The importance of labor mismatch

Date posted: October 30, 2013

Many economists argue that part of the reason for relatively high unemployment today is a mismatch between labor demand and labor supply. First, define what this is and second, tell us how important it is. N.C. State University economist Mike Walden responds.

“Well, labor mismatch simply means that the skills and training of people who are available to work but don’t have jobs — of folks looking for work — don’t match up with the skills and training that employers need.

“And you hear this all the time. You’ll hear stories of a business saying, ‘Yeah, we want to expand, we just can’t find the kinds of workers that we need. We can’t find the kinds of workers who are trained in the kinds of technological applications we need.’ So clearly that is an issue.

“And I do think that beyond just a casual observation, you do see this reflected in the data. Now, how important is this? Well, some economists recently tried to directly answer that question, and the answer that they came up with is it is important. But it’s not the whole story in terms of why we have high — relatively high — unemployment.

“What these economists concluded is if you take five percent unemployment rate as sort of a goal that we want the economy to reach, then obviously, if you look at the nation, we went up to about 10 percent unemployment during the  recession. These economists argue about half of that increase was due to this employee skill mismatch. So that leaves another half not accounted for. So what this is saying is yes, the fact that we don’t have folks trained with the right skills, that is important, that is contributing to high unemployment. But there are other factors also.”

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