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Evaluating the role of labor market mismatch in rising unemployment

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  • Gadi Barlevy

Abstract

Recent labor market trends have raised concerns that the unemployment rate is high not because employers are reluctant to hire but because they are unable to hire. These concerns, if true, would cast doubt on using monetary policy to stimulate the labor market, since it works by encouraging firms to hire more. Using a matching function approach, the author finds that a shock that makes it more difficult for firms to hire qualified applicants would by itself imply an unemployment rate of no more than 7.1 percent, much below the actual unemployment rate during the past two years. Hence, the recent patterns in unemployment and vacancy data do not necessarily rule out a role for monetary policy.

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Bibliographic Info

Article provided by Federal Reserve Bank of Chicago in its journal Economic Perspectives.

Volume (Year): (2011)
Issue (Month): Q III ()
Pages: 82-96

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Handle: RePEc:fip:fedhep:y:2011:i:qiii:p:82-96:n:v.35no.3

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Related research

Keywords: Labor market ; Unemployment;

References

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  1. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  2. Robert E. Hall, 2005. "Job Loss, Job Finding, and Unemployment in the U.S. Economy Over the Past Fifty Years," NBER Working Papers 11678, National Bureau of Economic Research, Inc.
  3. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  4. Bhashkar Mazumder, 2007. "New evidence on labor market dynamics over the business cycle," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 36-46.
  5. Marcelo Veracierto, 2011. "Worker flows and matching efficiency," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 147-169.
  6. Ricardo Lagos, 2000. "An Alternative Approach to Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 851-873, October.
  7. Margaret Stevens, 2007. "New Microfoundations For The Aggregate Matching Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 847-868, 08.
  8. Luojia Hu & Shani Schechter, 2011. "How much of the decline in unemployment is due to the exhaustion of unemployment benefits?," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue July.
  9. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
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Cited by:
  1. Sahin, Aysegul & Song, Joseph & Topa, Giorgio & Violante, Giovanni L, 2012. "Mismatch Unemployment," CEPR Discussion Papers 9093, C.E.P.R. Discussion Papers.
  2. Peter A. Diamond, 2013. "Cyclical Unemployment, Structural Unemployment," NBER Working Papers 18761, National Bureau of Economic Research, Inc.
  3. Diamond, Peter A. & Sahin, Aysegul, 2014. "Shifts in the Beveridge curve," Staff Reports 687, Federal Reserve Bank of New York.
  4. Marcelo Veracierto, 2011. "Worker flows and matching efficiency," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 147-169.
  5. Francesco Furlanetto & Nicolas Groshenny, 2012. "Matching efficiency and business cycle fluctuations," CAMA Working Papers 2012-34, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  6. Sedláček, Petr, 2014. "Match efficiency and firms' hiring standards," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 123-133.

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