Education and Skill Mismatch: Why in Italy We Make the Wrong Training Choices

Italy is the country with the third highest mismatch in the world between the fields of study chosen by young people and the needs of the labor market (after South Korea and England/Northern Ireland) and one of those where this misalignment leads to a higher economic penalty for workers. Training proved therefore to be central in the three-year analysis conducted by J.P. Morgan and Bocconi aimed at investigating the roots and consequences of skill mismatch in the Italian labor market, as part of the New Skills at Work project. The latest results of the project were presented today in a workshop.

University to Work Transition

Although Italy has the lowest percentage of graduates in Europe, they do not seem to have an advantage in the labor market despite their scarcity. Unemployment rates of university graduates are comparable to those of high school graduates and are much higher than those of countries with similar economic structures. Over the last 15 years, unemployment among German university graduates in the 25-39 age group has been fluctuating between 2 and 4%, and among Italians between 8 and 13%. At the root of this situation there is also inadequate information on the work and salary outcomes of the various faculties, which leads to a choice based only on individual preferences for the different disciplines, says Massimo Anelli, an economist at Bocconi University and author of a policy brief on the subject.

Anelli takes Germany as a reference point for the similarities in the two countries' production structure. Germany also has a percentage of university graduates that is significantly lower than the European average and 10-15 percentage points lower than that of France and Spain, but the composition by discipline differs significantly from Italy's composition. Germany records many more garduates in computer science, engineering and economics and management, while Italy doubles Germany for graduates in social sciences and in the arts and humanities.

Using a unique database, developed thanks to the VisitInps scholars program, which allowed him to follow the career of all graduates of a large Italian city up to 25 years after graduation, Anelli has calculated the economic return of the university choice (controlling for personal skills and socio-economic conditions) and found that the degrees with the highest payoffs (between 70 and 100% more than a humanities degree) are, in order, economics and management, law, medicine and engineering. Apart from medicine, therefore, it is precisely the subjects that have the highest deficit of graduates compared to Germany.

The policy brief concludes with a suggestion. Following a methodology similar to that used by prof. Anelli, it would be possible to build a college scorecard of each university, with information on expected income, as already happens in a more complex reality, such as that of the United States.

High School Choice

A second report by Pamela Giustinelli and Nicola Pavoni analyzes the choice of high school. Analyzing the results of two surveys, the authors conclude that families, in choosing the high school, are too focused on short-term aspects (student's preference, the level of effort, the perceived quality of the school) and not enough on long-term aspects, such as prospects in terms of the labor market or access to university.

In general, students' and parents' knowledge of the choices available at the beginning of the final year of middle school is rather limited, and the process of gathering information tends to focus on what were already the preferred alternatives. These alternatives depend very much on the socio-economic background of the families and, in part, on the results obtained by the student. In particular, students in the most disadvantaged conditions seem to consider very few alternatives. «And whenever the initially preferred alternative is not the best option for the child», the authors write, « a concentrated learning pattern will prevent families from learning about alternatives that might be a better match for the child».

There are two practical indications emerging from the study: first, to reach families with information on all possible alternatives and, second, to do so as soon as possible, before families start focusing on the few preferred alternatives.

Labor Market and Qualifications

In the previous two years, the New Skills at Work project first had outlined the actual size of the skill mismatch in Italy, starting from the distortions of a labor market that records very strong inequalities in terms of age, gender, geographical area and qualification. In 2015, the most advantaged profile (male, 40-44 years old, resident in the North, university graduate) was 50.3% more likely to work than the most disadvantaged profile (woman, 20-24 years old, resident in the South, with middle school diploma or lower qualification). The most penalizing characteristic by far (the one that explains 56% of the difference) is age.

In this analysis the transition between school and work had already proved to be critical for two reasons: the mismatch between the skills required by the labor market and those learned at school and the fact that the qualifications issued by the school system are not informative of the students' actual skills.

The result of the mismatch is that young people between the ages of 15 and 24 make up 6.5% of the labor force, but as many as 20.3% of the long-term unemployed, while the difference between the unemployment rates of young people and adults, between 2007 and 2015, rose from 14% to 31%.

While the percentage of Italians working in positions that are not suitable for their qualifications is very high, the picture changes when skills are analyzed instead of qualifications. 76% of over-qualified people and 79% of underqualified people hold a position appropriate to their real skills. In this case, the percentage of over-skilled (14%) and under-skilled (9%) turns out to be in line with that of the rest of the world.

Entrepreneurs

Education and training also proved to be a critical element in the analysis of the entrepreneurial class. In Italy, as in the United States, the most educated entrepreneurs operate in more advanced sectors, recruit more prepared employees and pay them better (on average, graduate entrepreneurs pay their employees 6.9% more than entrepreneurs with a lower level of education). In Italy, however, the economic incentives to embark on an entrepreneurial adventure, for the more educated, are limited: a university graduate entrepreneur earns on average 36% more than a high school graduate, while in the United States the difference is 138%.

In the United States, unlike in Italy, a significant number of entrepreneurs have a post-graduate diploma, which translates into earnings twice those of university graduate entrepreneurs and almost five times higher than those of entrepreneurs with a high school diploma (in Italy, graduate entrepreneurs earn only 66% more than those who have completed only compulsory schools). And, although the more educated earn more in every role, in the United States the premium for higher education is much higher for entrepreneurs than for employees.

The results suggest the need to increase the education premium for entrepreneurs in Italy, by adopting three kinds of measures: eliminating the barriers that prevent the more educated from fully exploiting their skills (some progress in this direction has been made, thanks to the decree on innovative start-ups); developing a financial environment less focused on banks, since the growth of technology start-ups requires seed and venture capital and private equity; enriching university programs so as to cultivate the entrepreneurial skills of those who study.

In family businesses in particular, leaders with at least a university education level are slightly less (64% compared to 67%) than in non-family businesses, but the difference becomes significant if the survey is restricted to closed family businesses (those in which ownership, board of directors and top management are the exclusive prerogative of the parent family): in this case the share of leaders with university education is 50%. And since the data show a correlation between the level of education of the top management and the business results, the analysis shows a weakness of closed family businesses.