Tuesday, June 9, 2015

The Beveridge Curve - The Job Mismatch Conundrum


A little-discussed graphical representation of the U.S. employment picture provides us with a very clear idea of just how different the recovery since the end of the Great Recession has been.

The Beveridge Curve is named after the British economic, William Henry Beveridge.  Beveridge developed the British Unemployment Insurance Act and is considered one of the leading economists in recent history.

The Beveridge Curve graphically displays the negative relationship between the unemployment rate and the job vacancy rate over the course of a business cycle.   During a normal economic expansion, the unemployment rate is low and the job openings rate is high.  During a normal economic contraction, the unemployment rate is high and the job openings rate is low.  

Here is a screen capture from the Bureau of Labor Statistics showing the unemployment plotted against the job openings rates in the current business cycle (in purple) and in past business cycles:


You'll notice that in the four economic cycles between December 2000 and June 2009, the curves lie on top of each other whereas, there is a significant shift in the current business cycle.  Shine June 2009, the unemployment rate has been significantly higher when compared to the job openings rate.  This suggests that the labor market is inefficient; in the period since the official end of the Great Recession and the present, there is a greater than normal divergence between jobs that are available and the unemployed who are looking to fill them.  In other words, there is a significant mismatch in the job matching/job hiring process.  This may suggest that, as millions of unemployed Americans know, that there has been a structural change in the American labor market that has not been overcome by trillions of dollars worth of Federal Reserve intervention.

3 comments:

  1. That is the most ugly looking graph you have ever used to explain something. Its like something Steven Hawking might have drawn by hand. Most likely its just me but I have trouble reading graphs that double back on themselves. But like most things this is showing what most of us feel....that we have really never left the great recession and are really in a depression that is being masked and propped up as much as possible by the FED.

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  2. Sorry for the ugliness but it is the noisy monthly data that makes it look so convoluted. Please ignore the "squiggles" and concentrate on the trends.

    Thanks for your input!

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  3. If I'm correct the thing that makes this even worse is that this time so many people have simply dropped totally out of the work force, if not the rate would be much higher.

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