Occupational changes and skill mismatch following Covid-19: implications for graduates in the UK

The overall objective of this study is to analyze how the Covid-19 crisis is affecting graduates' labor market outcomes, particularly in relation to their chances of finding employment in occupations that match their qualification. The literature shows that, before the current crisis, approximately a third of graduates in the UK were not employed in graduate jobs.

This educational or skill mismatch generates several concerns among graduates, economists and policy makers. Graduates who are overqualified for their job suffer a wage penalty, i.e. they earn less than those who find a perfect job match. The skill mismatch is also associated with low job satisfaction and low productivity performance.

The current crisis is having a strong negative impact on the labor market in terms of increasing the unemployment rate and causing a decline in the number of vacancies. The ways in which these might affect the skill mismatch and the wages of graduates are unknown. Sectors with high proportions of overqualified graduates, such as hotels and leisure, have been particularly hit by the crisis and this might lead to a decline in the mismatch.

At the same time, many workers are losing their jobs and may not find employment in their existing profession or in occupations with the same skill requirement once the lockdown is over, a situation that would lead to a loss of human capital and an increase in the skill mismatch.

Using the most up-to-date data, the first part of our study will address these issues starting with an analysis of the distribution of graduates across different occupations and how this distribution has changed over time (occupational shifts). This will provide an understanding of changing job opportunities for graduates. We will then focus on the evaluation of the skill mismatch and how this has been affected by the Covid-19 crisis.

There is scant evidence of how periods of recession affect the mismatch, but our expectation is that the impact may be substantial, particularly for young graduates, who enter the labor market at a time of high uncertainty and increasing unemployment rates. Entering the labor force through occupations that do not match workers' qualifications could be a trap to continuing mismatch in the future.

This may result in deteriorating career prospects and lower wage levels. In this context, provision of training becomes very important as it may increase the chances of either remaining in their current job or finding similar jobs in related sectors; it may also meet firms' needs for new skills. Policies directed towards supporting education and training were advocated after the Great Recession in 2007 to help displaced workers find new job opportunities.

By analyzing graduates' uptake of training during the crisis we will assess whether this has improved their prospects and contributed to a reduction in the skill mismatch. Given the importance of a skilled workforce for productivity and innovation, understanding the status of training uptake could help us predict future availability of skills that are going to be crucial for the recovery.

Our study also recognizes that overall trends for the UK labor market might hide important differences across UK regions. It is well know that there are increasing regional disparities in terms of productivity growth and wages across the UK and the Covid-19 crisis might exacerbate these differences and lead to increasing regional inequalities. Part of these inequalities may be related to differences in job opportunities for graduates overall, for young graduates and their ability to find employment in occupations that allows them to reap the benefits of their investment in human capital.

Hence, a regional dimension of our analysis will complement the study of UK total trends and provide a detailed understanding of labor market opportunities for graduates.