New Research Memorandum (ROA-RM-2017/5)
Skill effort: A new theoretical perspective on the relation between skills, skill use, mismatches, and wages by Rolf van der Velden and Ineke Bijlsma
Mismatches between workers’ skills and job demands have large negative effects on productivity, job satisfaction, and other outcomes. Current approaches to measure skill mismatches have a number of weaknesses, both theoretically and empirically. One problem is that they fail to distinguish the effect of skill proficiency itself from the effect of using these skills on the job. In this paper, we develop a new perspective by integrating skill proficiency and skill use into a new concept called skill effort. Skill effort is defined as a multiplicative function of skill proficiency and skill use. The intuitive understanding of this concept is that a skill can have no effect if it is not used and, vice versa, use of a skill can have only a small impact if the proficiency level is low. The new concept is firmly rooted in use-it-or-lose-it, engagement, and self-efficacy theories and has a parallel in previous theories on performance. We apply this concept to develop a matching model based on integration of the realized matches and the job requirement approach using data from the Programme for the International Assessment of Adult Competencies. The results show that the newly developed model is superior to alternative specifications of the same variables or alternative models using other approaches to explain wage differences in different countries. We discuss remaining issues on the measurement of this concept and present different ways to address them.