Last Redoubt of Structural Unemployment: Policy Uncertainty

Two recent movements in the structural unemployment discussion push the debate into the last redoubt of supply-side arguments.

Hiring Intensity

The first is this very important new paper by Chicago economists Davis, Faberman and Haltiwanger, The Establishment-Level Behavior of Vacancies and Hiring (summarized by the Wall Street Journal here):

A new paper, though, suggests employers themselves are at least part of the problem. The authors — Steven Davis of Chicago Booth School of Business, R. Jason Faberman of the Philadelphia Fed and John Haltiwanger of the University of Maryland — take a deep dive into Labor Department data and come up with an estimate of what they call “recruiting intensity,” a measure of employers’ vacancy-filling efforts including advertising, screening and wage offers.

Their finding: Employers haven’t been trying as hard as they usually do. Estimates provided by Mr. Davis suggest that over the three months ending July, recruiting intensity was about 12% below the average for the seven years leading up to the recession. Their lack of effort probably accounts for about a quarter of the shortfall in the hiring rate.

Depressing as it might seem, the finding is in some ways encouraging. It suggests that the trouble with hiring might be more a “cyclical” function of low business confidence than a chronic, “structural” ailment that will last for years to come.

This is a crucial point. When Narayana Kocherlakota famously said that unemployment would be 6.5% without structural factors he was basing that number off his calibration of Robert Shimer’s 2007 paper Mismatch. Shimer’s model needs values of job vacancies which it gets as follows (p. 14 of the paper):

Since December 2000, the Bureau of Labor Statistics (BLS) has measured job vacancies using the JOLTS. This is the most reliable time series for vacancies in the U