Photograph by Jonathan Fickies/Bloomberg
Economists at Goldman Sachs say they have pretty clear evidence against the widely held “mismatch” theory of unemployment, which essentially says people are out of work because they don’t have the skills for the jobs that are available.
If the mismatch theory were correct, one would expect to find pockets of very high and very low unemployment: for example, high joblessness in outmoded occupations and very tight labor markets in up-and-coming fields where few workers have the new skills.
Instead, Goldman Sachs Chief Economist Jan Hatzius shows in a series of charts that, as he says, “different groups of workers have moved in lockstep with each other.” True, unemployment during the slump spiked more for younger and less-skilled workers, but Hatzius says that’s normal in a downturn and not necessarily a sign of growing mismatch. The up-and-down movements have been pretty much the same by age, education, income, occupation, and industry, differing only in degree.
To top it off, Hatzius shows that “there are some recent indications that the more disadvantaged groups may be starting to do a little better than suggested by macroeconomic factors alone.” Writes Hatzius in a report to clients: “Since late 2013, individuals with a high school education or less have seen a bigger drop in unemployment and a bigger rise in labor force participation than the college-educated.”
Goldman SachsThat’s what this chart shows. Nota bene, there are two vertical scales on this chart, one on the left and one on the right. The scale on the left is for workers with a high school education or less and the scale on the right is for people with some college or more. Hatzius’ point is that unemployment has fallen more from its peak for the less educated, even though it’s still higher in absolute terms.
Mismatch is certainly a factor in unemployment: There were 4.2 million job openings as of the end of February, according to the Bureau of Labor Statistics [PDF], even though millions of people are still looking for work. But mismatch has always existed. Hatzius’ point is that it’s not getting worse.
His analysis has implications for the Federal Reserve, because it means that as labor demand grows, there’s a big supply of workers qualified to meet it. That, Hatzius writes, “might imply more room before the Federal Reserve needs to ‘take away the punch bowl’ via monetary tightening in response to stronger economic growth.”