Skill Mismatch and the Costs of Job Displacement*

We study whether earning losses after job displacement can be attributed to the skill mismatch that arises when workers' human capital is underutilized at the new job. Using detailed task data, we create asymmetric measures of skill mismatch between occupations. We use these measures to study the e ect of worker displacement in plant closures and mass-layo s in Germany, exploiting these events as exogenous job separations. To control for observed and unobserved worker heterogeneity, we use propensity-score matching and estimate di erence-in-di erences models. We nd that displacement increases occupational switching and skill mismatch, primarily because displaced workers move to less skill-demanding occupations. The negative earning e ects associated with displacement are mostly driven by these moves, while workers moving to more skill-demanding occupations have similar earning losses as stayers. JEL Code: J24, J31, J63, J65