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Beveridgean Unemployment Gap

Author

Listed:
  • Michaillat, Pascal
  • Saez, Emmanuel

Abstract

This paper develops a sufficient-statistic formula for the unemployment gap -- the difference between the actual unemployment rate and the efficient unemployment rate. While lowering unemployment puts more people into work, it forces firms to post more vacancies and to devote more resources to recruiting. This unemployment-vacancy tradeoff, governed by the Beveridge curve, determines the efficient unemployment rate. Accordingly, the unemployment gap can be measured from three sufficient statistics: elasticity of the Beveridge curve, social cost of unemployment, and cost of recruiting. Applying this formula to the United States, 1951--2019, we find that the efficient unemployment rate averages 4.3%, always remains between 3.0% and 5.4%, and has been stable between 3.8% and 4.6% since 1990. As a result, the unemployment gap is countercyclical, reaching 6 percentage points in slumps. The US labor market is therefore generally inefficient and especially inefficiently slack in slumps. In turn, the unemployment gap is a crucial statistic to design labor-market and macroeconomic policies.

Suggested Citation

  • Michaillat, Pascal & Saez, Emmanuel, 2019. "Beveridgean Unemployment Gap," Santa Cruz Department of Economics, Working Paper Series qt7rn6h2gw, Department of Economics, UC Santa Cruz.
    • Handle: RePEc:cdl:ucscec:qt7rn6h2gw
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    Citations

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    Cited by:

    1. Juan C. Córdoba & Anni T. Isojärvi & Haoran Li, 2023. "Endogenous Bargaining Power and Declining Labor Compensation Share," Finance and Economics Discussion Series 2023-030, Board of Governors of the Federal Reserve System (U.S.).
    2. Hie Joo Ahn & Leland D. Crane, 2020. "Dynamic Beveridge Curve Accounting," Papers 2003.00033, arXiv.org.
    3. Fortin, Pierre, 2024. "Does immigration help alleviate economy-wide labour shortages?," CLEF Working Paper Series 70, Canadian Labour Economics Forum (CLEF), University of Waterloo.
    4. Joshua Bernstein & Alexander W. Richter & Nathaniel A. Throckmorton, 2025. "The Matching Function and Nonlinear Business Cycles," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 57(2-3), pages 349-376, March.
    5. Jelena Momcilovic and Mirjana Miletic & Jelena Momcilovic & Mirjana Miletic, 2024. "Analysis of the labour market and its impact on inflation in Serbia," Working Papers Bulletin 25, National Bank of Serbia.
    6. Garita, Jonathan & Pastrana, Guillermo & Slon, Pablo, 2024. "Job displacement effects and labor market sorting during COVID-19," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 5(2).
    7. Gökten, Meryem & Heimberger, Philipp & Lichtenberger, Andreas, 2024. "How far from full employment? The European unemployment problem revisited," European Economic Review, Elsevier, vol. 164(C).
    8. Demirgüç-Kunt, Asli & Lokshin, Michael & Torre, Iván, 2024. "Protect incomes or protect jobs? The role of social policies in post-pandemic recovery," World Development, Elsevier, vol. 182(C).
    9. Michaillat, Pascal & Saez, Emmanuel, 2024. "Beveridgean Phillips Curve," Santa Cruz Department of Economics, Working Paper Series qt5zt7g6hk, Department of Economics, UC Santa Cruz.
    10. Pascal Michaillat, 2023. "Modeling Migration-Induced Unemployment," Papers 2303.13319, arXiv.org, revised Dec 2024.
    11. Leythienne, Jean Fernand, 2024. "Is euro area at full employment ? — A diagnosis from the Beveridge curve," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 322-340.
    12. Miroslav Gabrovski & Ioannis Kospentaris & Lucie Lebeau, 2024. "The Macroeconomics of Labor, Credit and Financial Market Imperfections," Working Papers 2409, Federal Reserve Bank of Dallas.
    13. Shisham Adhikari & Athanasios Geromichalos & Ates Gursoy & Ioannis Kospentaris, 2025. "How much work experience do you need to get your first job?: The macroeconomic implications of bias against labor market entrants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 58, October.
    14. Jonathan Garita-Garita & Catalina Sandoval-Alvarado, 2023. "Estimating Labor Market Slackness in Costa Rica," Documentos de Trabajo 2302, Banco Central de Costa Rica.
    15. Fabrice Collard & Patrick Feve & Alain Guay, 2024. "Risk Scenarios and Macroeconomic Forecasts," Working Papers 24-03, Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management, revised May 2024.
    16. Alex Domash & Lawrence H. Summers, 2022. "How Tight are U.S. Labor Markets?," NBER Working Papers 29739, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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