The Macroeconomics of Skills Mismatch in the Presence of Emigration

Employment in mismatch (low-skill) jobs is a potential factor in the emigration of highly qualified workers. At the same time, high-skilled emigration and emigration of mismatch workers can free up positions for stayers. In bad times, it could also amplify demand losses and the unemployment spell, which in turn affects the mismatch rate. In this paper, we investigate the link between vertical skills mismatch and emigration of both non-mismatch and mismatch workers in a DSGE model. The model features also skill and wealth heterogeneous households, capital-skill complementarity (CSC) and labor frictions. We find that an adverse productivity shock reduces investment and primarily hurts the high-skilled who react by turning to both jobs abroad and mismatch jobs in the domestic labor market. A negative shock to government spending crowds-in investment and primarily hurts the low-skilled who thus turn to jobs abroad. Following the fiscal cut, the high-skilled instead reduce their search for mismatch employment and later they also reduce their search for jobs abroad.