By Victor Li

The Great Recession, as some have called it, officially ended in June 2009, and gross domestic product is growing again. Yet the pace of the recovery has been frustratingly slow, unemployment remains close to 10 percent, and for many Americans - especially those still out of work - the economic situation has not improved.

While most economists believe a so-called double-dip recession is unlikely, there is concern that the long-term unemployment rate has risen permanently and may not return to the prerecession range of 4 to 5 percent. Unemployment is among the key factors hampering economic growth.

So will "jobless recoveries" become the norm? And how can policymakers reverse this disturbing trend?

Some of the answers may be found in the research of Northwestern University professor Dale T. Mortensen, who was awarded the Nobel Prize in economics this month. (Mortensen was my adviser at Northwestern, and I worked for him as a research assistant.) With his fellow Nobel laureates, Peter Diamond of the Massachusetts Institute of Technology and Christopher Pissarides of the London School of Economics, Mortensen revolutionized economics by moving market analysis beyond the basic concepts of supply and demand. In many markets, they emphasized, the matching of buyers and sellers takes time because the two groups have incomplete information about each other.

Prior to this pathbreaking work, economists explained the idea of unemployment in one of two ways. Classical economists viewed labor markets as efficient, and unemployment as a choice - a product of workers' unwillingness to supply labor at the market wage rate. Keynesian economists, meanwhile, influenced by the Great Depression, believed involuntary unemployment resulted from a surplus of labor, a shortage of available jobs, and a failure of the free market to balance supply and demand.

Both of these explanations were incomplete and unsatisfactory.

Mortensen's contribution is based on a simple but important idea: Not all workers and jobs are created equal, and finding the right job or the right worker is a costly, time-consuming process.

For example, someone with a high school education may have difficulty finding employment when most available jobs require a college degree. On the other hand, a college graduate may decline his first offer in hopes of finding a job that pays a higher wage or better suits his career goals. At the same time, businesses must invest resources to screen out unsuitable applicants and recruit the most qualified ones.

Modeling the process by which unemployed workers and hiring employers are brought together to bargain over wages, Mortensen concluded that high unemployment and a large number of job openings can occur at the same time. That has important implications for today's unemployment problem.

A recovering economy can experience high unemployment if there aren't enough workers qualified to fill new openings. This is particularly true in times of rapid technological change, when workers who lost their jobs at the beginning of a long recession find they are not qualified to fill new openings. It was recently reported, for example, that an unemployed autoworker applied for his old job but didn't have the skills to operate the new machinery involved.

The erosion of usable skills during prolonged recessions increases long-term unemployment. This structural unemployment was estimated at 5 percent before the recession, and it's likely much higher today.

So what can policymakers do to reverse rising structural unemployment? While tax cuts may increase consumer spending, a $250 rebate check does little to help workers attain the skills they need to fill available jobs. The focus should be on policies that improve the matching of unemployed workers with job openings.

On the business side, the government could offer incentives for hiring through tax cuts that subsidize recruiting efforts. On the labor side, extending eligibility for unemployment benefits may also help. While some argue that such benefits diminish a worker's incentive to search for a job, many workers will likely take the opportunity to go back to school and retrain for job openings in expanding markets.

Similarly, stimulus policies should focus on financial assistance for students and retraining and vocational programs for workers, which will equip the workforce with the skills to compete in a changing labor market.

These and other policies that help hiring efforts and enhance labor skills will boost job creation, lower unemployment, and sustain the economic recovery.

Victor Li is a professor of economics at the Villanova School of Business and a former senior economist at the Federal Reserve Bank of Atlanta. He can be reached at