Skills or Credentials? How Skill Specific and Standardized Vocational Training Moderates the Wages of Occupational Mismatches in the Early Career

This study presents evidence of the multifaceted interplay between institutionalized vocational education and training (VET) systems, occupational mismatches, and wage inequality in Germany. I demonstrate how standardization and skill specificity, prominent institutional features of the German dual vocational training system, affect the wages of mismatched full-time male workers early in their careers. This study uses a multidimensional mismatch approach to bridge the gap between institutional and mismatch literature by disentangling underlying mechanisms. I employ Field-of-training fixed-effect regressions using the administrative dataset of Integrated Employment Biographies (SIAB). The analysis shows varying results for institutional indicators and wage outcomes for horizontal and vertical mismatches. Skill-specific training is less transferable between fields and task levels, negatively moderating the relationship between mismatches and wages. This moderation indicates that specific skills are limited to matched occupations. Standardized training increases the wage penalties for horizontal mismatches in different fields but mitigates penalties for vertical mismatches in mere overeducation. Thus, credentials from the same field retain some positive signals and bargaining power in vertical mismatches while highlighting the misalignment in horizontal mismatches.