Betsey Stevenson on Unemployment

Economics Noble bought unemployment to the "center stage" this week. Betsey Stevenson answers some excellent questions on Freaknomics:

"What do you make of the argument that the long-run structural level of unemployment has increased because of the economic crisis? – David (and several others who asked a variant)

I think it’s way too soon to conclude that there has been a permanent shift in the relationship between vacancies and unemployment. If we were really seeing an increase in mismatch, then we would see declines in some industries but expansion in others. But we don’t. And we would see qualified workers being inundated with job offers, while others remain unemployed. Again, we don’t. It’s an interesting story, but there’s just not much evidence for it. The concern is that there’s a mismatch between the skills possessed by workers displaced from contracting sectors and the skills demanded in expanding sectors. The evidence for this argument is coming from recent increases in job vacancies that have occurred without a corresponding decrease in unemployment. This relationship is known as the Beveridge Curveand insights about how this relationship can go haywire during a downturn were part of today’s Nobel Prize in economics.

So the problem is not that we need to transform construction workers into manufacturing workers, it’s much simpler: We need to generate jobs. Insufficient aggregate demand has kept the lid on hiring in all sectors.

However, there are two structural issues that concern me. First, lots of people are underwater on their mortgages, and intriguing research has found that those underwater are much less likely to move for a new job. I don’t think that this is causing a lot of problems in the labor market now, but as the economy picks up steam, this could become more of a problem.

Second, I worry that the skills of people who’ve been unemployed for a long time are atrophying. It’s important that we help the long-term unemployed keep their skills up-to-date through training and career development opportunities. Searching for a job for a year or more can be discouraging, so keeping people connected to the labor force is crucial.