An Investigation Into The Relationship Between Wages, Mismatch, On-the-Job Search and Education

This thesis contributes to the existing literature by studying the link between educational choices, skill mismatch and wages in a labour market with search frictions with on-the-job search. In the first paper, I used empirical techniques to look at the link between skill mismatch and wages. I found that over-education and mismatch is part of a career mobility or job-to-job transition in the labour market. Workers accept jobs for which they are overqualified and search on-the-job to move to jobs that are more matched to their educational level. In the process they accept a wage cut which is temporary until they are able to find a job better suited to their level of education. In the second paper, I used search and matching framework to study the link between on-the-job search and wages in an economy where high and low ability workers compete for jobs. On-the-job search is a way in which workers reduce the extent of mismatch and firms react to this. However, this interaction implies that when more workers try to relocate the friction in the market reduces the efficiency of resource allocation (by increasing mismatch) and it also creates more wage inequality between the different types of workers. Finally in the third paper, I looked at the link between educational choices, and skill mismatch in a labour market with search frictions. I found that fewer search frictions lead to higher inequality in wages. If the cost of education is low enough, more individuals choose to acquire education and get trained. As a consequence mismatch increases.