1. Uncertainty
and the Slow Labor
Market Recovery
Yi-Hung Peng, Tou-Te Tsai, Yu-Chieh Chiang
2013.11.1
2. Reporting Process
1
The Beveridge curve: Past and present
2
Measuring shifts in the Beveridge curve
3
Effects of policy uncertainty on shifts in the Beveridge curve
4
Conclusion
3
4. The Beveridge curve: Past and present
The history of Beveridge curve
The Beveridge curve, or UV-curve, was developed in 1958 by
Christopher Dow and Leslie Arthur Dicks-Mireaux.
The Beveridge curve enabled economists to employ an
analytical method for the decomposition of unemployment:
deficient-demand (or cyclical) unemployment
and structural unemployment.
5
5. The Beveridge curve: Past and present
Likely because the Beveridgecurve enabled economists to
analyze the problems Beveridge
addressed,
the curve was named in the
1980s after William Beveridge.
6
6. al
y
t is
yed
his
nt
nty
me
e
Figure 1
Figure 1: Actual and fitted Beveridge
Actual and fitted Beveridge curve
curve
Job openings rate (%)
5
Fitted
4
3
Since 2007
recession
Before 2007
recession
2
1
3
5
7
Unemployment rate (%)
9
Sources: Job Openings and Labor Turnover Survey (JOLTS), Daly et al.
11
7
7. Actual and fitted Beveridge curve
Job openings rate (%)
5
Fitted
4
3
Since 2007
recession
Before 2007
recession
2
1
3
5
7
Unemployment rate (%)
9
Sources: Job Openings and Labor Turnover Survey (JOLTS), Daly et al.
11
8
8. Actual and fitted Beveridge curve
Job openings rate (%)
5
v
Fitted
4
3
Since 2007
recession
Before 2007
recession
2
1
3
5
7
Unemployment rate (%)
9
Sources: Job Openings and Labor Turnover Survey (JOLTS), Daly et al.
11
8
9. Actual and fitted Beveridge curve
Job openings rate (%)
5
v
Fitted
4
3
Since 2007
recession
Before 2007
recession
2
1
3
5
7
Unemployment rate (%)
9
u
Sources: Job Openings and Labor Turnover Survey (JOLTS), Daly et al.
11
8
10. Actual and fitted Beveridge curve
Job openings rate (%)
5
v
Fitted Beveridge curve
4
3
Since 2007
recession
Before 2007
recession
2
1
3
5
7
Unemployment rate (%)
9
u
Sources: Job Openings and Labor Turnover Survey (JOLTS), Daly et al.
11
8
11. Actual and fitted Beveridge curve
Job openings rate (%)
5
v
Fitted Beveridge curve
4
Data
3
Since 2007
recession
Before 2007
recession
2
1
3
5
7
Unemployment rate (%)
9
u
Sources: Job Openings and Labor Turnover Survey (JOLTS), Daly et al.
11
8
14. Figure 1
Actual and fitted Beveridge curve
Job openings rate (%)
5
Fitted
Since late 2007, the Beveridge
curve has gradually shifted outward
4
3
Since 2007
recession
Before 2007
recession
2
1
3
5
7
Unemployment rate (%)
9
11
11
15. Job openings rate (%)
5
Fitted
Since late 2007, the Beveridge
curve has gradually shifted outward
4
3
Since 2007
recession
Before 2007
recession
2
What has caused this shift
1
3
5
7
Unemployment rate (%)
9
11
12
16. The Beveridge curve: Past and present
What has caused this shift Previous Explanation
13
17. The Beveridge curve: Past and present
What has caused this shift Previous Explanation
1
“Beveridge curve may reflect a mismatch between the
skills unemployed workers have and what employers
are looking for.”
13
18. The Beveridge curve: Past and present
What has caused this shift Previous Explanation
1
“Beveridge curve may reflect a mismatch between the
skills unemployed workers have and what employers
are looking for.”
Recent research suggests that skill mismatch is
probably not a main driving force
13
19. The Beveridge curve: Past and present
What has caused this shift Previous Explanation
1
“Beveridge curve may reflect a mismatch between the
skills unemployed workers have and what employers
are looking for.”
