A Web-Based Approach to Measure Skill Mismatches and Skills Profiles for a Developing Country:. Jeisson Arley Cárdenas Rubio
imperfect information, the opportunity cost (θ parameter) is not the only relevant parameter to determine whether a person is employed or not. In addition, individuals need to devote time to find a job and firms might need to wait or search actively for the candidate that suits their requirements. Thus, included here is the possibility that the labour market does not instantly correct mismatches such as skill shortages (hereinafter skill mismatches refer to skill shortages). The efficiency at which the market makes matches between vacancies and workers depends on the matching function (the formation of new relationships such as job formation), which can be expressed as follows (Mortensen and Pissarides 1994):
m = m(u,v)
Where v represents the number of vacancies, u represents unemployed workers, and m indicates the rate of job matching (number of hired people and vacancies filled) over a given time period. Moreover, m is assumed to be homogeneous of degree one, which means that if u and v are doubled, the number of matches (m) will increase by the same proportion.
Equation 1 can derive the probability that a vacancy is filled:
As vacancies are filled at the Poisson rate, Equation 2 can be expressed as follows:
Where α is v/u, and it is interpreted as labour market tightness, an indicator to identify possible difficulties to fill vacancies, or whether it takes a relatively long time to fill an available job.
Employees also make decisions about educational (skills) investments and where to look for a job according to available information. Subsequently, job opportunities reach jobseekers with a certain probability given by the following:
Thus, the probability that a worker finds a job and a vacancy is filled is a function of market tightness, which depends on the quality of labour (skills) offered and demanded, among other characteristics.
Vacancies are offered in different places, such as newspapers or online job portals, and the information available there might restrict the number of job advertisements a person screens to make decisions about which roles to apply for. Also, individuals might not have access to or use certain sources that display vacancy information. Consequently, workers’ decisions can be based on imperfect information, hence they might or might not properly anticipate an employer’s requirements to fill certain vacancies (Mortensen 1970).
Therefore, according to employer requirements, a lack of proper skills (e.g. cognitive and non-cognitive skills) might affect the labour market matching function and create labour market segmentation. Indeed, as mentioned in Section 2.2.4, both cognitive and non-cognitive skills are relevant for the well-functioning of the labour market. As remarked by Desjardins and Rubenson (2011), cognitive skills such as literacy are becoming more important in today’s economy due to skill-biased technical changes (e.g. information and communication technologies or ICTs) Moreover, Brunello and Schlotter (2011) and Lindqvist and Vestman (2011) pointed out that people with low non-cognitive skills are significantly more likely to become unemployed. Thus, the combination of cognitive and non-cognitive skills demanded by employers and possessed by job seekers will considerably determine the performance of the matching function and other labour market outcomes, such as unemployment and informality rates.
If the likelihood of finding a formal job is relatively low (which might mean that companies do not demand the cognitive and non-cognitive skills some workers have attained), it can take time to find a job. Individuals whose skills are not in demand in the labour market have two options: 1) they can continue searching or create a job for themselves through self-employment, or 2) take an informal job as a way to earn an income and fulfil personal and family responsibilities. Those individuals who value an informal job more than the expected value of searching for and taking a job in the formal sector will be part of the informal economy (Albrecht, Navarro, and Vroman 2007). From the other perspective of the labour market, firms might not be able to gather perfect information about the skills possessed by potential individuals and have knowledge about where to find them (Desjardins and Rubenson 2011; Oyer and Schaefer 2010). According to this view, employers will hire an individual when the expected value of matching that individual exceeds the cost of posting a vacancy25,26 (Burdett and Smith 2002).
Consequently, hiring is an important and costly selection process for heterogeneous productive individuals and firms, and its efficiency depends on the research behaviour of employers and job searchers, as well as on the information available to them (Banfi and Villena-Roldán 2019). In this sense, companies can face some difficulties in finding people that meet their requirements. Due to that, they spend significant resources on advertising, posting job vacancies, and screening to select appropriate workers (Autor 2001).
Even with those strategies in place, it is possible to reach a situation where unemployed or informal workers with certain characteristics (skills) are willing to work in formal jobs and vacancies available to be filled. This situation can occur because the skills possessed by job seekers are not those required by the companies, resulting in skill shortages (or a skill mismatch).
Provided that companies require different skill combinations, and workers have restricted access and limited capacity to respond to those requirements, one straightforward solution to tackle this phenomenon and its consequences is to lower the cost of having (relevant) information about the current labour demand for skills. By doing so, workers have proper insights about current job roles, which might shape their decisions to acquire skills according to employer requirements. The matching function will become more efficient if workers have less imperfect information about the employers’ needs, and thus unemployment and (involuntary) informality will be reduced.
Moreover, the role of education and vocational education and training (VET) systems is relevant to reduce skill mismatches. Education and VET systems are one of the main ways to prepare (deliver skills to) people for work (Green 2011; OECD 2014a), and they might be affected by a restricted access and a limited capacity to analyse and anticipate employer requirements. Consequently, it is almost pointless that workers have the right information about current employer requirements for skills, that is, in case if there are no education and training systems in place that provide them. In consequence, the better understood how to adopt and develop this knowledge into education and training programs and into worker decisions, the better the match will be between worker skills and vacancies (Cedefop 2012a) (see Chapters 9 and 10).
This chapter has outlined a basic labour market framework in order to properly use vacancy data and address the phenomena of unemployment and informal economy. The labour market is a space where workers (labour supply) offer a quantity of “labour services” with certain qualities to fill vacancies, and employers (labour demand) hire this merchandise at a certain price (wages). In terms of the labour market, people can be divided into three groups: 1) workers whose labour services are bought by employers in the formal economy; 2) workers employed in the informal economy, who are characterised by a lack of social security, limited access to the financial system, etc.; and 3) workers who offer their labour services but are not hired by employers (unemployed). The size of each group depends on different elements. However, the literature discussed in this chapter stresses that skills are a relevant factor to determine labour outcomes, such as unemployment and the size of the informal economy.
Due to their importance and multiple dimensions (e.g. qualifications, competences, education, aptitudes, etc.), skills can be defined in different ways; nevertheless, most of those definitions link the task complexity of each job to the characteristics that each worker needs in order to successfully carry out these job tasks. For this reason, this book considers that