JRN3200
Prof. Michael.Bobelian
Naotaka Washimi
Labor Market Mismatch is one factor for hovering at high unemployment rate.
Despite the official end of the most recent recession announced by Committee of the National Bureau of Economic Research, national unemployment still hovers at a high rate in 2013 compare to pre-recession periods. Ben Bernanke clearly stated on September 18, that FOMC Keep the monetary spigot open until the jobless rate down to 6.5%. However the question is that if his stance of moving towards more measures of quantitative easing would be an ultimate solution for achieving lower jobless rate as pre-recession periods and help him clean his tarnished nickname “Helicopter Ben”.
Various indicators such as rise in home price, consumer confidence and stock price, gives American a sense of relief and hope for new economy. While consumers believe the economy is improving, Americans tend to disregard the problem of mismatch in labor market which potentially trouble U.S for long periods of time. America is now experiencing so-called the jobless recovery because for the observed volatility in the jobs numbers is that the labor market is responding primarily to short-term stimulus. Economist Aparna Mathur of American Enterprise Institute said that “Hiring is ultimately a matching game and if we could match each worker to a job vacancy, we could fill more than 3.7 million jobs.” In order to recover the real economy and promote Obama’s commitments of boasting the export and lowering unemployment rate, eliminate mismatching in the labor market is inevitable step.
There are roughly three different type of mismatch in labor market. First one is that workers don’t have the skills that employers are seeking. Second is that pay and compensation isn’t attractive enough to attract job seekers. Last mismatch is the geographical mismatch in which job opening is taking place in state that people can hardly move in. Many job openings can be found in fields like engineering in general, information technology, and energy sectors that require specialized skills that can’t be learned quickly on the job.
The interesting finding is that The Bureau of Labor Statistics shows that job opening rate has been increasing since 2.1 percent of September 2011 to 2.6 percent in August 2013 while hiring rate stayed unchanged during those periods.
There are a number of reasons why the mismatch in labor market occurs. First, labor immobility could be a factor. Economist Aparna Mathur said that workers who are underwater in their mortgages may not be able to sell their homes and move to places where jobs are available or homeowners expect house prices to recover, so they delay the sale of their house. Underwater mortgages became commonplace in the aftermath of the 2000s housing bubble burst, and, combined with economic slowdown started in 2008. According to Zillow Chief Economist Stan Humphries, Nationally, 28.6 percent of homeowners are underwater on their mortgage.
Secondly, if people have been unemployed for a long period, then firms are more reluctant to hire them as they have a negative perception about their skills and human capital and employers are imposing relatively high hiring standards to save time for costly job training. The Bureau of Labor Statistics shows that in September 2013, more than 37percent of the unemployed have been out of work for 27 weeks or longer.
Thirdly geographic mismatch is also account for hovering unemployment at high rate. The most recent data by The Bureau of Labor Statistics shows that compare to national unemployment rate, state with low unemployment rate are 3.0 percent in North Dakota, 3.7 percent in Nebraska, 3.8 percent in South Dakota ,4.6 percent in Wyoming, 4.7 percent in UTAH. 5.3 percent in Oklahoma. Those relatively low unemployment rates were brought by Shale Gas Revolution in energy sector and as energy development in Hydraulic fracturing gas and oil continue to rise, there will be more demand for specialized labors in engineering.
The hiring process within a labor market is governed by a matching function and it shouldn’t be underestimate. The misallocation leaves vacant positions open longer and forces job seekers to search longer to find work which is going to be an obstacle for achieving the real recovery and would be deterrent to the economic advancement in coming years. The rapid globalization caused dramatic shift in American economy and more and more people are require some sort of specialized skills in labor market. Consequence of Shale Gas Revolution, America’s manufacturing sector such as steel, chemical, heavy industry and construction will gain more competitiveness globally and would create more jobs. As of now, it is unknown whether this dramatic turnaround in the America’s industry would be a saver for lowering the unemployment. However it is time to realize that Helicopter Ben’s monetary policy is only to buy time rather that promoting structuring change in labor market. More importantly, every one of us should have motivation and eagerness to train ourselves to be competitive in labor market for coming years.