Peter Orszag very succinctly addresses the following riddle:
Over the past three years, the number of job openings has risen almost 50 percent, but actual hiring has gone up by less than 5 percent. Companies are advertising a lot more jobs, in other words, but not filling them.
He describes three possible explanations. First, there could be a skills mismatch:
One possibility is that there is a mismatch between the work that companies need done and the skills that workers have. As Peter Newland of Barclays Plc has said, “We believe that this divergence between openings and hiring is consistent with our view that some of the loss of employment during the recession was structural, rather than purely cyclical, in nature.”
Second, the long term unemployed may not be willing to return to the job market for lower wages. Companies aren’t willing to pay enough to attract them:
A second explanation is that employers are offering jobs at wages that are too low to attract good applicants. Alan Krueger…believes this to be an important piece of the puzzle. He argues that the unemployment rate for those just recently out of work has now returned to roughly pre-crisis levels, and that people who have been out of the labor force for an extended period are exerting little downward pressure on wage rates. This combination means that, although the long-term unemployed still face a tough road ahead because they are essentially on the margins of the labor market, pressure is growing for higher wages for everyone else.
Or third, perhaps there’s an increasingly robust “internal” labor market at big companies:
A variety of other indicators — including fewer people moving to take new jobs — suggests that companies are often filling openings from within. Many nonetheless advertise such positions externally, which would boost the job-offer rate in the data. The survey counts only jobs filled from outside a company in its statistics on hiring, so the increase in job-offer rates for this reason would not correspond to an increase in hiring rates.
Thanks to Tyler Cowen for the link, whose post is titled Are we seeing skills mismatch after all?
That link to Marginal Revolution shows a typical case of misdirection by your buddy Tyler Cowen to create confusion and doubt among his more uninformed readers.
He presents the three main points of Peter Orszag’s Bloomberg article, but entitles his post “Are we seeing skill mismatch after all?”, implying that we are, then quotes and links to the article, but fails to note that Orszag concludes that of the three possible explanations for the openings-hiring gap he proposes, the mismatch theory seems the least plausible of the three.
Of course it is the least likely, because the data don’t support it.
Basic economics tells us that if there really is a mismatch between skills and labor demand, we should see soaring wages for all those workers who do have the right skills, and… we don’t.
Paul Krugman has commented on this subject:
“Beltway conventional wisdom has settled on the proposition that high unemployment is structural, not cyclical, even though there is now a bipartisan consensus among economists that the opposite is true.”
and:
“One strong indicator that the problem isn’t structural is that as the economy has (partially) recovered, the recovery has tended to be fastest in precisely the same regions and occupations that were initially hit hardest… So the states that took the biggest hit have recovered faster than the rest of the country, which is what you’d expect if it was all cycle, not structural change.”
Fittingly, the penetrating analysis of the question posed by Cowen resides not at Marginal Revolution, but at the blog post he points to written by an 18-year-old Indian.
As is the case with the Republican Party generally, analysis and evidence don’t seem to matter to Tyler Cowen, but apparently advancing the right-wing agenda to dismantle the social safety net does.
I totally agree with the 3 possible explanations. In my company we receive a lot of CVs but they just don’t match our job description and expectations. Also there are a lot of people that actually don’t want to work. They want to live from the state and profit. Furthermore, it sometimes is really hard to get a job from the outside when there are so many young talented professionals. Why should they choose someone new when they can promote someone within their company? This person is already knows a lot about the company, not only the system but also their identity.
yeah, I agree with you with Lauri. As well as above three points are absolutely true.