The Labor Market's Broken Ladder

Arin Dube at his blog:

Broken Job Ladders and the Great Recession: One of the features of the current labor market is that the usual mechanisms by which people find better quality jobs have broken down, as net job creation in manufacturing sector, larger establishments and more established firms—all of which tend to pay better—have fallen relatively more. A key avenue for mobility, transitions between jobs, took a dive with the onset of the Great Recession, and has not recovered. In a recent paper, Giuseppe Moscarini and Fabien Postel-Vinay call this the failure of the job ladder.

One of the consequences of a broken job ladder is that workers take—and stick around in—less than ideal jobs like fast food. But the failure of the job ladder does not impact all workers equally. Higher-credentialed workers have more opportunities to get some job—any job—than their lower-credentialed counterparts. A college graduate can get a job at McDonald’s if she wants to, but a high school grad will have a hard time getting a job in finance. So as the labor market is stuck in a low gear, an increasing share of fast food vacancies are filled with people who may not have taken such jobs in a healthy labor market, or may have climbed up the job ladder to better opportunities. This is a form of skills-mismatch, but one that is induced by demand conditions. ... [evidence] ...

Overall, the evidence suggests that we have a stock of misallocated workers in jobs due to weak demand. When hiring kicks into a higher gear, it won’t just be the new job creation for low-credentialed workers that will help reduce their unemployment rate. When the job ladder starts working again, it will also pull out over-qualified workers from fast food checkout counters which will help their lesser-credentialed counterparts. A final observation: if we want to understand what moves the low-wage service job share of employment for non-college-educated workers, it’s not just technology and polarization that matter; pulls and pushes due to labor market slack matter as well.

While I am looking at somewhat different questions, Dean Baker recently made a similar argument as well.