Discussion paper

DP16423 Mismatch Cycles

This paper studies the cyclical dynamics of skill mismatch and quantifies its impact
on labor productivity. We build a tractable directed search model, in which workers
differ in skills along multiple dimensions and sort into jobs with heterogeneous skill
requirements. Skill mismatch arises due to information frictions and is prolonged by
search frictions. Estimated to the U.S., the model replicates salient business cycle
properties of mismatch. Job transitions in and out of bottom job rungs, combined with
career mobility, are key to account for the empirical fit. The model provides a novel
narrative for the scarring effect of unemployment.


Baley, I, A Figueiredo and R Ulbricht (2021), ‘DP16423 Mismatch Cycles‘, CEPR Discussion Paper No. 16423. CEPR Press, Paris & London. https://cepr.org/publications/dp16423