Exploring Nature and Causes of Skills Mismatch in Informal Economy

Abstract

The informal economy is a vital component of global labor markets but is frequently hindered by the challenge of skills mismatch. This paper explores the nature and causes of skills mismatch in the informal economy, discussed in existing literature.  There are mainly  four types of mismatch: horizontal mismatch, where workers' roles do not align with their educational qualifications; vertical mismatch, involving discrepancies between job demands and workers’ educational levels; skill gaps, which indicate deficiencies in specific abilities needed for effective job performance; and skill obsolescence, where previously relevant skills lose their utility over time. The several factors driving these mismatches include : Educational system inefficiencies, Labor market dynamics, Regional and Sectoral variations ,Workers' characteristics and decisions, shaped by personal preferences and socio-economic circumstances, global trends like automation and demographic changes,  sociological factors, including cultural norms and  policy and institutional shortcomings  .