Thursday, February 20, 2014

Why Is The Job Finding Rate In The US Still Low?

The job finding rate measures the fraction of unemployed in a given month who find a job in the next month.  It is a good index of how fast employment is recovering from the Great Recession.  The job find rate is still below its pre-recession rate.  This study by the Federal Reserve Board of New York offers an explanation for the persistent low rate of job finding.

There are two factors that might explain the low job finding rate.  One factor is the vacancy to employment ratio.  This is the number of job openings per unemployed worker.  The other factor is matching efficiency.  This is a measure of the ease in which employers and job seekers find a match.  Many believe that this is the most important reason why the job finding rate is low.  They blame the low rate on the fit between job skills and the skills demanded by employers. 

One way to test the importance of these two factors is to ask how the job rate might be affected if the matching efficiency factor were kept the same as it was prior to the Great Recession.  It was found that the job seeking rate would still be well below the predicted rate if the matching efficiency remained constant.  The conclusion is that the major reason for the low job seeking rate is the vacancy to unemployment ratio.  The labor force skill explanation is weak in comparison to the job vacancy explanation. 

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