Measuring Mismatch in the U.S. Labor Market

This paper measures mismatch between job-seekers and vacancies in the U.S. labor market. Mismatch is defined as the distance between the observed allocation of unemployed workers across sectors and the optimal allocation that solves a planner’s problem. The planner’s allocation rule requires (productive and matching) efficiency-weighted vacancy-unemploym ent ratios to be equated across sectors. More severe mismatch between vacant jobs and idle workers translates into higher unemployment by reducing the aggregate job-finding rate. In our empirical analysis, we use two sources of crosssectional data on vacancies, JOLTS and HWOL, together with unemployment data from the CPS. We find that mismatch across industries and occupations accoun ts for 0.6 to 1.7 percentage points of the recent rise (by about five percentage points) in the U.S. unem ployment rate, whereas geographical mismatch plays no role. The share of the rise in unemployment explained by mismatch is increasing in the education level.