova, T., & Restuccia, D. (2010). How important is human capital? A quantitative theory assessment of world income inequality. The review of economic studies, 77(4), 1421-1449.
19. Fanti, L., Guarascio, D., & Tubiana, M. (2021). Skill mismatch and the dynamics of Italian companies’ productivity. Applied Economics, 53(59), 6790-6803.
20. Freeman, R. B. (1976). Individual mobility and union voice in the labor market. The American Economic Review, 66(2), 361-368.
21. Gautier, P. A., Van den Berg, G. J., Van Ours, J. C., & Ridder, G. (2002). Worker turnover at the firm level and crowding out of lower educated workers. European Economic Review, 46(3), 523-538.
22. Green, F., McIntosh, S., & Vignoles, A. (1999). Overeducation and skills-clarifying the concepts (No. dp0435). Centre for Economic Performance, LSE.
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25. Hartog, J. (2000). “Overeducation and Earnings: Where are We, Where We Should Go?”, Economics of Education Review, Vol. 19, pp. 131-147.
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29. Leuven, E. & Oosterbeek, H. (2011). Overeducation and mismatch in the labor market. Handbook of the Economics of Education, 4, 283- 326.
30. Levels, M., Van der Velden, R., & Di Stasio, V. (2014). From school to fitting work: How education-to-job matching of European school leavers is related to educational system characteristics. Acta sociologica, 57(4), 341-361.
31. Mahy, B., Rycx, F., & Vermeylen, G. (2015). Educational mismatch and firm productivity: do skills, technology and uncertainty matter?. De Economist, 163, 233-262.
32. Mahy, B., Rycx, F., & Vermeylen, G. (2015). Educational mismatch and firm productivity: do skills, technology and uncertainty matter?. De Economist, 163, 233-262.
33. Mavromaras, K., McGuinness, S., O'Leary, N., Sloane, P., & Wei, Z. (2013). Job mismatches and labor market outcomes: Panel evidence on university graduates. Economic Record, 89(286), 382-395.
34. Mavromaras, K., McGuinness, S., O'Leary, N., Sloane, P., & Wei, Z. (2013). Job mismatches and labour market outcomes: Panel evidence on university graduates. Economic Record, 89(286), 382-395.
35. Mavromaras, K., McGuinness, S., O'Leary, N., Sloane, P., & Wei, Z. (2013). Job mismatches and labour market outcomes: Panel evidence on university graduates. Economic Record, 89(286), 382-395.
36. Mavromaras, K., McGuinness, S., O'Leary, N., Sloane, P., & Wei, Z. (2013). Job mismatches and labour market outcomes: Panel evidence on university graduates. Economic Record, 89(286), 382-395.
37. McGowan, M. A. & Andrews, D. (2015). Skill mismatch and public policy in OECD countries.
38. Mincer, J. (1974). Schooling, Experience, and Earnings. Human Behavior and Social Institutions No. 2.
39. Mueller, D. C. (1972). A life cycle theory of the firm. The Journal of Industrial Economics, 199-219.
40. O'Mahony, M., Robinson, C., & Vecchi, M. (2008). The impact of ICT on the demand for skilled labour: A cross-country comparison. Labour economics, 15(6), 1435-1450.
41. Pauw, K., Oosthuizen, M., & Van Der Westhuizen, C. (2008). Graduate Unemployment In The Face Of Skills Shortages: A Labour Market Paradox 1. South African journal of economics, 76(1), 45-57.
42. Quintini, G. (2011). Right for the Job: Over-qualified or Underskilled?.
43. Ra, S., Liu, A., & Chin, B. (2015). Challenges and opportunities for skills development in Asia: changing supply, demand, and mismatches. Asian Development Bank.
44. Randall, M. (2017). Overview of the UK population: July 2017. London, UK: Office of National Statistics.
45. Reynolds, J. C., Grunau, B. E., Rittenberger, J. C., Sawyer, K. N., Kurz, M. C., & Callaway, C. W. (2016). Association between duration of resuscitation and favorable outcome after out-of-hospital cardiac arrest: implications for prolonging or terminating resuscitation. Circulation, 134(25), 2084-2094.
