Assessing the Problem of Human Capital Mismatch in Transition Economies

Abstract

In transition economies, there may be a significant mismatch between the types of skills that workers possess and the types of skills that the new economy demands. We consider this problem of human capital mismatch along the dimensions of training type (holding the level) and occupation. We document that in the Czech Republic and Poland the wage rate grew faster in business occupations than in technical occupations in the 1990's, and that in response the technical training/occupations contracted while the business training/occupations expanded. We do not find this pattern in Hungary. We construct a neoclassical model with endogenous occupational choice and calibrate it to the Czech and Polish data. We estimate that the discounted sum of output loss due to human capital mismatch amounts to 44% of the aggregate output of the beginning year of transition.