Since the onset of the covid-19 pandemic, America's unemployment rate has fallen sharply from 14.8% to 6.1%. But that is still nearly twice its pre-pandemic level
WHEN THE supply of houses for sale is high, and demand for them is low, pundits often speak of a “buyers’ market”, as it is quicker and cheaper for people to find a new home. It follows, then, that when there is lots of unemployment economists assume it is quicker and cheaper for employers to find new staff. As both the cost of recruitment and wages fall, in theory firms should feel encouraged to hire more workers, which would reduce unemployment quickly after an economic shock.
New research suggests an additional explanation for why unemployment should stay high for so long—termed “contagious unemployment”—after an economic shock. The author, Niklas Engbom of New York University’s Stern School of Business, says that economists should ask personnel managers whether recessions make their job easier. The answer, to the surprise of economists, will often be “no”.
To prove the theory, Mr Engbom used data from the New York Federal Reserve’s survey of consumer expectations, along with other sources, from 2006 to 2015. The data show that the number of applications per vacancy and the hours spent by the employer recruiting for each job opening increased rapidly during the recession of 2008-09 . Unemployed people submitted over ten times as many job applications each month as job-switchers did.
More data are needed to prove Mr Engbom’s hypothesis. But it may provide an intriguing explanation if America’s next jobs report, due on June 4th, throws up yet. Job openings in America reached a record high of 8.1m in March and the number of job-seekers per vacancy is still much higher than before the pandemic . Although many firms claim that they are struggling to find workers, the unemployment rate ticked up slightly in April, from 6.0% to 6.1%.
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