It Pays to Study for the Right Job

With the rapid increase in educational attainment, technological change, and greater job specialization, decisions regarding human capital investment are no longer exclusively about the quantity of education, but rather the type of education to obtain. The skills and knowledge acquired in specific fields of study are more valuable for some jobs compared to others, which suggests the existence of differences in the quality of the education-occupation match in the labor market. With this premise in mind, this paper aims to estimate the effect of the quality of this education-occupation job match on workers’ wages and to explore the factors that contribute to the existence of such mismatch among workers with higher education (college or more). Using data from the American Community Survey 2010–16, we construct two indices that measure the quality of the education-occupation match: based on the predicted and observed distribution of workers using their fields of education and their jobs’ occupation classification. Results suggest there is a wage gap of around 3–4 percent when comparing workers that have good job matches to those who have bad matches. Given the importance of the penalty for mismatched jobs, we find that structural characteristics such as unemployment, and individual characteristics such as gender, race, immigration status, and even homeownership affect the quality of horizontal mismatch as well.