Something strange is happening in the US labour market, and although a lot of people have noticed, it seems nobody can explain why.
Since the first quarter of the year, the unemployment rate has remained much higher than would be predicted given the pace of job openings. Have a look at this chart, via Dave Altig of the Atlanta Fed:
The Beveridge Curve, an economic model that estimates the relationship between the number of job openings against the number of unemployed, is represented by the straight dotted line. You can see that the deviation occurs at the far right. Given the number of job vacancies, the dot representing employment in second quarter of 2010 should be much closer to the line.
Among those who have puzzled over this are Calculated Risk, Kevin Drum, the Wall Street Journal, Mark Thoma, and Paul Krugman. As Altig notes, part of the problem with explaining the deviation is that gathering the necessary data is a real challenge. But here are some ideas proposed by the above on what could be causing it:
—Labour mobility is down, in part because so many people are underwater on their mortgages, and they can’t move to where the jobs are (see also FT Alphaville last week). Krugman floats this as a possibility, and the WSJ adds this:
In a recent study, Fernando Ferreira and Joseph Gyourko of the University of Pennsylvania, together with Joseph Tracy of the Federal Reserve Bank of New York, found that people who owe more on their mortgages than their homes are worth are about a third less mobile.
—Employers are starting to perceive the long-term unemployed as unemployable (Krugman)
—There’s a mismatch between the skills required by the available jobs and the skills possessed by the unemployed (Altig, WSJ). Here is Altig:
Now I realize that a few anecdotes don’t make facts, but I have been in more than a few conversations with businesspeople who have claimed that the productivity gains realized in the United States throughout the recession and early recovery reflect upgrades in business processes—bundled with a necessary upgrade in the skill set of the workers who will implement those processes. This dynamic suggests that the shift in required skills has been concentrated within individual industries and businesses, not across sectors or geographic areas that would be captured by our most straightforward measures of structural change.
—Because of unemployment benefits, some of the jobless have chosen not to accept available jobs (Altig, who cited two Fed studies but notes that this effect is likely to very small).
Given the uncertainty about this issue, it would be no bad thing if the Obama administration would nominate an economist to the Federal Reserve Board who had a degree of expertise in the Beveridge curve, perhaps someone who had a written an important academic paper about it. Surely such a candidate would sail through the nomination process and be confirmed immediately.
Related link:
US labour force shrinks amid jobs market woes – FT
A curious unemployment picture gets more curious – Macroblog
Some firms struggle to hire despite high unemployment – Wall Street Journal
Housing lessons unlearned – FT Alphaville