Today's high unemployment rate is often linked to a structural imbalance—a mismatch between the skills and location required to fill vacant jobs and the skills and geographical preferences of the unemployed. But the evidence downplays the role of this mismatch.Unemployment ; Labor market

Maria E. Canon

Mingyu Chen

English

Research Papers in Economics

unemployment
T
he 2007-09 recession had a severe impact 
on the U.S. labor market.  During the 
recession, more than 89 million employees 
lost their jobs, while fewer than 82 million 
were hired.
1  The unemployment rate spiked 
to a 27-year high of 10.1 percent in October 
2009.  Since then, the labor market has expe-
rienced a slow recovery; the unemployment 
rate still stood at 9.1 percent in May. 
In the 2010 annual report of the Federal 
Reserve Bank of St. Louis, David Andolfatto 
and Marcela Williams suggested that search 
“frictions” might explain why the unemploy-
ment rate remained high even while job 
The Mismatch between  
Job Openings and Job Seekers
By Maria E. Canon and Mingyu Chen
that the housing crisis may slow down geo-
graphic mobility of job applicants.  Econo-
mists Fernando Ferreira, Joseph Gyourko 
and Joseph Tracy concluded from past 
research that negative equity significantly 
reduced the mobility of homeowners.  Unem-
ployed workers who owe more than what 
their home is worth are less likely to apply for 
and accept positions that are in places that 
would require them to sell their homes. 
If this is the case, then a geographic mis-
match is likely to occur and lead to prolonged 
high unemployment rates.  Economist Sam 
Schulhofer-Wohl, however, points out that 
Ferreira and his co-authors systematically 
dropped from their data some observations 
of homeowners with negative equity who 
move; this resulted in a misleading conclu-
sion.  Schulhofer-Wohl found that negative 
equity does not reduce mobility of homeown-
ers, a finding that is consistent with what is 
suggested by the empirical results from Şahin 
and others.  Şahin and her co-authors found 
that geographic mismatch, measured at 
census region level, was very low throughout 
the recession and has had no impact on the 
recent dynamics of U.S. unemployment. 
Conclusion
Although mismatch has recently raised 
a lot of attention among economists as a 
potential explanation for the increase in 
unemployment, the existing literature does 
not find evidence of it being the principal 
source.  The newly developed measure of 
mismatch indicates a rise in skill mismatch 
(across industries) but only associates it with 
a minor increase in the unemployment rate.  
The geographic mismatch (across census 
regions) does not have a significant effect  
 on the labor market. 
One potential alternative explanation for 
the persistently high unemployment rate 
is the extended hiring time.  Although job 
vacancies have been rising, the increased 
number of unemployed workers makes those 
openings more competitive.  Anecdotal 
evidence suggests that, since the last reces-
sion started, companies have had a difficult 
time deciding who the “best” candidates 
are; therefore, the hiring time is extended.  
According to an article in The Wall Street 
Journal, a survey conducted recently by the 
Corporate Executive Board indicated that 
positions that typically took two months to 
fill before the recession are sometimes taking 
four times longer to fill.
5  Even with qualified 
applicants on hand, recruiters might be hold-
ing out for better candidates. 
Maria E. Canon is an economist and Mingyu 
Chen is a research analyst, both at the Federal 
Reserve Bank of St. Louis.  See http://research.
stlouisfed.org/econ/canon/ for more on Canon’s 
work.
EnDnOTES
 1  Data are from the Job Openings and Labor Turn-
over Survey.  Job loss is measured by the number  
of employees separated from payroll, and number 
of hires is measured by the additions of personnel 
to payroll.
 2  See Padoa-Schioppa for a collection of papers on 
findings of mismatch in the 1970s. 
 3  December 2007 is the starting date of the 2007-09 
recession.  Vacancy share of an industry is the 
number of openings in that industry over the total 
number of job openings in the U.S.  Lost employ-
ment share of an industry is the number of jobs 
lost in that industry over the total number of jobs 
lost in the U.S.
 4  Their definition of mismatch builds on the find-
ings of Jackman and Roper.
 5  See Light.
REFEREnCES
Andolfatto, David; and Williams, Marcela.  “Many 
Moving Parts: A Look inside the U.S. Labor Mar-
ket.”  Annual Report 2010, Federal Reserve Bank 
of St. Louis, April 2011.  See www.stlouisfed.org/
publications/ar/
Ferreira, Fernando; Gyourko, Joseph; and Tracy, 
Joseph.  “Housing Busts and Household Mobility.”  
Journal of Urban Economics, July 2010, Vol. 68,  
no. 1, pp. 34-45.
Jackman, Richard; and Roper, Stephen.  “Structural 
Unemployment.”  Oxford Bulletin of Economics 
and Statistics, Vol. 49, no. 1, pp. 9-36.
Light, Joe.  “Corporate news: Jobs Open, but Hiring 
Remains Slow—Recruiters Say They Have Trouble 
Finding Candidates for Skilled Positions, and 
Managers Hold Out for Better Prospects.”   
The Wall Street Journal, March 7, 2011.
Padoa-Schioppa, Fiorella.  Mismatch and Labour 
Mobility.  Cambridge: Cambridge University 
Press, 1991.
Şahin, Ayşegül; Song, Joseph; Topa, Giorgio; and 
Violante, Giovanni L.  “Measuring Mismatch 
in the U.S. Labor Market.”  Manuscript, revised 
March 2011.  See www.newyorkfed.org/research/
economists/sahin/USmismatch.pdf
Schulhofer-Wohl, Sam.  “negative Equity Does not 
