The State, Determinants, and Consequences of Skills Mismatch in the Ethiopian Labour Market

The study analyses the incidence of labour market mismatch, identifies the correlates of skills mismatch that shed light on the causes of the problem, and investigates its consequences on well-being. It is the first attempt to formally study skills mismatch in the urban labour market in Ethiopia. Using several indicators of qualification mismatch, we find that about a quarter of employees are mismatched with over-qualification being the more prevalent problem. In comport with findings for developed countries, our analysis reveals overqualified worker report lower job satisfaction compared to the well-matched. We also find that skill-mismatch, particularly over education lowers wages; while education is positively and significantly associated with wage, overeducated workers earn less than those well-matched for their level of education. This implies a wage penalty associated with over-qualification even in a developing country context. Our study highlights that labour market mismatch is not only a phenomenon of the developed world but also the developing countries. Hence, skills mismatch needs to be a key aspect of labour market policy making along with issues of decent and productive work.