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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.

Suggested Citation

  • Gadi Barlevy, 2011. "Evaluating the role of labor market mismatch in rising unemployment," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 82-96.
  • Handle: RePEc:fip:fedhep:y:2011:i:qiii:p:82-96:n:v.35no.3
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    References listed on IDEAS

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    1. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    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. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    4. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    5. 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.
    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. 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.
    8. 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, August.
    9. Marcelo Veracierto, 2011. "Worker flows and matching efficiency," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 147-169.
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    Citations

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    Cited by:

    1. Francesco Furlanetto & Nicolas Groshenny, 2012. "Matching efficiency and business cycle fluctuations," Working Paper 2012/07, Norges Bank.
    2. Vitaliano Donald F., 2012. "An Empirical Estimate of the Labor Response Function for Benefit-Cost Analysis," Journal of Benefit-Cost Analysis, De Gruyter, vol. 3(3), pages 1-12, August.
    3. Ravn, Morten O. & Sterk, Vincent, 2017. "Job uncertainty and deep recessions," Journal of Monetary Economics, Elsevier, vol. 90(C), pages 125-141.
    4. Olegs Krasnopjorovs, 2015. "Natural and Cyclical Unemployment in Latvia: New Insights from the Beveridge Curve Model," Discussion Papers 2015/02, Latvijas Banka.
    5. repec:rfe:zbefri:v:35:y:2017:i:1:p:13-44 is not listed on IDEAS
    6. Sedláček, Petr, 2014. "Match efficiency and firms' hiring standards," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 123-133.
    7. Ay?egül ?ahin & Joseph Song & Giorgio Topa & Giovanni L. Violante, 2014. "Mismatch Unemployment," American Economic Review, American Economic Association, vol. 104(11), pages 3529-3564, November.
    8. Peter Diamond, 2013. "Cyclical Unemployment, Structural Unemployment," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(3), pages 410-455, August.
    9. Peter A. Diamond & Aysegül Sahin, 2016. "Disaggregating the Matching Function," CESifo Working Paper Series 6266, CESifo Group Munich.
    10. Ioana Marinescu & Roland Rathelot, 2016. "Mismatch Unemployment and the Geography of Job Search," NBER Working Papers 22672, National Bureau of Economic Research, Inc.
    11. Diamond, Peter A. & Şahin, Ayşegül, 2015. "Shifts in the Beveridge curve," Research in Economics, Elsevier, vol. 69(1), pages 18-25.
    12. Michael Christl & Monika Köppl–Turyna & Dénes Kucsera, 2016. "Structural unemployment after the crisis in Austria," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-36, December.
    13. Marcelo Veracierto, 2011. "Worker flows and matching efficiency," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 147-169.

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    Keywords

    Labor market ; Unemployment;

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