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The Beveridge Curve and Structural Unemployment

There is a whole industry of economists and policy types who are incredibly anxious to find evidence of structural unemployment. The reason is that structural unemployment implies a mismatch between the available jobs and the skills of the unemployed.

This is important because if our unemployment problem is structural then simply using macroeconomic policy to generate more demand won't be of much help. If we want to get people back to work we have to get them the right skills or in the right place (there can be a locational mismatch as well) for the jobs that are available. That is a very difficult and much more complicated process than just spending money.

Recently some proponents of the structural unemployment view of the economy have been highlighting an outward shift in the Beveridge Curve. The Beveridge Curve relates unemployment to the vacancy rate (the number of job openings divided by the number of jobs). In general, higher rates of unemployment are associated with lower vacancy rates. However, in the last couple of years, there has been some increase in the vacancy rate without as large a drop in unemployment as would ordinarily be expected. This is taken as evidence that employers are having difficulty finding workers with the necessary skills in spite of the large number of unemployed workers. This is the story of structural unemployment.

A new paper from the Boston Fed by Rand Ghayad and William Dickens looks at this shift in the Beveridge Curve more closely. It finds a very interesting story. If we look at the long-term unemployed (people who have been out of work for more than 26 weeks) we see this shift clearly.

CEPR / January 01, 2013