Interview: Unemployment And Labor Markets

Michael Chui and Anna Bernasek of the McKinsey Global Institute interview Christopher Pissarides (Nobel, '10) "about how he developed the matching theory of unemployment, how COVID-19 affected his research, and what might be in store for labor markets after the pandemic" (May 12, 2021, "Forward Thinking on unemployment with Sir Christopher Pissarides"). At the website, audio is available for the half-hour interview, along with an edited transcript, upon which I will draw here.

Sculpture, Art, Breadline, Bronze, Depression, 1930

Image Source: Pixabay

As a starting point, it's useful to remember that labor markets always have, at the same time, both unemployed workers who are looking for jobs and employers who have job vacancies. For example, the US economy had about 9.7 million unemployed workers in March 2021, and at the same time, employers were listing 8.,1 million job vacancies. Indeed, there was a stretch from April 2018 to February 2020--not all that long ago, where the number of job vacancies for the US economy exceeded the number of unemployed in the monthly data.

At first glance, this combination of millions of job vacancies and millions of unemployed seems like a puzzle. Why don't the unemployed just take the vacant jobs? This is where Pissarides comes in. He has emphasized that unemployment and hiring are not just about raw numbers, but involve a matching process. Most employers, most of the time, don't just hire the first person who walks in through the front door, but instead are looking for a good match for the skills they desire.. Most workers, most of the time, know that they could get certain kinds of low-wage work  pretty quickly, if that was what they wanted, but they instead are looking for a good match for the skills they can offer. Policies to address unemployment, or to help unemployed workers, need to be considered in context of this matching process. Here's Pissarides: 

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