Recent research suggests that skill mismatch is
probably not a main driving force
2
“The expansion of unemployment insurance benefits”
EX:the 2008 extension of unemployment compensation.
13
20. The Beveridge curve: Past and present
What has caused this shift Previous Explanation
1
“Beveridge curve may reflect a mismatch between the
skills unemployed workers have and what employers
are looking for.”
Recent research suggests that skill mismatch is
probably not a main driving force
2
“The expansion of unemployment insurance benefits”
EX:the 2008 extension of unemployment compensation.
Unemployment insurance benefits have been
reduced over the past two years.
13
21. The Beveridge curve: Past and present
1
“Beveridge curve may reflect a mismatch between the
skills unemployed workers have and what employers
are looking for.”
2
“The expansion of unemployment insurance benefits”
EX:the 2008 extension of unemployment compensation.
Policy Uncertainty
14
23. Measuring shifts in the Beveridge curve
A rise in the level of uncertainty about fiscal and monetary
policy is a third possible explanation for the shift in the
Beveridge curve.
16
24. Measuring shifts in the Beveridge curve
A rise in the level of uncertainty about fiscal and monetary
policy is a third possible explanation for the shift in the
Beveridge curve.
“
”
We need an economic model of the labor market.
16
26. Measuring shifts in the Beveridge curve
!! = ! !! !!
!
!! !!
!!!
!
! m denotes new matches (hires) being formed
t
!=
!
Ω!!!
!
!!
−
!
!!! !!!
!
!
17
27. Measuring shifts in the Beveridge curve
!! = ! !! !!
!
!! !!
!!!
!
! m denotes new matches (hires) being formed
t
unemployment (u)
!=
!
Ω!!!
!
!!
−
!
!!! !!!
!
!
17
28. Measuring shifts in the Beveridge curve
!! = ! !! !!
!
!! !!
!!!
!
! m denotes new matches (hires) being formed
t
unemployment (u)
!
Ω!!!
job vacancy rate (v)
!=
!
!!
−
!
!!! !!!
!
!
17
29. Measuring shifts in the Beveridge curve
!! = ! !! !!
!
!! !!
!!!
!
! m denotes new matches (hires) being formed
t
unemployment (u)
!
!
μ is= Ω!!! capturing (true) match!!! !!! !
a scale parameter ! !! − ! efficiency
!
job vacancy rate (v)
17
30. Measuring shifts in the Beveridge curve
!! = ! !! !!
!
!! !!
!!!
!
! m denotes new matches (hires) being formed
t
unemployment (u)
!
!
μ is= Ω!!! capturing (true) match!!! !!! !
a scale parameter ! !! − ! efficiency
!
job vacancy rate (v)
at denotes firms’ recruiting intensity (for example, advertising)
17
31. Measuring shifts in the Beveridge curve
!! = ! !! !!
!
!! !!
!!!
!
! m denotes new matches (hires) being formed
t
unemployment (u)
!
!
μ is= Ω!!! capturing (true) match!!! !!! !
a scale parameter ! !! − ! efficiency
!
job vacancy rate (v)
at denotes firms’ recruiting intensity (for example, advertising)
st denotes the search intensity of unemployed workers
17
32. Measuring shifts in the Beveridge curve
!! = ! !! !!
!
!! !!
!!!
!
! m denotes new matches (hires) being formed
t
unemployment (u)
!
!
μ is= Ω!!! capturing (true) match!!! !!! !
a scale parameter ! !! − ! efficiency
!
job vacancy rate (v)
(variables for the beveridge curve shifter)
at denotes firms’ recruiting intensity (for example, advertising)
st denotes the search intensity of unemployed workers
17
33. mple, advertising).
Measuring shifts in the Beveridge curve
Imposing the steady-state relation:
hat
where deno
he Beveridge curve
mt denotes new matches (hires) being formed
unemployment (u)
18
34. mple, advertising).
