Mismatch Unemployment During COVID-19 and the Post-Pandemic Labor Shortages

Serdar Birinci, Yusuf Mercan and Kurt See

No 2024-025, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We examine the extent to which mismatch unemployment—employment losses relative to an efficient allocation where the planner can costlessly reallocate unemployed workers across sectors to maximize output—shaped labor market dynamics during the COVID-19 pandemic and the subsequent recovery episode characterized by labor shortages. We find that, for the first time in our sample, mismatch unemployment turned negative at the onset of the pandemic. This result suggests that the efficient allocation of job seekers would involve reallocating workers toward longer-tenure and more-productive jobs, even at the expense of fewer hires. We show that sectoral differences in job separations were the main driver behind this result, while differences in vacancies caused positive mismatch unemployment during the recovery episode. We also establish an empirical link between mismatch unemployment and the surge in the labor cost during the recovery, documenting that sectors with larger mismatch unemployment experienced higher employment cost growth.

Keywords: mismatch; reallocation; unemployment; labor shortages (search for similar items in EconPapers)
JEL-codes: E24 E32 J63 J64 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2024-09-17, Revised 2025-02-28
New Economics Papers: this item is included in nep-ipr and nep-lab
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Working Paper: Mismatch Unemployment During COVID-19 and the Post-Pandemic Labor Shortages (2024)
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DOI: 10.20955/wp.2024.025

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