Finding the perfect job is like finding the perfect partner. There is a need to date around and potential for mismatches. That’s especially true if you’re concerned about income potential. It’s also especially true among employees who can be considered young and eligible for their university educations and skills. Irisa Zhou is not a matchmaker, but the PhD candidate with the Department of Economics studied how individuals learn to navigate mismatches between their education and employment.
Zhou’s job market paper, Learning the Major-Industry Mismatch, uses Canadian administrative data to explore why university graduates with similar majors and skills experience vastly different earnings. Her analysis reveals that unexplained earnings disparities—used as a measure of mismatch—are strongly associated with job instability and industry switching.
“The key variable I focus on is unexplained earnings,” she said. “These are income levels that that can’t be accounted for by observable characteristics.”
Zhou finds that the longer individuals remain in a single industry, the more their earnings converge with predicted earnings for each individual from the observables, suggesting that labor market learning plays a crucial role in improving matches.
“The decreasing variance in unexplained earnings likely reflects learning and exit behavior,” Zhou explained. “People leave mismatched industries as they discover better fits.”
To test the impact of improved information, Zhou developed a model that brings together university program major choice and labor market choices with information and search frictions in a life-cycle model with directed search. Zhou found that if information friction had been eliminated, output per employed worker would have increased by 18.5% on average. If learning speed had increased, workers would have reallocated to majors that have more volatile outcomes, and the effect is amplified for high-ability workers.
In another exercise, Zhou used LinkedIn’s 2009 entry into Canada as a natural experiment. Comparing business majors (more affected by LinkedIn) to engineering majors (less affected), she finds that access to better information leads to faster and more stable matches.
“Business graduates matched to better jobs, had lower layoff probabilities, were less likely to rely on unemployment insurance, and if they switched industries, did so about four months faster than their engineering counterparts.”
An earlier draft of the paper won Zhou the runner up place in the CES Rising Star Awards.
“The CES Academic Rising Star Paper Competition is a prestigious award recognizing outstanding young Chinese economists worldwide who have recently entered the job market,” said Susan Feng Lu, Professor in Economic Health Policy at the Rotman School of Management and President of the CES. “Winners are selected based on their ability to address real-world economic issues through innovative thinking and rigorous scientific methods.”
The study is immediately relevant to the experience of today’s new graduates searching for jobs.
“Irisa’s research tackles a first-order problem in labor markets, helping graduates find jobs where their skills fit best,” said Professor Ronald Wolthoff, a member of Zhou’s supervisory committee. “Her job-market paper shows that better information substantially improves matches after graduation, with clear benefits for students, employers, and the economy.”
Zhou’s research agenda aligns with her commitment to teaching. She has taught tutorials for intermediate macroeconomics, financial economics, econometrics, and introductory microeconomics. Her teaching philosophy centers on connection and clarity.
“I love teaching and every opportunity to inspire conversations with students,” she said. “I focus on looking at the simplest case and then talking about intuition with my students. Everything else is an extension of the concepts.”
Outside the classroom, Zhou has made contributions to the department’s graduate student culture one cup of coffee at a time. As co-presidents of the Graduate Economics Union, she and Quinlan Lee helped launch the now-regular coffee chats to rebuild community after the pandemic.
“We wanted to create a space and an excuse for people to come together,” she said. “I’m proud that the coffee chat tradition continues today. I don’t want to paint the PhD journey as something simply beautiful or easy. It’s very difficult. It requires resilience and commitment. It’s made easier and more beautiful by doing it with your colleagues.”
Return to the Department of Economics website.
Scroll more news.