Ask an Economist
Maria E. Canon is an economist in the Research division at the Federal Reserve Bank of St. Louis. She joined the St. Louis Fed last August after earning her Ph.D. from the University of Rochester. Her research focuses primarily on the economics of education and labor markets. She was born in Argentina, is married to Juan and has a 2-year-old son, Jose. Canon enjoys reading and cooking for family and friends. To read more on her work, see http://research.stlouisfed.org/econ/canon/
Why do vacancies and unemployment coexist in the current recovery?
In short, there is a mismatch between the skills employers need and the skills of unemployed workers.
There are at least three views as to why economic growth is positive but unemployment remains persistently high. The first view is that the aggregate demand for labor is still low. An alternative view is that extensions of unemployment insurance benefits reduce the incentives of unemployed workers to find a job (or accept a job with lower pay). Others, including myself, view the high unemployment rate as a result of a mismatch between unemployed workers and vacant jobs.
Economist Robert Shimer argues that vacancies and unemployment coexist when the skills and geographical location of unemployed workers are poorly matched with job requirements and location of job openings.1 Shimer found that the rate at which unemployed workers find jobs depends on three factors: (i) the rate at which they move to locations with available jobs; (ii) the rate at which jobs open in locations with available workers; (iii) the rate at which employed workers vacate jobs in locations with suitable unemployed workers.
In a recent paper, economist Aysegul Sahin and co-authors found that, while most of the jobs lost during the latest recession occurred in the construction sector, most of the newly created jobs have been in the health care and education sectors.2 Additionally, the authors point out that the crisis in the housing market left many mortgage holders with negative home equity, a condition that may slow down geographical mobility as homeowners are less likely to sell their house. These factors suggest that the component of mismatch in the latest recession is significantly larger than in previous recessions. In fact, economists Justin Weidner and John Williams estimate that mismatch (along with other factors) has pushed the "normal" unemployment rate from 5 percent up near 7 percent.3
- Shimer, Robert. "Mismatch." The American Economic Review, Vol. 97, No. 4, pp. 1,074-1,101, September 2007. [back to text]
- Sahin, Aysegul; Song, Joseph; Topa, Giorgio; and Violante, Giovanni L. "Mismatch in the Labor Market: Evidence from the U.K. and the U.S." Manuscript, revised November 2010. [back to text]
- Weidner, Justin; and Williams, John C. "What Is the New Normal Unemployment Rate?" Federal Reserve Bank of San Francisco Economic Letter, Feb. 14, 2011. See www.frbsf.org/publications/economics/letter/2011/el2011-05.html [back to text]
We Welcome Your Letters
To submit a question for "Ask an Economist" or to submit a letter to the editor, go to www.stlouisfed.org/publications/re/letter.cfm. If you'd rather use regular mail, send your question or letter to: Subhayu Bandyopadhyay, editor, The Regional Economist, Federal Reserve Bank of St. Louis, Box 442, St. Louis, MO, 63166.
Annual Report Focuses on Labor Markets
The St. Louis Fed's just-released annual report includes an essay on labor markets in the U.S. and abroad. Unemployment and employment data are dissected by sex, level of education, type of work and more. The essay also examines how U.S. workers fared during the Great Recession compared with workers from other major countries. Rounding off the report are financial statements, some special words and photos from our boards of directors, and a message from our president on the Fed's dual mandate.
Register Now for St. Louis Fed Conference in May
The St. Louis Fed's Community Development department will host its biennial conference on community development finance May 9-11 at the Chase Park Plaza hotel in St. Louis. The "Exploring Innovation" conference is recommended for bank CEOs, bank Community Reinvestment Act officers, philanthropic leaders, government leaders, community economic developers, leaders of nonprofits and of Community Development Financial Institutions, and students who are studying business, government or sociology.
Among the major speakers will be Elizabeth Duke, a member of the Federal Reserve's Board of Governors; Jessica Jackley, co-founder of Kiva, the world's first peer-to-peer microlending service; and AC Wharton Jr., mayor of Memphis, Tenn.
This year's conference is being presented in partnership with the Federal Reserve banks of Atlanta, Dallas and Minneapolis.
For more information, see http://2011.exploringinnovation.org
Listen to Podcasts on Economics and Related Subjects
The St. Louis Fed's Economic Education department is producing a series of short podcasts about topics in economics, personal finance, banking and monetary policy. Although aimed at high school students, the podcasts would be beneficial to many others who either have little knowledge of these topics or want a refresher on them.
So far, there are seven episodes in the "Economic Lowdown" series. The first seven cover opportunity cost, factors of production, the role of self-interest and competition in a market economy, inflation, unemployment, demand and supply. More episodes are in the works, and videos will soon supplement some of the audiocasts.
To listen to these short podcasts, go to www.stlouisfed.org/education_resources/podcasts.cfm
In the January issue, an article on housing trends stated that housing starts had bottomed out in January 2009 at a bit less than 500,000 a month and had risen to 519,000 in October 2010. Both figures were on an annualized basis. An accompanying chart also should have made clear that the starts were on an annualized basis and were not per month.
Examing the Rebound in Commodity Prices
Commodity prices have been on the rise recently, reviving a trend observed prior to the 2007-09 recession. What are the important global factors driving commodity prices? How important has U.S. demand been relative to the growing demand of emerging markets? Has expansionary U.S. monetary policy played a role? Read about these issues and more in the July issue of The Regional Economist.