The Effect of Educational-job Mismatch on Company’s Productivity: A Panel Data Approach (Case study from Afghanistan)

Abstract

The mismatch of education, especially over-education, leads to inefficient allocation of scarce resources and becomes a public policy problem. The purpose of this study is to analyze the impact of educational-job mismatch on firm productivity. For this, we used a panel dataset for the period 2010-2016 obtained from the Central Statistical Organization (CSO) of Afghanistan, the World Bank database, and the Ministry of Labor and social welfare. Methodologically, we aggregated at the company level using the ORU (Overeducation, Required Education. and Undereducation) criteria. We also applied the OLS model, a fixed effects model, and a GMM estimator for dynamic systems. We investigate the significantly positive impact of university-level demands on company productivity while attempting to control for simultaneity concerns, unobserved work values that do not change over time, peer group consequences, and the interplay of the production process of adjustment; additional or longer periods of over-education or over-skilling (for younger as well as older workers) are detrimental to company productivity; additional years of under-education and under-skilling (for young employees) are not good (bad) for enterprises productivity. Governments should use greater levels of education and over-education of young and elderly employees as a policy instrument to boost productivity. The Generalized method of moments (GMM) approach is used in this work, which adds to the Afghan literature.