46. Romer, P. M. (1989). Human capital and growth: Theory and evidence.
47. Sandulli, F. D., Baker, P. M., & López-Sánchez, J. I. (2014). Jobs mismatch and productivity impact of information technology. The Service Industries Journal, 34(13), 1060-1074.
48. Shiferaw, B., Kassie, M., Jaleta, M., & Yirga, C. (2014). Adoption of improved wheat varieties and impacts on household food security in Ethiopia. Food policy, 44, 272-284.
49. Sicherman, N. & Galor, O. (1990). A theory of career mobility. Journal of political economy, 98(1), 169-192.
50. Thurow, G. (1976). Aggression and competition in eastern Plethodon (Amphibia, Urodela, Plethodontidae). Journal of Herpetology, 277- 291.
51. Thurow, L. C. (1975). Generating inequality.
52. Turrell, A., Speigner, B., Djumalieva, J., Copple, D., & Thurgood, J. (2018). Using job vacancies to understand the effects of labour market mismatch on UK output and productivity.
53. Van de Werfhorst, H. G. & Mijs, J. J. (2010). Achievement inequality and the institutional structure of educational systems: A comparative perspective. Annual review of sociology, 36, 407-428.
54. Velciu, M. (2017). Job mismatch–effects on work productivity. SEA– Practical Application of Science, (15), 395-398.
55. Weiss, R. S. (1995). Learning from strangers: The art and method of qualitative interview studies. Simon and Schuster.
56. Wolbers, M. H. (2003). Job mismatches and their labour‐market effects among school‐leavers in Europe. European sociological review, 19(3), 249-266.
57. Yanikkaya, H., Altun, A., & Tat, P. (2022). Does the Complexity of GVC Participation Matter for Productivity and Output Growth?. The European Journal of Development Research, 34(4), 2038-2068.
58. Zira, E. (2016). The impact of skill mismatch on aggregate productivity: Cross-country analysis in OECD economies. Unpublished master’s thesis, KTH Industrial Engineering and Management, Stockholm, Sweden.
2. Allen, J. & Van der Velden, R. (2001). Educational mismatches versus skill mismatches: effects on wages, job satisfaction, and on‐the‐job search. Oxford economic papers, 53(3), 434-452.
3. Andrews, D. & Cingano, F. (2014). Public policy and resource allocation: evidence from firms in OECD countries. Economic Policy, 29(78), 253-296.
4. Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of econometrics, 68(1), 29-51.
5. Aubert, P. & Crépon, B. (2003). La productivité des salariés âgés: une tentative d'estimation. Économie et statistique, 368(1), 95-119.
6. Becker, G. S. (1995). The economics of crime. Cross Sections, 12(Fall), 8-15.
7. Bilal, A., Engbom, N., Mongey, S., & Violante, G. L. (2022). Firm and worker dynamics in a frictional labor market. Econometrica, 90(4), 1425-1462.
8. Blundell, R. & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of econometrics, 87(1), 115-143.
9. Braconier, H., Nicoletti, G., & Westmore, B. (2014). Policy challenges for the next 50 years.
10. Brave, S. & Walstrum, T. (2014). Estimating marginal treatment effects using parametric and semiparametric methods. The Stata Journal, 14(1), 191-217.
11. Carneiro, P., Heckman, J. J., & Vytlacil, E. J. (2011). Estimating marginal returns to education. American Economic Review, 101(6), 2754-2781.
12. Chevalier, A. (2003). Measuring over‐education. Economica, 70(279), 509-531.
13. Cockx, B. & Dejemeppe, M. (2002). Do the Higher Educated Unemployed Crowd out the Lower Educated Ones in a Competition for Jobs?. Available at SSRN 323595.
14. Dalton, R. J., Scarrow, S. E., & Cain, B. E. (2003). New forms of democracy? Reform and transformation of democratic institutions. Democracy transformed? Expanding political opportunities in advanced industrial democracies, 1-22.
