Horizontal Mismatch and Wage Penalties: Evidence from the U.S. Labor Market, 1993–2023

Abstract

This paper studies the wage penalties associated with horizontal mismatch in the United States from 1993 to 2023. Although prior research finds considerable mismatch penalties, less is known about how they have evolved over time and how they differ across worker demographics. Using data from the National Survey of College Graduates (NSCG) and a modified Mincer wage regression, we estimate the magnitude and distribution of penalties for workers who are horizontally mismatched. The results show large and increasing wage losses, from roughly 16% in 1993 to nearly 25% in 2023, with a peak during the pandemic. Penalties are significantly larger for non-citizens, STEM graduates, and workers with advanced degrees, while differences across racial groups are more mixed. Contrary to standard search predictions, penalties do not diminish with experience, but grow over the career. Overall, horizontal mismatch remains a lasting source of inefficiency and inequality in the U.S. labor market, and its costs have significantly grown over the past three decades.