The shifting and twisting Beveridge curve: an aggregate perspective
AbstractOne of the most striking aspects of the Great Recession in the United States is the persistently high level of unemployment despite an uptick in economic activity and an increased willingness by firms to hire. This has stimulated a debate on mismatch in the labor market. The argument is that despite the high unemployment rate the effective pool of job seekers is considerably smaller due to adverse effects of long-term unemployment, high unemployment benefits or structural change. Despite high vacancy postings, firms are therefore unable to hire desired workers. I study this issue from an aggregate perspective by deriving the Beveridge curve from a discrete-time search and matching model of the labor market driven by a variety of shocks. I first establish that the observed pattern in the data can only be described in the context of the model by the interaction of a cyclical decline in productivity and a decline in match efficiency. I then estimate the model using Bayesian methods on unemployment and vacancy data before the onset of the Great Recession. The posterior estimates indicate that the recent behavior of the Beveridge curve is most likely explained by a structural decline in match efficiency.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 13-16.
Date of creation: 2013
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-14 (All new papers)
- NEP-DGE-2013-11-14 (Dynamic General Equilibrium)
- NEP-LAB-2013-11-14 (Labour Economics)
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