Measuring shifts in the Beveridge curve
Imposing the steady-state relation:
hat
where deno
he Beveridge curve
δ denotes the job separation rate
mt denotes new matches (hires) being formed
unemployment (u)
18
35. ensity (for example, advertising).
Measuring shifts in the Beveridge curve
-state relation that
where denotes
xpression for the Beveridge curve
!
!!!
!! = ! !! !! !! !!
!
!
1−α
a
).
!=
!
Ω!!!
!
!!
−
!
!!! !!!
!
!
uced-form representation of all factors that can shift
19
36. ensity (for example, advertising).
Measuring shifts in the Beveridge curve
-state relation that
where denotes
xpression for the Beveridge curve
!
!!!
!! = ! !! !! !! !!
!
!
1−α
a
).
!=
!
Ω!!!
!
!!
−
!
!!! !!!
!
!
uced-form representation of all factors that can shift
19
37. ensity (for example, advertising).
Measuring shifts in the Beveridge curve
-state relation that
where denotes
xpression for the Beveridge curve
!
!!!
!! =! ! !! ! ! !! !! !!! !
! !!
!
!
! =
!
!
1−α
a
).
!
!
! !
! !
The expression for the Beveridge curve
!
!
!=
!=
Ω!!!
!
Ω!!!
!
!
!!
!!
−
!!! !!!
!
!
!
−
!!! !!!
!
!
uced-form representation of all factors that can shift
19
38. ensity (for example, advertising).
Measuring shifts in the Beveridge curve
-state relation that
where denotes
xpression for the Beveridge curve
!
!!!
!! =! ! !! ! ! !! !! !!! !
! !!
!
!
! =
!
!
1−α
a
).
!
!
! !
! !
The expression for the Beveridge curve
!
!
!=
!=
Ω!!!
!
Ω!!!
!
!
!!
!!
−
!!! !!!
!
!
!
−
!!! !!!
!
!
uced-form representation of all factors that can shift
19
39. ensity (for example, advertising).
Measuring shifts in the Beveridge curve
-state relation that
where denotes
xpression for the Beveridge curve
!
!!!
!! =! ! !! ! ! !! !! !!! !
! !!
!
!
! =
!
!
1−α
a
).
!
!
! !
! !
The expression for the Beveridge curve
!
!
!=
!=
Ω!!!
!
Ω!!!
!
!
!!
!!
−
!!! !!!
!
!
!
−
!!! !!!
!
!
uced-form representation of all factors that can shift
19
40. ensity (for example, advertising).
Measuring shifts in the Beveridge curve
-state relation that
where denotes
xpression for the Beveridge curve
!
!!!
!! =! ! !! ! ! !! !! !!! !
! !!
!
!
! =
!
!
1−α
a
).
!
!
! !
! !
The expression for the Beveridge curve
!
!
!=
!=
Ω!!!
!
Ω!!!
!
!
!!
!!
−
!!! !!!
!
!
!
−
!!! !!!
!
!
uced-form representation of all factors that can shift
19
41. ensity (for example, advertising).
(1)
Measuring shifts in the Beveridge curve
where mt denotes new matches (hires) being formed,
-state relation that
denotes
match efficiency, st denotes the whereintensity of un
search
xpressionfirms’the Beveridge curveexample, advertising)
for recruiting intensity (for
!
!!!
!! =! ! !! ! ! !! !! !!! !
! !!
!
!
!! =
!! !
! !
Imposing the steady-state relation that
!
1−α
a
).
!rate, The expression forexpression for the Beveridge curv
we obtain the the Beveridge curve!
!
!=
!=
(2)
Ω!!!
!
Ω!!!
!
!
!!
!!
−
!!! !!!
!
!
!
−
!!! !!!
!
!
( of all. factors curve shifter shift
) Beveridge that can
uced-form representation
α 1−α
where Ω ≡ δ / µ s a
19
42. (2)
Measuring shifts in the Beveridge curve
(
α 1−α
where Ω ≡ δ / µ s a
).
