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