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What drives movements in the unemployment rate? a decomposition of the Beveridge curve

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Author Info

  • Regis Barnichon
  • Andrew Figura

Abstract

This paper presents a framework to interpret movements in the Beveridge curve and analyze unemployment fluctuations. We decompose the unemployment rate into three main components: (1) a component driven by changes in labor demand--movements along the Beveridge curve and shifts in the Beveridge curve due to layoffs--(2) a component driven by changes in labor supply--shifts in the Beveridge curve due to quits, movements in-and-out of the labor force and demographics--and (3) a component driven by changes in the efficiency of matching unemployed workers to jobs. We find that cyclical movements in unemployment are dominated by changes in labor demand, but that changes in labor supply due to movements in-and-out of the labor force also play an important role. Further, cyclical changes in labor demand lead cyclical changes in labor supply. Changes in matching efficiency generally play a small role but can decline substantially in recessions. At low-frequencies, labor demand displays no trend, and changes in labor supply explain virtually all of the secular trend in unemployment since 1976.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2010-48.

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Date of creation: 2010
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Handle: RePEc:fip:fedgfe:2010-48

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Related research

Keywords: Unemployment;

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References

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  1. Aysegül Sahin & Joseph Song & Bart Hobijn, 2010. "The unemployment gender gap during the 2007 recession," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 16(Feb).
  2. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," NBER Working Papers 12167, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Regis Barnichon & Michael Elsby & Bart Hobijn & Aysegül Sahin, 2010. "Which industries are shifting the Beveridge curve?," Working Paper Series 2010-32, Federal Reserve Bank of San Francisco.
  2. Marcelo Veracierto, 2011. "Worker flows and matching efficiency," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 147-169.
  3. Wesselbaum, Dennis, 2011. "Evaluating the federal reserve's policy," Kiel Policy Brief 23, Kiel Institute for the World Economy (IfW).
  4. Murat Tasci, 2012. "The ins and outs of unemployment in the long run: unemployment flows and the natural rate," Working Paper 1224, Federal Reserve Bank of Cleveland.
  5. Benedikt Herz and Thijs van Rens, 2011. "Structural Unemployment," Working Papers 568, Barcelona Graduate School of Economics.
  6. Bart Hobijn, 2012. "The industry-occupation mix of U.S. job openings and hires," Working Paper Series 2012-09, Federal Reserve Bank of San Francisco.
  7. Bart Hobijn & Aysegül Sahin, 2012. "Beveridge curve shifts across countries since the Great Recession," Working Paper Series 2012-24, Federal Reserve Bank of San Francisco.
  8. Kenneth Beauchemin & Murat Tasci, 2012. "Diagnosing labor market search models: a multiple-shock approach," Working Paper 1211, Federal Reserve Bank of Cleveland.
  9. Francesco Furlanetto & Nicolas Groshenny, 2012. "Matching efficiency and business cycle fluctuations," CAMA Working Papers 2012-34, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  10. William T. Dickens & Robert K. Triest, 2012. "Potential effects of the Great Recession on the U.S. labor market," Working Papers 12-9, Federal Reserve Bank of Boston.

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