15. Dolado, J. J., Felgueroso, F., & Jimeno, J. F. (2000). Youth labour markets in Spain: Education, training, and crowding-out. European Economic Review, 44(4-6), 943-956.
16. Dudek, J., Cheng, I. F., Chowdhury, A., Wozny, K., Balleininger, M., Reinhold, R., & Rehling, P. (2016). Cardiac‐specific succinate dehydrogenase deficiency in Barth syndrome. EMBO molecular medicine, 8(2), 139-154.
17. Duncan, G. J. & Hoffman, S. D. (1981). The incidence and wage effects of overeducation. Economics of education review, 1(1), 75-86.
18. Erosa, A., Koreshkova, T., & Restuccia, D. (2010). How important is human capital? A quantitative theory assessment of world income inequality. The review of economic studies, 77(4), 1421-1449.
19. Fanti, L., Guarascio, D., & Tubiana, M. (2021). Skill mismatch and the dynamics of Italian companies’ productivity. Applied Economics, 53(59), 6790-6803.
20. Freeman, R. B. (1976). Individual mobility and union voice in the labor market. The American Economic Review, 66(2), 361-368.
21. Gautier, P. A., Van den Berg, G. J., Van Ours, J. C., & Ridder, G. (2002). Worker turnover at the firm level and crowding out of lower educated workers. European Economic Review, 46(3), 523-538.
22. Green, F., McIntosh, S., & Vignoles, A. (1999). Overeducation and skills-clarifying the concepts (No. dp0435). Centre for Economic Performance, LSE.
23. Haltiwanger, J., Hyatt, H., & McEntarfer, E. (2015). Do Workers Move Up the Firm Productivity Job Ladder?. Firms and the Distribution of Income: The Roles of Productivity and Luck, 52-85.
24. Halvarsson, D. & Tingvall, P. G. (2017). The impact of employing mismatched workers on firm productivity, wages and products.
25. Hartog, J. (2000). “Overeducation and Earnings: Where are We, Where We Should Go?”, Economics of Education Review, Vol. 19, pp. 131-147.
26. Hartog, J. (2000). Over-education and earnings: where are we, where should we go?. Economics of education review, 19(2), 131-147.
27. Heckman, J. J. & Vytlacil, E. (2005). Structural equations, treatment effects, and econometric policy evaluation 1. Econometrica, 73(3), 669-738.
28. Kirimi, L., Gitau, R., & Olunga, M. (2013). Household food security and commercialization among smallholder farmers in Kenya (No. 309-2016-5146).
29. Leuven, E. & Oosterbeek, H. (2011). Overeducation and mismatch in the labor market. Handbook of the Economics of Education, 4, 283- 326.
30. Levels, M., Van der Velden, R., & Di Stasio, V. (2014). From school to fitting work: How education-to-job matching of European school leavers is related to educational system characteristics. Acta sociologica, 57(4), 341-361.
31. Mahy, B., Rycx, F., & Vermeylen, G. (2015). Educational mismatch and firm productivity: do skills, technology and uncertainty matter?. De Economist, 163, 233-262.
32. Mahy, B., Rycx, F., & Vermeylen, G. (2015). Educational mismatch and firm productivity: do skills, technology and uncertainty matter?. De Economist, 163, 233-262.
33. Mavromaras, K., McGuinness, S., O'Leary, N., Sloane, P., & Wei, Z. (2013). Job mismatches and labor market outcomes: Panel evidence on university graduates. Economic Record, 89(286), 382-395.
34. Mavromaras, K., McGuinness, S., O'Leary, N., Sloane, P., & Wei, Z. (2013). Job mismatches and labour market outcomes: Panel evidence on university graduates. Economic Record, 89(286), 382-395.
35. Mavromaras, K., McGuinness, S., O'Leary, N., Sloane, P., & Wei, Z. (2013). Job mismatches and labour market outcomes: Panel evidence on university graduates. Economic Record, 89(286), 382-395.
36. Mavromaras, K., McGuinness, S., O'Leary, N., Sloane, P., & Wei, Z. (2013). Job mismatches and labour market outcomes: Panel evidence on university graduates. Economic Record, 89(286), 382-395.
