Atrophied Social Network vs. Skill Mismatch Theories of the Unfortunate Shift in the Beveridge Curve: Tuesday Focus: June 10, 2014

The highly-intelligent and thoughtful Erik Brynjolfsson tweets:

Erik Brynjolfsson: Twitter / @erikbryn: “The Beveridge curve has shifted. Part (but not all) of our economic problem is a mismatch between skills vs. needs http://pic.twitter.com/TODGowPjTL“

I think that’s what Erik says is: “true, but…”. The “true” part is that as technology advances the needs of the economy shift, and very bad things happen if the skills of the labor force do not keep up.

The not so true part is Erik’s assumption that “skill-need mismatch” will show itself in a shift in the Beveridge Curve rather than in sharp shifts in relative wages, As businesses respond by boosting what they will pay to those with skills in short supply and by reconfiguring jobs to make more use of low-wage “unskilled” labor. The way I look at it, an upward shift in the beverage curve is much, much more likely to reflect either the atrophy of the past social networks that had gotten the currently not employed their previous jobs or the nonexistence of the needed social networks on the part of young workers entering the labor market and looking for their first jobs.

There is no reason to think that our educational system was performing much poorer in the 1970s and 1980s that it had in the 1950s and 1960s or that the pace of technological progress and speed it up. Yet the Beveridge Curve shifted out sharply in those years. There is no reason to think that June 2009 was a magic moment after which “skill–needs mismatch” took a sudden upward leap.

Thus I think Erik is most likely misdiagnosing our problem here: Yes, there is an enormous amount of “skill-needs mismatch” but it has shown itself in the widening wage and salary distribution over the past generation, not in an end of 2009 shift in the Beveridge Curve. Yes, we should aggressively reform our educational system to reverse this mismatch. But we do not need to do that in order to fix our unemployment–vacancy problem, and we should not think that even successful educational reform would fix our unemployment–vacancy problem. That requires different policies to make the job matching process easier for both workers and firms to find potential matches.