The term is a reduced-form repre
δ denotes the job separation rate
μ a scale
Weis callparameter capturing (true) match efficiency
the “Beveridge curve sh
a denotes firms’ recruiting intensity (for example, advertising)
Beveridge curve. unemployed workers
s denotes the search intensity of
t
t
20
43. (2)
Measuring shifts in the Beveridge curve
(
α 1−α
where Ω ≡ δ / µ s a
).
Ω is the “Beveridge curve shifter”, the reduced-form
representation of all factors that can shift the Beveridge curve
The term is a reduced-form repre
δ denotes the job separation rate
μ a scale
Weis callparameter capturing (true) match efficiency
the “Beveridge curve sh
a denotes firms’ recruiting intensity (for example, advertising)
Beveridge curve. unemployed workers
s denotes the search intensity of
t
t
20
44. (2)
Measuring shifts in the Beveridge curve
(
α 1−α
where Ω ≡ δ / µ s a
).
Ω is the “Beveridge curve shifter”, the reduced-form
representation of all factors that can shift the Beveridge curve
Increased Ω leads to an outward shift in the curve.
The term is a reduced-form repre
δ denotes the job separation rate
μ a scale
Weis callparameter capturing (true) match efficiency
the “Beveridge curve sh
a denotes firms’ recruiting intensity (for example, advertising)
Beveridge curve. unemployed workers
s denotes the search intensity of
t
t
20
45. al
y
t is
yed
his
nt
nty
me
e
Figure 1
Figure 1: Actual and fitted Beveridge
Actual and fitted Beveridge curve
curve
Job openings rate (%)
5
Fitted
4
3
Since 2007
recession
Before 2007
recession
2
1
3
5
7
Unemployment rate (%)
9
Sources: Job Openings and Labor Turnover Survey (JOLTS), Daly et al.
11
21
46. Imposing the steady-state relation tha
rate, we obtain the expression for the
(2)
Since 200
recessio
Beveridge curve shifter:
Original State
(
α 1−α
where Ω ≡ δ / µ s a
).
The term is a reduced-form repres
We call the “Beveridge curve shift
Beveridge curve.
We construct a time series for usin
Beveridge curve relation in equation
job separation rate is taken from th
the U.S. Bureau of Labor Statistics.
22
47. Imposing the steady-state relation tha
rate, we obtain the expression for the
(2)
Beveridge curve shifter:
Increase Ω→Outward shift
(
α 1−α
where Ω ≡ δ / µ s a
).
Since 2
recess
The term is a reduced-form repres
We call the “Beveridge curve shift
Beveridge curve.
We construct a time series for usin
Beveridge curve relation in equation
job separation rate is taken from th
the U.S. Bureau of Labor Statistics.
23
48. (2)
(
α 1−α
where Ω ≡ δ / µ s a
).
Increased Ω leads to an
outward shift in the curve.
The term is a reduced-form representat
We call the “Beveridge Since 2007
curve shifter.”
recession
Beveridge curve.
We construct a time series for using da
Beveridge curve relation in equation (2),
job separation rate is taken from the 24
Job
50. Measuring shifts in the Beveridge curve
Policy Uncertainty
Newspaper articles discussing economic policy uncertainty
25
51. Measuring shifts in the Beveridge curve
Policy Uncertainty
Newspaper articles discussing economic policy uncertainty
Tax code provisions scheduled to expire
25
52. Measuring shifts in the Beveridge curve
Policy Uncertainty
Newspaper articles discussing economic policy uncertainty
Tax code provisions scheduled to expire
The extent of disagreements among economic forecasters
about such variables as future levels of inflation and
government spending
25
53. ve
s
on
he
Figure 2
Figure 2: Beveridge curve shifter and policy uncertainty
Beveridge curve shifter and policy uncertainty
Index
3.0
2.5
Percent
7.0
Recruiting intensity
(left axis)
6.5
6.0
2.0
1.5
5.5
Policy uncertainty
(left axis)
5.0
4.5
1.0
0.5
Beveridge curve shifter
(right axis)
0.0
00 01 02 03 04 05 06
Note: Three-month moving average.