37. McGowan, M. A. & Andrews, D. (2015). Skill mismatch and public policy in OECD countries.
38. Mincer, J. (1974). Schooling, Experience, and Earnings. Human Behavior and Social Institutions No. 2.
39. Mueller, D. C. (1972). A life cycle theory of the firm. The Journal of Industrial Economics, 199-219.
40. O'Mahony, M., Robinson, C., & Vecchi, M. (2008). The impact of ICT on the demand for skilled labour: A cross-country comparison. Labour economics, 15(6), 1435-1450.
41. Pauw, K., Oosthuizen, M., & Van Der Westhuizen, C. (2008). Graduate Unemployment In The Face Of Skills Shortages: A Labour Market Paradox 1. South African journal of economics, 76(1), 45-57.
42. Quintini, G. (2011). Right for the Job: Over-qualified or Underskilled?.
43. Ra, S., Liu, A., & Chin, B. (2015). Challenges and opportunities for skills development in Asia: changing supply, demand, and mismatches. Asian Development Bank.
44. Randall, M. (2017). Overview of the UK population: July 2017. London, UK: Office of National Statistics.
45. Reynolds, J. C., Grunau, B. E., Rittenberger, J. C., Sawyer, K. N., Kurz, M. C., & Callaway, C. W. (2016). Association between duration of resuscitation and favorable outcome after out-of-hospital cardiac arrest: implications for prolonging or terminating resuscitation. Circulation, 134(25), 2084-2094.
46. Romer, P. M. (1989). Human capital and growth: Theory and evidence.
47. Sandulli, F. D., Baker, P. M., & López-Sánchez, J. I. (2014). Jobs mismatch and productivity impact of information technology. The Service Industries Journal, 34(13), 1060-1074.
48. Shiferaw, B., Kassie, M., Jaleta, M., & Yirga, C. (2014). Adoption of improved wheat varieties and impacts on household food security in Ethiopia. Food policy, 44, 272-284.
49. Sicherman, N. & Galor, O. (1990). A theory of career mobility. Journal of political economy, 98(1), 169-192.
50. Thurow, G. (1976). Aggression and competition in eastern Plethodon (Amphibia, Urodela, Plethodontidae). Journal of Herpetology, 277- 291.
51. Thurow, L. C. (1975). Generating inequality.
52. Turrell, A., Speigner, B., Djumalieva, J., Copple, D., & Thurgood, J. (2018). Using job vacancies to understand the effects of labour market mismatch on UK output and productivity.
53. Van de Werfhorst, H. G. & Mijs, J. J. (2010). Achievement inequality and the institutional structure of educational systems: A comparative perspective. Annual review of sociology, 36, 407-428.
54. Velciu, M. (2017). Job mismatch–effects on work productivity. SEA– Practical Application of Science, (15), 395-398.
55. Weiss, R. S. (1995). Learning from strangers: The art and method of qualitative interview studies. Simon and Schuster.
56. Wolbers, M. H. (2003). Job mismatches and their labour‐market effects among school‐leavers in Europe. European sociological review, 19(3), 249-266.
57. Yanikkaya, H., Altun, A., & Tat, P. (2022). Does the Complexity of GVC Participation Matter for Productivity and Output Growth?. The European Journal of Development Research, 34(4), 2038-2068.
58. Zira, E. (2016). The impact of skill mismatch on aggregate productivity: Cross-country analysis in OECD economies. Unpublished master’s thesis, KTH Industrial Engineering and Management, Stockholm, Sweden.
Published
2023-11-30
How to Cite
Ndolo, D. K., & Senelwa, V. K. (2023). Firm Productivity and Matching Frictions in th Labor Markets: Is This an Unending Curse to Employers?. European Scientific Journal, ESJ, 19(31), 127. https://doi.org/10.19044/esj.2023.v19n31p127
Section
ESJ Social Sciences
Copyright (c) 2023 David Katuta Ndolo, Victor Kidake Senelwa
This work is licensed under a Creative Commons Attribution 4.0 International License.
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