Coordinated Markets, School-to-Work Linkages, and Labor Market Outcomes in the European Union

A large literature in both sociology and political science has theorized about the importance of skill formation systems for macroeconomic performance, for the transition from school to work, and for labor market outcomes. However, consensus on how countries fit into these theoretical groupings has been difficult, and empirical evidence that these groupings matter has been elusive. Focusing on labor market outcomes across twenty-one European countries, this paper demonstrates that the strength of linkage between specific educational outcomes and occupational destinations is an important source of these institutional effects. Stronger linkage is generally associated with higher relative earnings and greater chances of employment, though heterogeneity exists both across age and gender groupings and across educational levels. Country-level structure matters because it is related to the local linkage strength of pathways, even as there is considerable heterogeneity within countries in the coherence of pathways from educational outcomes to occupations. Pathway effects clearly matter, particularly in how they shape the consequences of working in an occupation that is well matched to one's educational level and field of study. The strongest evidence for macro-structural effects concerns the impact of macro-structure on the earnings gap between well-matched and not-well matched workers with non-tertiary and with upper tertiary education. The findings suggest that policies to improve labor market outcomes do not require wholesale transformations of a country's skill formation system, but instead can focus on improving pathway coherence one pathway at a time.