Before you can fix something, it's good to know exactly what the problem is. The persistently high US unemployment rate is one of those problems that has defied an exact description. There are those who believe that continuing high unemployment is the result of a skills mismatch, where displaced workers don't have the skills needed to fit into new employment possibilities. Analysts at some big banks have championed this view.

Against that reading of the data is the view taken by Federal Reserve chairman Ben Bernanke and many others that what we are seeing is a cyclical disruption that will correct itself once the economy is back on a firm footing.

New research from the New York Federal Reserve Bank appears to indicate that the US suffers from a combination of the two types of unemployment, with the cyclical theory getting most of the blame:

[O]ur counterfactual analysis indicates that mismatch unemployment at the 2-digit industry level can account for 0.75 percentage points out of the 5.4 percentage point total increase in the U.S. unemployment rate from 2006 to October 2009. At the 3-digit occupation level, the contribution of mismatch unemployment rises just beyond one and a half percentage points. When we compute occupational mismatch separately for different education groups, we find its contribution to the observed increase in the unemployment rate is almost twice as large for college graduates than for high-school dropouts.

Prior to the Great Recession, the US unemployment rate was 4.6%. It climbed to 10% in October 2009 before falling to 8% in January. A 1.5% contribution from a skills mismatch would indicate that we should be seeing an unemployment rate now of around 6.8% instead of 8.3%. According to the NY Fed the conclusion is:

If mismatch only accounts for a portion of the persistently high unemployment rate, what are the other economic forces at work? … Weak aggregate demand combined with wage rigidity (Shimer, 2012), uncertainty about future productivity (Schaal, 2012) and future economic policy (Baker, Bloom, and Davis, 2011), or selective restructuring by firms during recessions (Berger, 2012) do, qualitatively, imply a slow recovery in job creation.

The NY Fed's study is available here.

Paul Ausick


Filed under: 24/7 Wall St. Wire, Economy, Research Tagged: featured

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James

Why is this article so eager to listen to the opinions of "Analysts at some big banks"? They're not the ones on the ground floor of American industry, let alone the boardrooms of the companies they invest/own/breakup. How about an article that holds Human Resources responsible? They're the ones at the forefront screening applicants and it's their outdated and lazy processes that have not kept up with the over-flooded job market. Job candidates can only be so proactive with potential employers.

I personally believe what we're seeing is employed middle-managers and executives doing everything they can NOT to hire full-time AMERICAN employees because they still feel that their own jobs are at stake if it is perceived that they've failed to hire the right person or to translate their expenditures into profits for the company that they work for.

September 05 2012 at 1:55 PM Report abuse rate up rate down Reply
James

Why is this article so eager to listen to the opinions of "Analysts at some big banks"? They're not the ones on the ground floor of American industry, let alone the boardrooms of the companies they invest/own/breakup. How about an article that holds Human Resources responsible? They're the ones at the forefront screening applicants and it's their outdated and lazy processes that have not kept up with the over-flooded job market. Job candidates can only be so proactive with potential employers.

I personally believe what we're seeing is employed middle-managers and executives doing everything they can NOT to hire full-time AMERICAN employees because they still feel that their own jobs are at stake if it is perceived that they've failed to hire the right person or to translate their expenditures into profits for the company that they work for.

September 05 2012 at 1:51 PM Report abuse rate up rate down Reply
James

Why is this article so eager to listen to the opinions of "Analysts at some big banks"? They're not the ones on the ground floor of American industry, let alone the boardrooms of the companies they invest/own/breakup. How about an article that holds Human Resources responsible? They're the ones at the forefront screening applicants and it's their outdated and lazy processes that have not kept up with the over-flooded job market. Job candidates can only be so proactive with potential employers.

I personally believe what we're seeing is employed middle-managers and executives doing everything they can NOT to hire full-time AMERICAN employees because they still feel that their own jobs are at stake if it is perceived that they've failed to hire the right person or to translate their expenditures into profits for the company that they work for.

September 05 2012 at 1:51 PM Report abuse rate up rate down Reply
vbierschwale

How about a view from somebody that has worked in the high technology arena all his life who is hearing the same things from others in the high technology arena about not being able to buy an interview even though we have the skills?

On the following page, you will find exact reasons why we can't find work in America anymore.

http://keepamericaatwork.com/?page_id=206733

Furthermore, you will also find two examples of why the riches in China and India that our investors are expecting will never materialize.

But let's take it further.
My specialty is not software development, but the ability to walk into any type of system and quickly find what is wrong and develop a solution whether it be hardware, software, or procedural.
I also have a friend in florida that does specialize in the software portion.

I'm willing to put him and myself up against a team of H-1B's.
If we win, we get put back to work at the market rate.
If we lose, you guys can laugh all the way to the bank

Virgil
Keep America At Work

August 21 2012 at 9:39 AM Report abuse rate up rate down Reply
vbierschwale

How about a view from somebody that has worked in the high technology arena all his life who is hearing the same things from others in the high technology arena about not being able to buy an interview even though we have the skills?

On the following page, you will find exact reasons why we can't find work in America anymore.

http://keepamericaatwork.com/?page_id=206733

Furthermore, you will also find two examples of why the riches in China and India that our investors are expecting will never materialize.

But let's take it further.
My specialty is not software development, but the ability to walk into any type of system and quickly find what is wrong and develop a solution whether it be hardware, software, or procedural.
I also have a friend in florida that does specialize in the software portion.

I'm willing to put him and myself up against a team of H-1B's.
If we win, we get put back to work at the market rate.
If we lose, you guys can laugh all the way to the bank

Virgil
Keep America At Work

August 21 2012 at 9:38 AM Report abuse rate up rate down Reply