29 May 2017

Analyzing the Prospects for Improvement in the Labor Market

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Justin Wolfers: ‘Labor Market Seems Dented, Not Broken 

There are two schools of thought about the longer-term prospects for the labor market. The darker view is that the Great Recession wrought permanent damage: The jobs that disappeared aren’t easily replaced, and the skills of the jobless are a poor match for the jobs that remain.

You can see the problem by comparing the unemployment rate, which is the proportion of workers without jobs, with the job vacancy rate (sometimes called the job openings rate), which is the proportion of jobs without workers.

The statistical relationship between these, known as the Beveridge curve, shows that a rise in one is associated with a fall in the other. But in the wake of the Great Recession, both rose, suggesting that the labor market had become worse at matching workers with vacant jobs. If this shift in the Beveridge curve is permanent, the prospects for further reducing unemployment are grim, as an elevated vacancy rate suggests that companies are finding talent hard to find.

The sunnier view is that this is not a permanent shift, but rather the natural course of a recession, which tends to cause short-run counterclockwise loops in this unemployment-vacancies relationship. It’s a sunnier view because it suggests that a continuing recovery will largely solve our unemployment problem: The recovery will cause the labor market to loop back toward its pre-recession Beveridge curve, leaving no lasting mark.

The past two years have been kind to this more optimistic interpretation. The unemployment rate has fallen almost two percentage points since March 2011, while the job vacancy rate hasn’t budged. Although some may object that the decline in the unemployment rate overstates the cause for optimism — after all, some of this is because of falling labor force participation — the fact that the vacancy rate hasn’t risen at all over recent years is still notable.

It is surely too early to draw strong conclusions, but continued movements in this direction would suggest that the Great Recession hasn’t done lasting damage, and that it’s possible for the unemployment rate to head back toward 5 percent without the emergence of hiring bottlenecks.

Click here for the original post in the New York Times.

Vox: Businesses say they can't find qualified workers. Are they right? 

Small business confidence has hit its highest point since 2007, according to a new survey from the National Federation of Independent Business.

That's great news, but one area where businesses aren't feeling confident is in the qualifications of the people applying to their job openings.

Today, 41 percent of small businesses say they have few or no qualified applicants for the jobs they have open, up nearly 10 percentage points from three years ago and 16 points up from 2009.

This still seems to indicate a pattern of increasingly incompetent US workers. Altogether, 51 percent of businesses said they were hiring in the last few months, so it would seem that most businesses that were hiring had trouble finding anyone they deemed suitable.

That said, is it possible those businesses are wrong? The question of whether there is a skills gap has been one of the most hotly debated economics topics since the recession. Some experts think so. Peter Cappelli, a Wharton School professor of management who is one of the loudest voices in the skills gap debate, has said that it also might be a function of businesses having unreasonable standards or being unwilling to train new workers.

Wait for the perfect worker to fall into your lap, in other words, and you'll be waiting forever. Try to mold an applicant into a perfect worker, however, and you can start right now.

Paul Krugman also argues that the skills gap is overblown — if there were a major gap, he has argued, they would be ramping up wages in an effort to lure and retain the qualified applicants that are out there, and there isn't much evidence of that happening.

So it could be that businesses need to ease up a bit and become more open to hiring, or it could be that workers really are too underqualified to work in the open jobs. Some experts have pointed to the large share of long-term unemployed people as a sign of a gap — if those people who have been out of work for six months truly had the skills, the thinking goes, they would be employed right now.

Either way, businesses' hiring plans aren't exactly looking sunny right now. While they've improved since March, they are still well below where they were pre-recession. Right now, the difference between businesses that say they will increase and decrease hiring is only 8 percentage points.

Click here for the original article from Vox.

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