College Majors and Skill Mismatch: From Micro Wage Losses to Macro Output Losses

Authors: Michelle Petersen Rendall, Satoshi Tanaka, Yi Zhang

Abstract:

This paper studies the aggregate and distributional consequences of college major–occupation mismatch. While most existing research focuses on individual-level wage losses, we develop a framework to quantify the aggregate inefficiencies from mismatch. We define mismatch as the deviation from the efficient allocation of college majors to occupations, given observed wage returns, and estimate these returns using a Roy model applied to unique Australian administrative tax panel data linking university degrees to the longitudinal earnings and employment histories. Consistent with prior work, we find that mismatch leads to substantial individual wage losses—up to 27 percent with fixed skill prices. However, the corresponding aggregate output losses are more limited, peaking at 10 percent when skill prices adjust. Importantly, mismatch declines over the life cycle and largely vanishes by age 35 with variable prices. The findings underscore how micro-level misallocation in human capital may not always aggregate to output inefficiencies.

About Speaker

Satoshi Tanaka is an Associate Professor of Economics at the University of Queensland.  ​​​​​​​He holds a Ph.D. in Economics from the University of Minnesota.
His research spans macroeconomics and labor economics, with a focus on structural transformation, the services economy, and labor market dynamics. He also studies skill mismatch, occupational mobility, wage inequality, and intergenerational mobility.
His research has been published in leading economics journals, including the American Economic Journal: Macroeconomics, Journal of Monetary Economics, and Journal of International Economics.
He has received several Australian Research Council Discovery Project grants as Chief Investigator.
He also coordinates the UQ Japanese Researchers’ Network, connecting Japanese researchers across The University of Queensland.