Worker shortage alongside millions of unemployed: the paradox revealed by the Beveridge curve

The shortage of workers has become one of the great problems for companies and the economy in general. The shortage is everywhere and every time it affects more sectors of the activity, as they warn from the companies. However, from the worker’s side there are some pieces that do not fully fit into this hypothesis of labor shortage: in Spain there are still more than three million unemployed, while in the euro zone the figure exceeds the twelve million unemployed. How can it be that there is a shortage of workers as millions of people seek employment with no luck?

It seems that the pandemic has accelerated some of the trends that have been forming in recent years. One of them, although it is still too early to deliver a final verdict, is the growing mismatch that the labor market lives in developed countries, including the euro zone and the US.

The needs of companies and the economy are evolving faster than educational systems, which generates a growing imbalance between the demand for certain workers and the supply of them. This trend has seen an ‘acceleration’ during the covid, since it has forced many companies to digitize overnight and go even deeper into technology to survive.

The Beveridge curve doesn’t lie

A graphic way of analyzing this imbalance is through the Beveridge curve, which represents the inverse relationship between the unemployment rate and the vacancy rate. This curve is a key concept or indicator for labor markets that provides information about the efficiency when matching jobseekers (companies) and suppliers (workers), or also about the problems suffered by the labor market. Your name is due British economist William Beveridge, which was the one who began to investigate the inverse relationship between unemployment and vacancies (the jobs that companies try to fill).

During the COVID crisis, this curve has undergone very violent movements, as has the entire economy. “The covid pandemic has drastically changed the existing pattern. At first, the curve shifted substantially outward or to the right (reflecting higher unemployment). As the economy began to improve, the curve steepened upward, to as the strong increase in vacancies increased. The scope of these changes has no historical precedent, “he says. Thomas A. Lubik, a senior fellow at the Richmond Federal Reserve.

Now, as you can see in the graph of the euro zone, after drawing a kind of ‘crazy circle’ during covid, the curve continues to shift upward (vacancies grow) much faster than it does inward (that is, unemployment falls). The unemployment rate is falling very slowly for all the jobs that companies say they need. There is a mismatch, a mismatch between what companies are looking for and what workers offer, especially those who are unemployed.

At other times in the last 20 years, when vacancies increased, the unemployment rate fell much more strongly, as occurred between 2007 and 2008. But in recent years, vacancies have grown more intensely, which has displaced the curve upward, taking a steep incline.

A worrying trend

What is happening in the labor market? Nuria Bustamante and Sergio Díaz Velarde, economists at CaixaBank Research, analyze this phenomenon in the euro zone and in Spain in a recently published analysis and warn that this trend could be a drag on economic recovery and potential growth. Although the economy has sufficient human resources, they are not ‘useful’ to produce what the economy demands, thus weighing down growth.

“As is well known, it is normal for an economy to maintain certain levels of vacancies and unemployment, since a period of adaptation or search is necessary to find a job and fill a vacancy. In addition, throughout the economic cycle, An inverse relationship is usually observed between the evolution of the unemployment rate and the number of vacancies. That is, when the unemployment rate increases (decreases), the number of vacancies usually decreases (increases). Intuitively, during recessions it increases the number of people looking for work and there are fewer jobs available. Under current circumstances, Why is the unmet demand for labor not only not shrinking, but increasing? “, the experts of the Catalan bank wonder.

Lubik believes that part of it may be due to lower efficiency in matching job supply and demand, at least in the case of the US: “Such a decrease in the efficiency of matchmaking it can be due to a variety of underlying factors. Sectoral changes (employment is created in sectors that have nothing to do with those that destroy it), different skill requirements and geographic dispersion can play a role. For example, a worker laid off in the auto industry may have a hard time getting a job as a nurse. “

This researcher adds that such mismatches would be shown as a decrease in the efficiency of matching when analyzed in an aggregate way, “since the unemployed may not have the skills that companies need. Therefore, employers post more jobs (or look for more jobs). widely) to find a match (match) successful “.

Less immigration

The CaixaBank economists refine the shot even more and state that in the case of Spain and the euro zone as well “It may be due to the slowdown in immigration, as a consequence of the limitations on cross-border movements as a result of the pandemic, which could be affecting the available workforce in some activities, like agriculture, hospitality, leisure, cleaning or personal care. This imbalance should be temporary and be resolved as migratory flows recover. ”

However, not everything is so easy. This trend has been rearing its head for some time and what the covid has done has been to exacerbate it. On the other hand, “the imbalance in the labor market also responds to a growing decoupling between training and qualification of job seekers, and the profiles that companies are looking for, “warn Bustamante and Díaz Velarde.

These experts warn that difficulties associated with the availability of labor are emerging, especially in some tertiary branches (information and communications, transport and hospitality) and, with special intensity, in construction. In the case of construction, the sector is also facing a strong rise in the cost of materials and the very shortage of some of them, which is delaying works and skyrocketing costs (which in some cases must be borne by the companies themselves ).

Regarding the impact in the long term, “in the coming years it is to be expected that the process of transformation and modernization of the economy will increase the demand for workers with technical profiles, such as specialists in energy structures, data analysts or specialists in logistics, which could aggravate the imbalance in the labor market “, they assure from CaixaBank Research.

“The steep increase in the slope of the Beveridge curve since late 2020 is a follow-up. With matching efficiency declining, any reduction in unemployment now requires a much higher vacancy rate than before the pandemic. In other words, the unemployment rate now responds much less to changes in job vacancies than before the pandemic, “says Lubik.

CaixaBank Research briefly describes various ways to reduce the intensity and duration of these imbalances and help make the labor market more efficient and inclusive. “It is necessary to improve the employability of workers, adapting the academic offer to the needs of the market, promoting Vocational Training and reorienting active employment policies, and we must also ensure that the incentives to seek employment are always adequate” they add.

In a context in which the need to increase investment is becoming evident so that the productive supply is capable of adapting to new growth patterns, investment in human capital will also be essential so as not to generate another bottleneck, culminate the experts of the Catalan bank.