4.0
3.5
3.0
07
08
09
10
11
12
26
54. 2.5
2.0
and the job vacancy rate (v), can be derived from a general matc
Recruiting intensity
following form(left axis)
(see Pissarides 2000, chapter 5):
6.5
6.0
(1)
5.5
where mt denotes uncertainty (hires) being formed, µ is a scale
Policy new matches
5.0
1.5 match efficiency, s denotes the search intensity of unemployed
(left axis)
t
firms’ recruiting intensity (for example, advertising).
4.5
1.0
4.0
Beveridge curve shifter
relation that (right axis)
where
3.5
0.5 Imposing
the steady-state
rate, we obtain the expression for the Beveridge curve
0.0
3.0
00 01 02 03 04 05 06
(2)
Note: Three-month moving average.
07
08
09
10
11
12
Beveridge curve shifter
(
α 1−α
)
where Ω ≡ δ / µ s a
.
to a higher unemployment rate for a given number of job
27
d
55. efficiency is a broad concept that encompasses a range of variables,
from filling vacancies, thereby raising unemployment. An estimate indicates that, without policy
ecruit new employees. If the process of matching workers and jobs
uncertainty, the unemployment rate in late 2012 would have been close to 6.5%, 1.3
curve shifts to the right, meaning that, for a given job vacancy rate,
percentage points lower than the actual rate.
her.
Measuring shifts in the Beveridge curve
loyment rate and the vacancy rate to quantify changes in job match
The U.S. labor market has recovered more slowly following the Great Recession than after previous
t we call the “Beveridge curve shifter.” In Figure 2, the blue line
recessions. Historically, the unemployment rate tends to fall as job openings increase, a relationship
Beveridge curve shifter has increased substantially, consistent with
urve displayed in Figure 1.represented graphically by the Beveridge curve. However, even though the number of job openings in the
economy has been rising during the recovery, the unemployment rate has remained stubbornly high. As
onomic policy uncertaintya result, asby Baker, Bloom, and Davis
developed Figure 1 shows, the Beveridge curve has shifted away from its historical pattern. There are
now more jobless workers for a given number of job openings than in the decade before the downturn.
lume of newspaper articles discussing economic policy uncertainty,
heduled to expire, and the extent of disagreements among economic
Researchers have suggested several
Figure 1
Figure 2
reasons for this shift. Workers may
Actual and fitted Beveridge curve
Beveridge curve shifter and policy uncertainty what is
not have the skills that match
Index
Percent Job openings rate (%)
needed for current job openings. 7.0 5
3.0
Recruiting intensity
Alternatively, more generous
Fitted
(left axis)
6.5
2.5
unemployment benefits may have
n
4
6.0
reduced the pressure on unemployed
2.0
5.5
individuals to search for jobs. In this
Policy uncertainty
Economic Letter, we propose an 5.0 3
1.5
(left axis)
Since 2007
alternative explanation. We present
recession
4.5
1.0
evidence that heightened uncertainty
Before 2007
recession
about economic policy during the 4.0 2
Beveridge curve shifter
0.5
e
(right axis)
recovery made businesses more
3.5
reluctant to hire workers. When
0.0
3.0
1
businesses become
00 01 02 03 uncertainty rises,08 09 10 11 12
04 05 06 07
3
5
7
9
11
Unemployment rate (%)
Note: Three-month moving average.
more hesitant to hire. They reduce
Sources: Job Openings and Labor Turnover Survey (JOLTS), Daly et al.
recruiting efforts by raising hiring
(2012), and authors’ calculations.
ads to a higher unemployment rate for a given number of job
standards, increasing the number of
ge curve outward. The green dashed line in Figure 2 indicates that,
interviews, or simply not filling vacancies. For instance, some businesses may interview candidates
28
56. efficiency is a broad concept that encompasses a range of variables,
from filling vacancies, thereby raising unemployment. An estimate indicates that, without policy
ecruit new employees. If the process of matching workers and jobs
uncertainty, the unemployment rate in late 2012 would have been close to 6.5%, 1.3
curve shifts to the right, meaning that, for a given job vacancy rate,
percentage points lower than the actual rate.
her.
