Has COVID-19 induced labor market mismatch? Evidence from the US and the UK()

This paper studies whether labor market mismatch played an important role for employment dynamics during the COVID-19 pandemic. We apply the framework of Şahin et al. (2014) to the US and the UK to measure misallocation between job seekers and vacancies across sectors until the fourth quarter of 2021. We find that mismatch rose sharply at the onset of the pandemic but returned to previous levels within a few quarters. This implies that, as of late 2021, COVID-19 has not set in motion a large wave of structural reallocation involving significant frictions in the matching process between workers and firms. Consequently, the total loss in employment caused by the rise in mismatch has been even smaller and less persistent during the COVID-19 pandemic than during the Global Financial Crisis. The results are robust to considering alternative definitions of job searchers and to using a measure of “effective” job seekers in each sector.