The composition of applicants, mismatch, and matching efficiency in the German VET market

Entries into firm-based vocational education and training (VET) stagnated in Germany during the 2010s and decreased by 11% between 2019 and 2020, which is likely to exacerbate future shortages of skilled workers. Against this backdrop, we study the VET market through the lens of a matching function estimated at the occupation by district level between 2013 and 2021. We employ a novel strategy to instrument for applicants and vacancies which draws on differences in local labor market conditions for different occupations. Our estimated matching elasticities for applicants and vacancies are 0.46 and 0.57, respectively. Matching efficiency shows a slight downward trend before Covid and a large drop during Covid. Using our estimates to decompose aggregate trends in matches, we find that while matching efficiency and applicants drove matches down before Covid, the increase in vacancies until 2019 stabilized the VET market. During Covid, the drop in applicants, vacancies, and matching efficiency contributed similarly to the sudden drop of matches. Furthermore, without the increase in migrants applying to VET positions, demographic change alone would have led to an even greater decline in matches already before Covid. Changes in occupational and regional mismatch did little in explaining the overall trend in matches. • We analyze changes in firm-based vocational education and training (VET) in Germany. • Newly signed contracts stagnated in the 2010s and fell by 11% between 2019 and 2020. • We estimate an occupation by district matching function for the VET market by 2SLS. • Applicants, vacancies and matching efficiency contributed to the decline during Covid. • The increase in migrants as VET applicants partially compensated demographic change.