The Geography of Horizontal Education-Occupation Mismatch: Aggregate Preferences and Agglomeration Effects in US Counties

Abstract

The unrelatedness between workers' college majors and their professional occupation, also known as horizontal mismatch, is a labor market outcome of increasing interest among labor economists. However, the literature on the geography of horizontal mismatch is quite scarce. In this paper, I fill a gap in the literature by exploring the geography of horizontal mismatch using novel American public use microdata (ACS). The first contribution of this paper to the literature consists in the introduction of a new measure of horizontal mismatch. Taking advantage of ACS data on individuals’ majors, in this paper, I measure horizontal mismatch as an individual’s deviation from a common occupational path for their major. This new measure of horizontal mismatch allows enough flexibility to study its geography, providing the second contribution of this paper. The second contribution of this paper consists in answering three questions related to the geography of horizontal mismatch in the United States: (1) Why do some areas in the United States have higher aggregate levels of horizontal mismatch than others?, (2) What are the effects of agglomeration on the likelihood of being horizontally mismatched? and (3) To what extent does higher productivity in agglomerated areas help mitigate the wage penalties incurred by mismatched individuals? Rooting question (1) in spatial equilibrium theory, I find that workers trade off being horizontally mismatched with local amenities in the same way the Roback (1982) spatial equilibrium model predicts workers trade off lower wages with local amenities. More specifically, there tends to be more horizontal mismatch in less polluted areas, areas with lower crime rates, and areas on the coast. Rooting questions (2) and (3) in agglomeration theory, I find that being located in industry clusters and being located in larger urban environments increases the likelihood of horizontal mismatch for individuals, contrary to a Marshallian matching-based theory of agglomeration. Similarly, I find no evidence of better horizontal matching in more densely populated urban environments. However, the higher productivity in agglomerated areas helps wipe out the wage penalty incurred by mismatched individuals by between ~76.7 and ~80.3 percent across the three types of agglomeration. These findings show that the negative agglomeration effects on the incidence of horizontal matching can be tamed by the higher productivity in agglomerated areas.