"Labor Market Implications of Skill Mismatches and Non-Labor Income in Georgia" – International Monetary Fund [IMF] publishes a report with such a title.

"1. Georgia faces persistent labor market challenges, notably high unemployment, particularly among youth, and mounting reports of skill shortages by firms. Unemployment has fallen to a historic low, but it remains above most peers, particularly among young people.

While labor force participation is broadly in line with peers, youth inactivity is notably high, with a larger share of young people neither studying nor working compared to most peers. At the same time, firms increasingly report skill and labor shortages among top business constraints, yet wages lag peers, with many households relying on income support from remittances and government transfers.

2. This paper examines how skill mismatches and sizeable non-labor income from remittances and government transfers affect labor market outcomes in Georgia. It finds widespread over‑education and under‑skilling, reflecting a structural oversupply of general and tertiary education relative to job‑relevant and technical skills. In 2024, 27% of prime‑age workers and 36% of youth were overeducated for their jobs, with 40% of tertiary educated workers in mid‑to‑low‑skilled roles, whereas under‑education was concentrated in higher‑skill sectors such as ICT, finance, and managerial and professional roles.

Field‑of‑study mismatches were also sizeable, with only about a third of workers employed in jobs aligned with their training. These patterns point to weak links between education and labor market demand and limited absorption capacity in high‑productivity sectors. At the same time, low wages combined with sizable remittances and social transfers dampen labor supply incentives, particularly for women. Using a doubly robust Augmented Inverse Probability Weighting (AIPW) approach, staff estimate that remittances and government transfers reduce household employment rates by about 17 and 8%, respectively - with effects concentrated in hired and secondary employment - implying a drag on aggregate employment of roughly 1% from remittances and about 1¼% from transfers.

3. The rest of the paper is organized in three sections: Section B assesses the scale and nature of skill mismatches in Georgia, Section C analyzes the impact of remittances and government transfers on work incentives, and Section D concludes with a summary of results and policy options.

4. A large body of analytical work by the World Bank, the EU, and academia consistently identifies Georgia as a high-mismatch economy. Evidence from labor force surveys (2011-19) shows that Georgia has one of the highest rates of over-education and over-qualification among transition and developing economies, pointing to structural rather than cyclical imbalances. At the same time, widespread overeducation coexists with skill gaps. Despite an oversupply of general qualifications, employers report persistent shortages of job-specific, technical skills. The literature attributes these patterns to the rapid expansion of tertiary education amid slow structural transformation with limited development of modern, high‑productivity sectors to absorb skilled labor, as well as misalignment of curricula with labor market needs, including due to weak vocational education and training (VET) systems and job-matching institutions.

5. This paper extends the analysis to the post-pandemic period to assess whether skill mismatches persist and identify individuals and sectors most affected. In the absence of direct skill measures, employees` education, profession, and occupation are used as proxies for skills taught, possessed, and required. Mismatch is assessed along two dimensions: vertical (qualification) mismatch, measuring over‑ and under‑education relative to occupations, and horizontal (field‑of‑study) mismatch, capturing misalignment between training/education fields (profession) and current jobs. The analysis draws primarily on Georgian labor force survey microdata for 2019-24, which report international standard classifications for education (ISCED), occupation/profession (ISCO-08), and economic activity/sectors (NACE). These data are complemented by aggregate labor-market indicators from GEOSTAT and firm-level evidence from the Ministry of Economy and Sustainable Development’s (MoESD) Surveys of Business Demand for Skills.

6. Descriptive evidence already points to substantial mismatches. Lower educational attainment is associated with weaker labor force participation and higher unemployment, while employment has shifted away from agriculture toward trade and construction and elementary occupations, suggesting increasing absorption of educated workers into lower skill jobs. At the same time, vacancies have risen in high skill sectors like ICT and finance, while declining in mid-skill jobs in trade, sales, construction. Firmlevel data show that about 8% of surveyed businesses employ foreign workers (around 2% of total employment), partly reflecting shortages of local skills especially in professional roles, with an increasing share of businesses reporting lower salaries as the main reason for employing foreigners. Foreign workers are concentrated in ICT, construction, and managerial and professional roles, pointing to under-skilling in key sectors.

7. Using the modal (empirical) method to assess vertical (qualification) mismatch, staff find that overeducation is widespread. This method draws on the distribution of the workers’ education levels within each occupation and defines the education level required for a job as the mode (most common) education level for this occupation. Mismatch is identified when the individual’s education level deviates from the mode by more than one standard deviation. In 2024, about 27 percent of prime-age workers and 36% of youth were overeducated for their jobs, indicating significant underutilization of human capital. Overeducation was most prevalent in general and middle-skill sectors and occupations, such as trade and tourism, and services and sales workers. Undereducation was also significant, particularly among the elderly, which points to experience substituting for formal education given lower unemployment rates in this group. Under-education was concentrated in higher skill-sectors and occupations, including ICT, finance, and science, as well as managerial and professional roles.

8. Applying the job analysis (normative) method to assess vertical mismatch yields similar conclusions. This method maps occupational (ISCO) groups to required skill levels (low, medium, high) and education (ISCED) ranges using ILO standards. Overeducation measures the share of tertiary educated (high-skill) workers employed in midto-low skill jobs, and undereducation is identified as the share of secondary educated (mid-skill) workers employed in high skill jobs. This method shows that around 40 percent of tertiary educated prime-age workers are employed in mid-to-lowskill jobs, while a growing share of vocational educated workers (30% in 2024) are employed in higher-skill jobs, consistent with employers prioritizing jobrelevant skills over general education.

9. Horizontal (field of study) mismatch is also pronounced. A worker is considered mismatched if their current occupation differs from the occupation for which they received formal training. A limitation is that only half of employees report their field of training (mostly professionals or technicians). With this caveat, the results suggest that about two thirds of prime-age workers are employed outside their field of training.

Mismatch rates are particularly high among men and the lower/vocational educated, pointing to weak links between vocational education and labor market absorption. In contrast, mismatch is lower among women and youth, pointing to moderate transition frictions from school and childcare. Elevated mismatch between trained profession and current occupation may reflect inefficient post-secondary specialization decisions and weak career guidance, prioritizing general skills or experience over field-specific skills, or workers accepting any available job regardless of training amid limited options. As expected, mismatch is lower in highly professionalized sectors like education, health, science, and ICT, reflecting clear certification requirements and persistent skill shortages in these sectors.

10. Mismatches have remained persistent, with little change since 2019. A notable shift is among older workers, who have increasingly become undereducated relative to their occupations, likely reflecting experience substituting lower education and legacy Soviet-era education patterns that previously resulted in overeducation in this age group. At the same time, workers with post‑secondary vocational education exhibit declining overeducation and rising undereducation, consistent with their growing presence in jobs typically requiring bachelor‑level qualifications. In contrast, doctoral degrees appear increasingly oversupplied. Horizontal (field‑of‑study) mismatch has declined among post‑secondary vocational and bachelor‑educated workers, but has risen among pre‑secondary vocational workers and youth, possibly reflecting initial job acceptance followed by job switching as experience accumulates", - reads the report.