Productivity and the Allocation of Skills

Abstract

We use linked employer-employee data from 2004–2012, combined with individual qualifications data from 1994–2012, to study how graduates with different skills fare in the labour market in the six years after studying. We find that graduates experience improvements in earnings, and that they systematically move between jobs, industries and locations in a pattern that is consistent with their securing better job matches, particularly for high level STEM graduates. We then estimate joint production function and wage equations to see how the skill composition of a firm’s employees correlates with productivity, and compare this with how the skill composition correlates with its wage bill. Our results suggest that degree graduates make a growing positive contribution to production in the six years after graduation, with associated wage growth. There is variation in relative productivity and wages across groups of graduates that differ by field of study and level of qualification.

Keywords: Firm Productivity, Linked Employer-Employee Data, Skill Matching, STEM

JEL Classification: D29, J24