Wednesday, October 8, 2014

Labor supply/demand imbalance in the United States

The number of US job openings is now running materially above the pre-recession levels. One would think the nation's unemployment rates should be at pre-2008 levels as well.

But the decline in unemployment has significantly lagged job openings in recent years. The mismatch between all those new positions and all those people without work (including those who had left the labor force altogether) persists. Here is the updated Beveridge curve.

The US clearly has the jobs but not the people to fill them. Part of the reason is that a good proportion of those unemployed and marginally employed are not the people companies want. The skills gap continues to plague US labor markets.

Another way to look at the US Beveridge Curve is to plot job openings vs. the duration of unemployment. The logic here is that as job opportunities improve, the average time spent between jobs for those who have been laid off should shorten. But with US job openings now at highest level in 13 years, the average duration of unemployment is still higher than in any post-WWII period prior to the Great Recession (see chart). This disconnect is staggering.

After speaking with some folks who currently don't have work (and not much in terms of skills), it seems that prior to the housing crisis, many of those who got laid off, quickly found temporary work in construction or other housing related areas. A great number of those jobs are gone and with them went some of the safety net - dramatically lengthening the duration of unemployment. That's why it's so troubling to see growth in construction spending slowing this year (see chart). At the same, increasing numbers of job openings now remain unfilled while over 9 million people live on unemployment benefits.

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