Academic Literature

US – The rightward shift in the Beveridge curve

One feature of how the labor market looks different from before the Great Recession is captured in the Beveridge curve relationship, as shown here (vacancy rate vs. unemployment rate):

We’re interested in the Beveridge curve, in part because the relationship falls out of conventional Mortensen-Pissarides search models of the labor market. In that model, we think of low unemployment and high vacancies as capturing a tight labor market, and high unemployment and low vacancies a slack labor market. In the figure, the line joins points in the scatter plot sequentially in time, moving to the southeast as the recession worsens, then up and toward the northwest as the recovery proceeds. Early in the post-recession period, people were speculating as to whether the rightward shift in the Beveridge curve was due to cyclical factors (the Beveridge curve always shifts rightward in a recession) or some phenomenon related to mismatch in the labor market (the unemployed don’t have skills that match well with the posted vacancies). Perhaps surprisingly, the Beveridge curve has not shifted back, with the end of the Great Recession now more than 6 years in the rearview mirror. That would seem to put the kabosh on cyclical explanations for the phenomenon. But it’s not clear that mismatch fares any better in explaining the Beveridge curve shift. If that’s the explanation, why doesn’t the mismatch between the searchers and the searched-for go away?

Chosen excerpts by Job Market Monitor. Read the whole story at Stephen Williamson: New Monetarist Economics: The State of the Labor Market in the U.S..

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