Accounting for Mismatch Unemployment

Economics

Further details

Mismatch between available jobs and workers results in unemployment. We formalize the concept of mismatch unemployment in a simple model of a segmented labor market with search frictions within segments. Worker mobility, job mobility and wage setting frictions across segments generate mismatch. We estimate mismatch unemployment on the US labor market, operationalizing segments as states or industries, and decompose it into its sources. Most mismatch is due to wage setting frictions. Mismatch unemployment is as cyclical as overall unemployment and no more persistent and we find no evidence that the increase in the unemployment rate in the Great Recession is more than in previous recessions due to mismatch.