Skill mismatch unemployment is real and significant

Even during demand-driven recessions.  Part of the problem is that cyclical and structural causes of unemployment interact and magnify each other.  Here is the job market paper of Pascual Restrepo, one of the stars from MIT currently on the job market.  I turn the floor over to him:

To study the effect of structural change on labor markets, I build a model in which structural change creates a mismatch between novel jobs skill requirements and workers’ current skills. When the mismatch is severe, labor markets go through a prolonged adjustment process wherein unemployment is amplified and job creation is low. Due to matching frictions, firms find less workers with the requisite skills for novel jobs and they respond by creating fewer jobs. The paucity of novel jobs creates an external amplification effect that increases unemployment for all workers—including those who already hold the requisite skills—and discourages rapid skill acquisition by workers. Structural change is not only a secular process; it also interacts with the business cycle, causing a large and long-lasting increase in unemployment that concentrates in recessions. I demonstrate that the decline in routine-cognitive jobs outside manufacturing—a pervasive structural change that has affected U.S. labor markets since 2000—caused a severe skill mismatch that contributed to the long-lasting increase in unemployment observed during the Great Recession. My evidence suggests that this external amplification effect is important. Moreover, I find that the skill mismatch amplified and propagated demand shocks at the local labor market level.

How many times during the last five years have I read or heard critiques of structural theories which neglect their more sophisticated forms?  (“What, did everyone in 2008 simply forget…?” etc.  Be very suspicious of the structure of that argument.)

Here are two other interesting papers by Restrepo, including one on how to share income with the robots, co-authored with Acemoglu.  I agree with their conclusion: “We find that inequality increases during transitions, but the self-correcting forces of the economy limit the increase in inequality over longer periods.”


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