April 26, 2013

Booth Professor examines low hiring rate

Employers’ hesitancy and uncertain attitude toward the economy may be causing the current sluggish pace of hiring, according to applied economist Steven Davis, a professor at the Booth School of Business.

A standard, long-standing theory in labor economics predicts that the pace of hiring relates to the ratio between job vacancies and the rate of unemployment, according to Davis. Theoretically, the higher the ratio, the higher the hiring rate. But since 2007, this theory has failed to explain high unemployment rates across the United States because, while job openings have increased by 11 percent in the past year and are at their highest level in five years, employers are slow to fill those openings, Davis said.

To answer the question of why jobs are not being filled as fast as the vacancy-unemployment ratio would suggest, Davis has added the variable of recruitment intensity per vacancy to the standard theory, which measures the degree to which employers seek out qualified candidates.

“Based on our analysis and inspection of the data, we concluded that it’s not just a matter of the number of vacancies out there, but it also depends on how picky employers are when they screen candidates, how aggressively they advertise job openings, and how attractive are the compensation packages they offer to applicants,” he said.

In a Huffington Post article, Davis claimed that employers may be heavily influenced by the level of uncertainty in the U.S. economy and in the economic policy that guides it, which causes them to be more tentative to hire. When he spoke to the Maroon, he cited the debate over the “fiscal cliff” and the eurozone crisis as examples of this type of uncertainty seen in recent years.

Davis said the uncertainty means that employers are more selective in evaluating job candidates, often taking more time to find the perfect candidate or hoping for better economic times in the future.

He acknowledged that there are many other plausible theories and said that his measurement of recruiting intensity “is only part of the story.”