Modelling skills mismatch evolution in the European Union

Ensuring, that the supply of skills matches their demand in the labour market is a persistent policy concern. As a consequence, there are regular efforts to estimate skills supply-demand imbalances and project their evolution over time. However, such projections may not always take into account the complex dynamic effects, present in education and labour market systems. System dynamics (SD) modelling is well-placed to take into account such effects. Therefore, this paper attempts to model the evolution of supply, demand and imbalances of skills in the European Union, also taking into account dynamic factors, such as policy choices (e.g., education financing) and/or socio-economic tendencies (e.g., the attractiveness of higher education). The modelling exercise demonstrates that SD may be used to model skills supply-demand systems and that it can be calibrated to perform in line with historical data. Using this model, the future projection of skills mismatch evolution indicates, that by the mid-2030s an over-supply of high-skilled labour may appear in the EU. This may also happen much earlier if post-secondary VET qualifications would be considered well-matched with some of the jobs requiring a high level of skills, as has been argued to be the case by some authors earlier. There is a potential for further refining and extending this analysis with a more detailed definition of mismatch, longer time series, country-level data analysis and broadening geographical coverage.