The Shifting and Twisting Beveridge Curve: An Aggregate Perspective

37 Pages Posted: 4 Oct 2013

See all articles by Thomas Lubik

Thomas Lubik

Federal Reserve Banks - Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: October 3, 2013

Abstract

One of the most striking aspect 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.

Keywords: Mismatch, unemployment, vacancies, Great Recession, Bayesian estimation

JEL Classification: C11, C32, E20, E24

Suggested Citation

Lubik, Thomas, The Shifting and Twisting Beveridge Curve: An Aggregate Perspective (October 3, 2013). Available at SSRN: https://ssrn.com/abstract=2335720 or http://dx.doi.org/10.2139/ssrn.2335720

Thomas Lubik (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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