The Puzzling Effect Of The Covid Pandemic On The US Labor MarketTweet
Only during the Great Depression have we seen such a boom of job loss before as that due to the COVID-19 pandemic. This came as a surprise to no one because economies all over the globe went near total shutdown with the onset of the pandemic.
However, today we are experiencing an unexpected recovery, less than three years from the onset of the pandemic. The job market has millions of vacancies for a much smaller pool of job seekers.
We can use the Beveridge curve to understand this phenomenon. It reflects the inverse relationship between job vacancies and unemployment. A change in the economy would show as a movement along the Beveridge curve. A stronger labor demand would present itself coupled with lower unemployment rates and higher job openings. According to research from LinkedIn, we can see a shift in the US Beveridge curve since the crisis. This indicates that there are more positions available today at the same unemployment level as before.
This could be interpreted as a skills mismatch of the candidates and employer expectations, due to factors such as career changes. As many workers are being reallocated from one industry to another, the process of matching applicants with existing job offers could get difficult.
From the data of the LinkedIn survey, we have another interpretation of the situation. It says that this trend of multiple job offers for one candidate could be due to reallocations within industries. This means many workers were moving for new positions within the same industry as before. Their previous jobs get vacant and employers post adverts for those.
When one firm increases the number of vacancies, others often follow suit by posting new openings. Employers fill new positions by attracting workers from their competition. Those other companies then need to advertise new vacancies to fill their positions. This is what we call a vacancy chain.
The number of employees undergoing temporary unemployment soared during the pandemic. Only those who were participating actively in the job search rather than waiting to be rehired must be separated from the rest to measure the labor market performance.
Temporary unemployment is not as bad as permanent job loss during the hiring process. 80% of the total unemployment rate consisted of temporarily unemployed workers at the beginning of the Covid pandemic. During this time, there wasn’t much of an increase in job search intensity.
When we stop considering the temporarily unemployed worker population, there is less of an outward shift in the Beveridge curve. The gap is mostly due to the increase in quits.
The increase in the number of quits could be due to the workers’ conviction of switching jobs easily for better pay and benefits. Rather than waiting for change to happen, most workers chose to move to more attractive roles. This caused a reshuffling, but mostly within the same industries. The cross-industry job reallocation numbers might take up a majority of the reshuffling numbers because many businesses had complete shutdowns during the pandemic. The data obtained from LinkedIn is not sufficient to support this theory and suggests that most reallocations occurred in the same industry.
We can expect higher reallocations in the coming months, leading to more difficulty in filling vacancies with available candidates. During the pandemic, we observed a spike in skills-based hiring rates. Almost 45% of companies on LinkedIn use skills data to identify potential candidates. The skills-focused outlook allows employers to expand their talent pools and increase the quality of the matches.
Up until now, we have not seen solid evidence to say that the lower efficiency of matching applicants with open jobs is due to worker reallocation.