Unemployment and Mismatch in the UK
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1 Unemploymen and Mismach in he UK Jennifer C. Smih Universiy of Warwick, UK CAGE (Cenre for Compeiive Advanage in he Global Economy) BoE/LSE Conference on Macroeconomics and Moneary Policy: Unemploymen, produciviy and poenial oupu: he afermah of he crisis Bank of England, Ocober 2012
2 Beveridge Curves: UK and US Vacancies / Labour Force 4 Job Openings / Labour Force Before recession Before recession 2.5 Afer recession recession Afer recession recession Unemploymen / Labour Force Unemploymen / Labour Force Sources: Auhor s calculaions using ONS Vacancy Survey and ONS LFS and BLS JOLTS and CPS.
3 Beveridge Curves: UK and US Vacancies / Labour Vacancies Force/ Labour Force 4 Afer recession 1.6Job Openings / Labour Force Before recession Before recession Unemploymen / Labour Force Afer recession recession Afer recession recession Unemploymen / Labour Force Unemploymen / Labour Force Sources: Auhor s calculaions using ONS Vacancy Survey and ONS LFS and BLS JOLTS and CPS.
4 Unemploymen and Mismach Mehodological conribuion Develop a mehod of measuring he conribuion of mismach o unemploymen dynamics. An exension of previous work Smih (2011); Elsby, Hobijn and Sahin (forhcoming); Elsby, Michaels and Solon (2009); Fujia and Ramey (2009). Based on decomposiions of unemploymen dynamics (seady sae or acual). Previously used o examine he influence of inflows and ouflows on unemploymen.
5 Unemploymen and Mismach Mehodological conribuion Develop mehod of measuring he conribuion of mismach o unemploymen dynamics. Mismach affecs he unemploymen ouflow rae: makes i harder for searchers o mach wih available vacancies. If we could measure he exen o which mismach lowers he job finding rae, we could use decomposiion mehods esimae he impac of mismach on unemploymen dynamics. I urns ou ha mismach also conribues o unemploymen dynamics via he separaion rae, and his impac can also be esimaed.
6 Unemploymen and Mismach Herz and van Rens (2011) Focus on dynamics: Mismach unemploymen as cyclical as overall unemploymen. Pah involves wage seing, no worker or job mobiliy. Sahin, Song, Topa and Violane (2012) Mismach hump in Grea Recession. Mismach accouns for a mos 1/3 overall unemploymen increase. Barnichon and Figura (2011) Changes in maching efficiency can explain a par of unemploymen dynamics around 1.5 pp during he Grea Recession.
7 A Saring Poin The seady sae unemploymen rae does no capure all he dynamics of ineres, especially for a counry like he UK where flow ransiion raes are relaively low. Bu i s a useful place o sar
8 Unemploymen Dynamics and Labour Marke Flows Law of Moion for Unemploymen: U s E f U 1 Change in unemploymen = inflows ouflows. Wrie in erms of unemploymen rae: u s u f u 1 1 In seady sae, s u f s
9 Mismach and Dynamics of he Seady Sae Unemploymen Rae u f s s Greaer mismach raises direcly by reducing.
10 Greaer mismach also has an indirec effec on working hrough : o mismach shrinking he denominaor of, hus raising for given. o Mismach and Dynamics of he Seady Sae Unemploymen Rae u f s s 2 u s f s f f s 0 since 3 f s
11 Mismach and Dynamics of he Seady Sae Unemploymen Rae Aim: Decompose changes in he log unemploymen rae, based on a recursive model involving seady sae unemploymen, ino pars: u C C ln M NM fm fnm sm snm lnu C C C C
12 Mismach and Dynamics of he Seady Sae Unemploymen Rae Imagine we have: an esimae of he counerfacual unemploymen rae in he absence of mismach u and an esimae of he no-mismach job finding rae f. These esimaes can be obained, under various assumpions, using daa on hires, unemploymen and vacancies and esimaed maching funcions. I use UK micro QLFS and Vacancy Survey daa a indusry (18-secor) level.
