A U.S. labor economist awarded the Nobel Prize in economics on Monday said a “dysfunctional” lending environment has made it hard for small service businesses — the source of most jobs — to finance hiring.

Northwestern University professor Dale Mortensen, whose work focused on labor market inefficiencies that make it difficult for workers to match up to job openings, said employers have fewer jobs to offer and government can do only so much about it.

“To bring unemployment down we need to create service jobs,” Mortensen said, speaking to reporters from Aarhus University in Denmark, where he is a visiting faculty member.

“Many service jobs are in small establishments and firms. And they’re finding it difficult to find financing from banks. Banks finance payrolls. They’re (small businesses) finding it difficult to finance their … working capital” too, he said.

Small businesses account for some three-quarters of the U.S. labor market.

“We have dysfunctional capital markets at the moment,” Mortensen said. “It may be awhile until the dysfunctions in the financial markets can straighten themselves out.”

Mortensen said some governments in Europe distort the labor market when they guarantee jobs. He also said U.S. government regulators have not sparked lending during the current recovery simply by keeping interest rates low, he said.

“What’s happening is the labor market is a symptom of a more complicated problem with financial markets,” Mortensen said.

Mortensen, 71, shared the 10 million crown ($1.5 million) prize, awarded by the Royal Swedish Academy of Sciences, with MIT professor Peter Diamond, 70, and British-Cypriot Christopher Pissarides, 62.

Some of their work dated to the 1970s but their focus on the mechanisms of labor markets seems particularly timely now, during what some economists are calling a jobless economic recovery.

Mortensen said government’s role should be to smooth the workings of markets, lift confidence where it can and provide help to the unemployed.

Asked whether the U.S. economy was facing a worsening structural mismatch of skilled job openings and a lack of skilled workers, Mortensen said that was an age-old problem, “but particularly a problem now.”

He would not predict when the labor market might turn the corner, saying with a laugh, “Economics is not a predictive science.”