What Drives Movements in the Unemployment Rate? A Decomposition of the Beveridge Curve

42 Pages Posted: 26 Jul 2011

See all articles by Regis Barnichon

Regis Barnichon

Federal Reserve Bank of San Francisco

Andrew Figura

Board of Governors of the Federal Reserve System - Macroeconomic Analysis Section

Date Written: September 1, 2010

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.

Keywords: Beveridge Curve, unemployment rate, gross worker flows, matching function

JEL Classification: J6, E24, E32

Suggested Citation

Barnichon, Regis and Figura, Andrew, What Drives Movements in the Unemployment Rate? A Decomposition of the Beveridge Curve (September 1, 2010). FEDS Working Paper No. 2010-48, Available at SSRN: https://ssrn.com/abstract=1895645 or http://dx.doi.org/10.2139/ssrn.1895645

Regis Barnichon (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States

Andrew Figura

Board of Governors of the Federal Reserve System - Macroeconomic Analysis Section ( email )

20th & C. St., N.W.
Mailstop 80
Washington, DC 20551
United States
(202) 452-2583 (Phone)
(202) 452-3819 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
296
Abstract Views
2,996
rank
128,794
PlumX Metrics