13 Mismach and Dynamics of he Seady Sae Unemploymen Rae Simple fac: The seady sae unemploymen rae can be decomposed ino a par reflecing mismach, and a par reflecing non-mismach shocks. u u u u Take log differences: u u ln u u ln u u u u ln u M ln u C C NM
14 Mismach and Dynamics of he Seady Sae Unemploymen Rae Can dig deeper o disinguish he roles of inflow and ouflow raes: fm fnm sm snm lnu C C C C
15 Mismach and Dynamics of he Seady Sae Unemploymen Rae Can dig deeper o disinguish he roles of inflow and ouflow raes: Consider firs he influence of mismach on unemploymen working via he ouflow rae. The overall ouflow rae can be wrien. where: is he effec of mismach on he ouflow rae (which is negaive). is he ouflow rae in he absence of mismach.
16 Mismach and Dynamics of he Seady Sae Unemploymen Rae The seady sae unemploymen rae can be wrien: u s s f s f f f s Decomposiion of seady sae unemploymen (Elsby, Michaels and Solon, 2009): lnu 1u ln s ln f
17 Mismach and Dynamics of he Seady Sae Unemploymen Rae The seady sae unemploymen rae can be wrien: u s s f s f f f s So he formula breaking down seady sae unemploymen dynamics ino inflow and ouflow influences is: f f lnu 1 u ln s ln f
18 Mismach and Dynamics of he Seady Sae Unemploymen Rae f f lnu 1 u ln s ln f To esimae, rearrange final ouflow rae erm: f f f f ln f f f ln f ln f f f f f f f f ln f
19 Mismach and Dynamics of he Seady Sae Unemploymen Rae Changes in he seady sae unemploymen rae can hen be decomposed ino 4 pars: C lnu C C C C fm fm fnm sm snm f f f f 1 u ln f ln f f f f f f
20 Mismach and Dynamics of he Seady Sae Unemploymen Rae Changes in he seady sae unemploymen rae can hen be decomposed ino 4 pars: lnu C C C C fm fnm sm snm fnm f C 1 u ln f f
21 Mismach and Dynamics of he Seady Sae Unemploymen Rae Changes in he seady sae unemploymen rae can hen be decomposed ino 4 pars: lnu C C C C fm fnm sm snm s sm snm C C C 1 u ln s C M, NM, s, fm and fnm C C C C can be direcly esimaed. s sm snm How can C be spli ino C and C? C C C sm M fm
22 Mismach and Dynamics of he Seady Sae Unemploymen Rae Changes in he seady sae unemploymen rae can hen be decomposed ino 4 pars: lnu C C C C fm fnm sm snm Then eiher analyse he relaive conribuions period- by-period, graphically, Or calculae bea variance conribuions: fm fm cov C, ln u var ln u
23 Mismach Measuring mismach I use an index of mismach developed by Sahin, Song, Topa and Violane (2012) based on a very inuiive idea: The efficien disribuion of unemployed searchers across secors should vary in proporion o he secoral disribuion of job openings. And if here is heerogeneiy in maching efficiency across secors, here should be more unemployed searchers in secors wih higher maching efficiency ( generalised Jackman-Roper condiion ).
24 Mismach Measuring mismach I use an index of mismach developed by Sahin, Song, Topa and Violane (2011) based on a very inuiive idea: The efficien disribuion of unemployed searchers across secors should vary in proporion o he secoral disribuion of job openings. The mismach index calculaes he exen o which hires are lowered by deviaion of he acual disribuion of unemploymen and vacancies across secors deviaes from he efficien disribuion.