Reduce Homeowners’ Mobility.”  Federal Reserve 
Bank of Minneapolis Working Paper 682, revised 
December 2010.
30
25
20
15
10
5
0
–5
–10
–15
–20
Employment Lost Share
Vacancy Share
P
E
R
C
E
N
T
Construction Manufacturing Trade,
Transportation
and Utilities
Professional
and Business
Services
Education
and Health
Services
Leisure and
Hospitality
Government Other
SOURCES:  Job Openings and Labor Turnover Survey and the Current Population Survey. 
NOTE:  A negative share of lost employment in the education and health services sector means it gained employment during the examined period;  
that growth was about 18 percent of all the total employment lost.
MONThLy AvERAgE fROM DECEMbER 2007 TO fEbRUARy 2011
mismatch can be interpreted as a poor match between the 
skills and location required to fill vacant jobs and the skills  
and geographic preferences of unemployed workers.
vacancy share of an industry is the number of openings in that industry over the total number of job openings in 
the U.S.  Lost employment share of an industry is the number of jobs lost in that industry over the total number of 
jobs lost in the U.S.
openings appeared to have increased during 
the recent recovery.  One type of friction 
that they mentioned relates to employer-
employee pairings:  Each job and worker has 
idiosyncratic characteristics that make some 
job-worker pairings more productive than 
others.  As employers and workers usually 
cannot anticipate where the best pairing is 
located, they must expend time and resources 
to search out the best matches. 
Mismatch can be interpreted as a poor 
match between the skills and location 
required to fill vacant jobs and the skills 
and geographic preferences of unemployed 
workers.  The idea, also known as structural 
imbalance, was first identified by a group  
of European economists in the 1970s, when 
they were struggling to understand the  
consistently high unemployment rate in  
some European countries.
2  
In general, skills can be represented in 
different contexts, such as industries, occupa-
tions and educational levels.  Geographic 
characteristics can be measured at different 
levels, such as metropolitan statistical areas 
(MSAs), states and, at an even larger level, 
census regions.  Economists have recently 
paid close attention to mismatch and have 
investigated whether it is causing the cur-
rently high unemployment rate in the U.S.
Some evidence suggests that mismatch 
might have increased since the recession  
started.  The figure shows the average 
monthly share of vacant jobs and share of 
employment lost by industry from December 
2007 to February 2011.
3  Most new positions 
have been created in some sectors, while most 
job loss has been concentrated in others.  
Since these new jobs usually require different 
skills than what unemployed workers from 
different sectors have, firms and unemployed 
workers may take longer to find their best 
matches.  For example, over 50 percent of 
the jobs lost between December 2007 and 
February 2011 were in manufacturing and 
construction, while more than 90 percent 
of new positions opened in other industries.  
The education and health sector has experi-
enced steady employment growth since the 
recession started; 20 percent of all job open-
ings have occurred in this sector. 
In the rest of the article, we review the  
role of two types of mismatch (skill and 
geographic) in explaining the increase in 
unemployment that occurred during and 
after the 2007-09 recession.
Skill Mismatch
Economists Ayşegül Şahin, Joseph Song, 
Giorgio Topa and Giovanni Violante recently 
derived mismatch indexes from an economic 
model.
4  In their framework, the aggregate 
labor market is comprised of many small 
labor markets, categorized by skill levels 
or working locations (e.g., industries and 
MSAs).  Şahin and others define mismatch as 
the distance between the observed allocation 
of unemployed workers across sectors and 
the “optimal” allocation.  The optimal alloca-
tion of unemployed workers is the allocation 
that, given the distribution of vacancies in 
the economy, would occur if there were free 
movement of workers across labor markets.  
The authors’ indexes allow them to quantify 
not only the level of mismatch but also the  
proportion of the increase in unemployment 
that can be attributed to mismatch.
Using five industries as divisions of the 
aggregate labor market, Şahin and her  
co-authors found that the fraction of unem-
ployed workers misallocated increased by  
10 percentage points during the 2007-09 
recession; the fraction then dropped but 
remained at a level higher than its prereces-
sion level.  But this increase in mismatch can 
explain only between 0.4 and 0.7 percentage 
points of the total increase of five percent-
age points in the unemployment rate from 
the beginning of 2007 to the middle of 2009.  
Therefore, although skill mismatch increased  
during the recession and influenced unemploy- 
ment to some degree, it is not the main source  
of the increase in the unemployment rate.
Geographic Mismatch
The 2007-09 recession was accompanied 
by a steep decline in housing prices.  Some 
economists and commentators have argued 
PhOTOS © ShUTTERSTOCk
The Regional Economist  |  www.stlouisfed.org   11 10   The Regional Economist  |  July 2011
Share of Job Vacancies and Lost Employment by Industries

The mismatch between job openings and job seekers

http://www.stlouisfed.org/publications/pub_assets/pdf/re/2011/c/mismatch.pdf

The mismatch between job openings and job seekers

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics