Searching, Recalls, and Tightness

The paper presented in this Mannheim Applied Seminar reports on the state of the labor market midway through the COVID recession, focusing particularly on measuring market tightness. As the authors show using a simple model, tightness is crucial for understanding the relative importance of labor supply or demand side factors in job creation. In tight markets, worker search effort has a relatively larger impact on job creation, while employer profitability looms larger in slack markets. They measure tightness combining job seeker information from the CPS and vacancy postings from Burning Glass Technologies. To parse the former, the authors develop a taxonomy of the non-employed that identifies job seekers and excludes the large number of those on temporary layoff who are waiting to be recalled. With this taxonomy, they find that effective tightness has declined about 50% since the onset of the epidemic to levels last seen in 2016, when labor markets generally appeared to be tight. Disaggregating market tightness, the authors find mismatch has surprisingly declined in the COVID recession. Further, while markets still appear to be tight relative to other recessionary periods, this could change quickly if the large group of those who lost their jobs but are not currently searching for a range of COVID-related reasons reenter the search market.