It often rather puzzles people that there can be millions of job openings out there and also millions of people looking for a job. This is what the Employment Gap is, and what puzzles is that surely if everyone who wanted a job got one of those on offer then this gap would disappear, right? However, the gap is always there so what’s happening?
What’s really happening is that few really understand how dynamic the jobs market is. We don’t all go off and find a job and then stay in it until we retire. The economy is a great deal more chaotic and mobile than that. In fact, the US economy usually destroys and creates anew some 15 million or so jobs each year. Around and about 10% of the entire labour force as a rough idea. This is all about companies upsizing, downsizing, moving, closing, opening up: and it’s going on all the time around us.
In fact, in recessions we don’t usually see the number of jobs being destroyed rise. What causes the unemployment is that the creation of new jobs falls off.
With this continual process of jobs being destroyed and created then we’ve got a problem. For the people just out of work have to look around and see where those new jobs are. And the people offering the new jobs need sometime to work out which of the unemployed they want to take on. All of this is often called “search costs”. And it’s all a big subject in economics. Christopher Pissarides, at my old college, got the Nobel for investigating the inefficiencies in this process.
That’s what the employment gap is: just the time it takes for people looking for a job, the time it takes for those looking to employ someone, to meet up, check each other out and make a decision. And it’s why at any one time there are millions of jobs open and millions looking for work. They just haven’t found each other yet.
And this happens 15 million times a year even in the best run and non-recession afflicted economy.
It gets worse in recessions because fewer new jobs are being created than in normal times: not because there are more jobs being destroyed.
We generally think that unemployment (outside a war, or the very peak of a vast boom) isn’t ever going to go below 4 or 5% of the labour force. Simply because of this gap between losing one job and getting another. Unemployment is higher than this at present, most certainly. But that’s because of the recession: there will always be an employment gap and it will always be of a substantial size and involve millions of people.