U.S. Unemployment: Matching Skills to Jobs

U.S. unemployment rates have been slow to decline

Structural factors account for some of the continued high unemployment

Targeted policies to better align jobs, skills are prudent response

Now unemployment hovers around 8¾ percent and the slow pace of labor market recovery has sparked concerns about whether deeper structural factors were behind some of the unemployment increase during the recession and are now impeding the recovery.

Structural factors refer to underlying mismatches between supply and demand for jobs and skills. Such mismatches have risen in the U.S. economy as a whole and even more in some states.

Moreover, housing markets have behaved quite differently across the country, often interacting perversely with mismatches to raise unemployment. House price declines may have impeded some mobility of out of high-unemployment states.

IMF research suggests that these structural factors likely account for about 1½ percentage points—or only about a quarter—of the increase in the U.S. unemployment rate during the Great Recession. So, on the one hand, there is reason to be optimistic that the recovery of the economy will continue to push unemployment below the present rate of 8¾ percent. But, on the other hand, pushing the unemployment rate below 6½–7 percent may take more targeted structural policies.

Structural mismatch

It is common in the economic literature—though neither factually nor politically correct—to refer to people with high educational attainment as “high-skilled” and those with lower educational attainment as “low-skilled”.

Nevertheless, using these broad categories to equate educational attainment with skills, Marcello Estevão and Evridiki Tsounta measure the mismatch in each U.S. state between the demand for workers of various skills and the supply of those skills.

Skill demand is gauged by the composition of high-skilled, semi-skilled, and low-skilled workers in the state’s employment. Skill supply is determined on the basis of the educational attainment on the state’s working-age population. If the skill composition of a state’s workforce is very different from the skill composition of its population, that shows a mismatch.

Several states have seen large increases in skill mismatches over the course of the Great Recession (see Chart 1). These include Delaware—a financial hub; Hawaii—with large reliance on tourism; and Michigan—an auto hub. Skills mismatches continued to rise in almost all states even after...