25 An Index of Mismach Index of mismach M capures he proporion by which acual hires fall below he efficien level. M h h h
26 Assume a Cobb-Douglas CRS maching funcion in each secor i: where,, and are hires, vacancies and unemploymen, respecively, in secor i a ime. capures changes in maching efficiency common o all secors. represen secor-specific maching efficiencies. is he vacancy share. An Index of Mismach h v u 1 i i i i
27 An Index of Mismach Consrained-opimal hires: h v u 1 Acual hires: h I 1 vi ui v u i i1 v u Planner allocaes unemployed across secors in proporion o exogenous vacancies and secoral maching efficiency. 1 I i1 1 i v v i is a CES aggregaor of secor maching efficiencies, weighed by heir vacancy shares
28 An Index of Mismach Consrained-opimal hires: h v u 1 Acual hires: h I 1 vi ui v u i i1 v u In realiy, unemploymen will no be efficienly allocaed, so hires will be lower han opimal. 1
29 An Index of Mismach Consrained-opimal hires: h v u 1 Acual hires: h I 1 vi ui v u i i1 v u 1 Measure of mismach: M I 1 i i i h v u i1 h h v u 1
30 The Job Finding Rae in he Absence of Mismach The aggregae job finding rae is defined as f h u The counerfacual job finding rae in he absence of mismach would be f h 1 u f u 1 M u
31 The Unemploymen Rae in he Absence of Mismach The counerfacual job finding rae in he absence of mismach would be f h 1 u f u 1 M u and can be calculaed simulaneously, using he Law of Moion for and assuming iniial condiion. u s s f u 1 1
32 Esimaing Mismach To calculae he mismach index: M I 1 i1 1 requires esimaes of vacancy share and indusry-specific mach efficiencies. To obain hese, esimae a maching funcion: v u i i i v u hi vi ln ln ln ln u u i i i i
33 Esimaes of Vacancy Share a
34 Esimaes of Vacancy Share a
35 The Mismach Index Proporionae increase in acual hires ha would occur if mismach were eliminaed: Fracion of acual hires M M
36 The Impac of Mismach on he Ouflow Rae Ouflow rae in he absence of mismach
37 The Impac of Mismach on he Ouflow Rae Ouflow rae in he absence of mismach Acual ouflow rae
38 Mismach Conribuion o Seady Sae Unemploymen Dynamics Cumulaive conribuion o log change in seady sae unemploymen Mismach Non-Mismach
39 Mismach Conribuion o Seady Sae Unemploymen Dynamics Mismach Non-mismach Pre-recession Recession Pos-recession Full sample 2001q3-2008q1 2008q2-2009q3 2009q4-2011q4 2001q3-2011q
40 Seady Sae Unemploymen Due o Mismach and Oher Influences Fracion of labour force Overall seady sae unemploymen rae Non-mismach Mismach
41 Mismach Conribuion o Acual Unemploymen Dynamics Cumulaive conribuion o log change in acual unemploymen Mismach Non-Mismach
42 Acual Unemploymen Due o Mismach and Oher Influences Fracion of labour force Non-mismach 0.02 Mismach
43 Flow Transiion Rae Conribuions o Seady Sae Unemploymen Dynamics Bea Overall f Overall s Prerecession 2001q3-2008q1 Recession 2008q2-2009q3 Full sample Posrecession 2009q4-2011q4 2001q3-2011q4 44% 56% 44% 57% 20% 80% 37% 63%
44 Mismach Pahs Cumulaive conribuion o log change in seady sae unemploymen Mismach via s Mismach via f
45 Mismach Pahs Bea Mismach Non-mismach Recession 2001q3-2008q1 2008q2-2009q3 2009q4-2011q4 2001q3-2011q4 Posrecession Full sample Prerecession f s f s 6% 39% 38% 17% 11% 44% 33% 13% 12% 35% 8% 46% 8% 38% 29% 25%
46 Conclusions Mismach does appear o have played a role in UK unemploymen dynamics. The indirec effec of mismach, which raises he impac of inflow rae increases, seems o play an imporan par.
47
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