Is Rising Structural Unemployment a Problem?

10/01/2010 03:30 pm ET | Updated May 25, 2011

In recent months, a number of national economic analysts have referred to the persistence of high unemployment rates as the "new normal," and some, including Narayana Kocherlakota, a regional Federal Reserve Bank President, have blamed rising structural unemployment as a source of the problem. This supposed rise in structural unemployment results from a mismatch between the skills required for available job openings and skills of unemployed workers. Yet very little substantive evidence has been offered in support of this hypothesis.

The total number of job vacancies in the U.S. has been increasing modestly, in recent months, rising above 3 million in July. This still represents a vacancy rate of only slightly above 2% versus the massively greater number of unemployed, underemployed, and mal-employed workers (over 40 million). Knowledge of where those job vacancies are, their occupational/skill requirements, their durations, and reasons for remaining unfilled are critical to a proper interpretation of what is going on in the labor market. Unfortunately, available national job vacancy data do not provide any substantial answers to these important policy questions. However, several states including Florida, Massachusetts, and Minnesota do collect detailed information on existing vacancies. In the most recent vacancy surveys, between 32 and 45 percent of job vacancies in five states providing such data were part-time. In these states, there were approximately 8 unemployed workers seeking full-time jobs for every full-time job opening.

Another issue that is critical to the validity of the mismatch hypothesis is evidence on the occupational characteristics of available job openings and their education/experience requirements. Skill mismatches imply the existence of a large pool of vacancies in high skill occupations (engineers, scientists, doctors, systems analysts, high level managers) with either above average formal educational requirements or long training durations that can lead to lags in producing a new set of qualified entrants. The available evidence from five states (Florida, Kansas, Massachusetts, Minnesota, Washington) on the educational requirements of job vacancies indicates that only 36% of the available job vacancies require the applicants to possess an Associate's or higher degree. Applying this ratio nationally would yield just about 1 million job vacancies requiring an Associate's or higher degree in June of this year. At that time there were 5.2 million unemployed U.S. workers with some years of college or an Associate's or higher academic degree. When we add in mal-employed college graduates working in jobs that do not require a college degree, there were 17 million unemployed or mal-employed college graduates for these 1 million job vacancies.

If skill mismatches were a serious problem in U.S. labor markets, then one would expect to find that many job openings were remaining vacant for a fairly long period of time. However, data on the durations of existing job vacancies available from three states reveal that the overwhelming share of job vacancies are very short-term in duration. Between 80 and 90 percent of the job vacancies in these three states were open for two months or less, with the vast majority of them (70%) open for less than 30 days. There are very few job vacancies that were open for more than two months (15%). The six month definition of long-term is that used by labor economists and the BLS in defining long-term unemployment. If we compare the estimated number of long-term unemployed in the U.S. in recent months (6.5 million) with the estimated number of long-term job vacancies, the ratio is 43-1.

There is another approach to measuring whether labor markets are providing adequate job opportunities and experiencing serious mismatch problems. Ask the public. Repeatedly, over the first six months of this year, national public opinion polls have found an extraordinarily high degree of pessimism about the performance of the national economy and the state of U.S. or local labor markets. In a June 2010 ABC poll, 88% of the respondents rated the overall state of the U.S. economy as "not so good/poor". Only 12% classified the economy as being in an excellent or good situation. Despite the official view announced in September by the National Bureau of Economic Research that the national recession ended sometime in June 2009, a May 2010 NBC/Wall Street Journal poll found that 76% of the public believed that the nation was still in a recession a year later. A March 2010 Pew Research Center poll on the public's perception of job opportunities in their local home area revealed that 85% reported that "jobs are difficult to find" while only 10% though that there were plenty of jobs available. The 85% response was the highest since the national recession started at the outset of 2008. In a 2010 Pew Research Center poll, 28% of adults claimed that they had their hours reduced during the recession, 11% said they were forced to switch to a part-time job, and 23% reported a pay cut. All of these findings combined do not reveal anything close to a labor market experiencing a mismatch problem.

Today, there are five official unemployed persons per every job vacancy in the nation, about 8 full-time unemployed per full-time vacancy, 10 unemployed or underemployed persons per every job vacancy, and 14 unemployed, underemployed, and mal-employed persons per job vacancy. The current degree of surplus is also likely the worst in the entire post-World War II era. In his classic 1944 text, Full Employment in A Free Society, the late William Beveridge of Great Britain noted that full employment of labor existed when "there were more available jobs than men. Jobs should wait not men." How far removed we are from that situation today. To be worried about structural unemployment or labor mismatches with the massive degree of labor surplus currently prevailing in U.S. labor markets is not only intellectually dishonest but detracts from the more immediate need for active and comprehensive job creation efforts across the country to put the unemployed and underemployed back to work. The only labor shortage that exists today is "Honest Abes" in national economic reporting.

Andrew Sum a Professor Economics and the Director of the Center for Labor Market Studies at Northeastern University.