78. Mismatch matters education and productivity in laggard and frontier firms

Rocha, A. B., Figueiredo, H., Sá, C., & Portela, M. (2025). Mismatch matters: education and productivity in laggard and frontier firms. Journal of Productivity Analysis. https://doi.org/10.1007/s11123-025-00772-4This article examines the impact of educational mismatch—both overeducation and undereducation—on firm-level labor productivity in Portugal between 2010 and 2019, using matched employer-employee data. Results show that undereducation consistently harms productivity, while overeducation contributes positively but modestly. The productivity benefits of overeducation rise along the productivity distribution: from 0.7% at the bottom decile (P10) to 2.2% at the top 1% (P99), suggesting that frontier firms are better equipped to utilize excess qualifications. Conversely, undereducation exerts a negative and stable effect across all productivity levels. Frontier firms display higher education levels and less undereducation, whereas laggard firms suffer from rising mismatch rates over time. Fixed-effects estimates reveal that fully aligning workers’ education with job requirements could increase firm productivity by 1.4%, primarily through reducing undereducation (≈1%), while reassigning overeducated workers would add ≈0.4%. The findings emphasize that matching education to job needs is key to enhancing firm performance.