In addition to employment and unemployment figures, data on the efficiency of the labor market offer more clues to its health. One way to determine this is to examine the degree of labor mismatch occurring. The classic illustration demonstrating mismatch is the Beveridge curve, which shows an intuitive relationship between the rate of job vacancies and unemployment—a higher rate of unemployment usually occurs with a lower rate of vacancies, along with the reverse.
The current recovery’s pattern has shown that for a given job vacancy rate, the unemployment rate is higher than what would have been the case prior to the recession (Chart 3), implying a less efficient labor market. This behavior is consistent with that of previous recovery periods, since Beveridge curves tend to follow a counterclockwise loop once a recession hits. But recent data going back to February 2014 do show an atypically high unemployment rate for the amount of vacancies, with the job-openings rate now at one of its highest points in 13 years.
There are several possible reasons for the apparent increased inefficiency, with a frequently mentioned one being lack of qualified workers satisfying requirements for vacancies. However, since a qualified worker is more likely than an unqualified worker to be hired across any period, it’s expected that once a recovery has progressed far enough, there is bound to be a relative surplus of lesser-qualified workers in the labor supply. Hence, recoveries at some point will typically exhibit such inefficiency, so some increased proportion of lesser-qualified labor in the current labor market shouldn’t be surprising.
A more interesting question, then, is to what degree the labor market currently has such difficulty, especially compared with the prerecession period. Chart 4 provides one way to answer this question. It shows the results of a survey conducted by the National Federation of Independent Business (NFIB), which asked participants (small business firms) if they are seeing few or no qualified applicants for open positions. The behavior is exactly what would be expected. Immediately following the recession, there was little difficulty filling vacancies among small businesses, but as the recovery progressed and hiring shifted into higher gear, these firms have had less success filing vacancies. However, the survey only extends back to 2004, so long-term behavior is not available for comparison. Still, it is worth noting that the most recent readings are near the record highs seen in October 2007. This implies that the inability of small businesses to get qualified applicants is near its prerecession peak.
Chosen excerpts by Job Market Monitor. Read the whole story at Economic Growth Accelerates; Job Openings Outpace Hires – Dallas Fed.