Unemployment Puzzle

EconLog | Arnold Kling | Thoughts on Unemployment

Alex Tabarrok writes,

The first puzzle about unemployment when thought about from within the search-matching framework is that unemployment rates are highest among the least skilled, i.e. among those worker/jobs with the easiest matches. It's hard to believe that it takes a year to match a construction worker to a job.

the second puzzle is that uncertainty should matter most when hiring and firing costs are high and once again these costs are lowest for those workers with the greatest unemployment rates.

Read the whole post. The overall puzzle is why the unemployment rate is highest for low-skilled workers. I will get to that puzzle shortly.

I recommend looking at employment from a ten-year perspective. In December of 1999, total nonfarm payroll employment was 130.5 million. To keep up with population growth, employment should have increased by about 15 percent from then until now, to about 149 million. Instead, total payroll employment today is a tiny bit lower than it was in December of 1999. So there is an "employment shortfall" of 18 or 19 million.

If you limit yourself to the periods that the NBER calls "recessions," they only account for about 2/3 of the shortfall. Another 1/3 took place during "recoveries." [...]

With that in mind, let us turn to Alex's puzzle that the unemployment rate is highest among low-skilled workers. Here are some possible explanations: [...]

3. What we call "highly skilled workers" may be people who are better at self-deception. The superfluous high-school educated worker admits to being unemployed. The superfluous college-educated worker shows up as "enrolled in law school." This leads to a misleading difference in measured unemployment by skill level, at least if we measure skill level as education.

I like this explanation. I have seen much of that amongst my acquaintances. In addition to being in school, they aren't "really" unemployed, because they volunteer fifteen hours a week at an organic food co-op, or something like that.

I think Kling missed the simplest explanation: those we consider highly skilled can move down the skill ladder and compete for lower skilled jobs in addition to ones they are suited for. At least people my age are willing to do that. You can take your prestigious poly sci degree and compete for a job answering phones against someone who is perhaps cut out for answering phones little more.