Measuring shifts in the Beveridge curve
loyment rate and the vacancy rate to quantify changes in job match
The U.S. labor market has recovered more slowly following the Great Recession than after previous
t we call the “Beveridge curve shifter.” In Figure 2, the blue line
recessions. Historically, the unemployment rate tends to fall as job openings increase, a relationship
Beveridge curve shifter has increased substantially, consistent with
urve displayed in Figure 1.represented graphically by the Beveridge curve. However, even though the number of job openings in the
economy has been rising during the recovery, the unemployment rate has remained stubbornly high. As
onomic policy uncertaintya result, asby Baker, Bloom, and Davis
developed Figure 1 shows, the Beveridge curve has shifted away from its historical pattern. There are
now more jobless workers for a given number of job openings than in the decade before the downturn.
lume of newspaper articles discussing economic policy uncertainty,
Policy Uncertainty & Beveridge curve shifter
heduled to expire, and the extent of disagreements among economic
Researchers have suggested several
Figure 1
Figure 2
reasons for this shift. Workers may
Actual and fitted Beveridge curve
Beveridge curve shifter and policy uncertainty what is
not have the skills that match
Index
Percent Job openings rate (%)
needed for current job openings. 7.0 5
3.0
Recruiting intensity
Alternatively, more generous
Fitted
(left axis)
6.5
2.5
unemployment benefits may have
n
4
6.0
reduced the pressure on unemployed
2.0
5.5
individuals to search for jobs. In this
Policy uncertainty
Economic Letter, we propose an 5.0 3
1.5
(left axis)
Since 2007
alternative explanation. We present
recession
4.5
1.0
evidence that heightened uncertainty
Before 2007
recession
about economic policy during the 4.0 2
Beveridge curve shifter
0.5
e
(right axis)
recovery made businesses more
3.5
reluctant to hire workers. When
0.0
3.0
1
businesses become
00 01 02 03 uncertainty rises,08 09 10 11 12
04 05 06 07
3
5
7
9
11
Unemployment rate (%)
Note: Three-month moving average.
more hesitant to hire. They reduce
Sources: Job Openings and Labor Turnover Survey (JOLTS), Daly et al.
recruiting efforts by raising hiring
(2012), and authors’ calculations.
ads to a higher unemployment rate for a given number of job
standards, increasing the number of
ge curve outward. The green dashed line in Figure 2 indicates that,
interviews, or simply not filling vacancies. For instance, some businesses may interview candidates
28
58. Effects of policy uncertainty on shifts in the Beveridge curve
“
How much heightened policy uncertainty may
have contributed to this shift?
”
V
U
Ω
Job vacancy rate
Unemployment rate
Beveridge curve shifter
Policy uncertainty
30
59. s of uncertainty on the unemployment rate in our theoretical model,
ge
cy
e
he
id
ly
n
ty
the
Figure 3
Figure 3: Policy uncertainty and shifts in the Beveridge
Policy uncertainty and shifts in the Beveridge curve
curve
Job openings rate (%)
5
Fitted
4
Since 2007 recession
implied by policy uncertainty
3
Since 2007
recession
Before 2007
recession
2
1
3
5
7
9
Unemployment rate (%)
Sources: JOLTS, Daly et al. (2012), and authors’ calculations.
11
31
60. 7
Part of the Beveridge curve
that has been driven by policy
uncertainty, based on
estimates we put into our
statistical model.
Since 2007 recession
implied by policy uncertainty
Since
rece
32
61. Part of the Beveridge curve
that has been driven by policy
uncertainty, based on
estimates we put into our
statistical model.
However, beginning in autumn
2009, policy uncertainty
became an increasingly
important factor behind the
shift in the Beveridge curve.
Since 2007 recession
implied by policy uncertainty
Since 2007
recession
33
62. Effects of policy uncertainty on shifts in the Beveridge curve
Heighted uncertainty may have contributed to the shift
Our results suggests that, in late 2012, if there had been no
policy uncertainty shocks, The unemployment rate would have
been close to 6.5% instead of the reported 7.8%.
34
63. Effects of policy uncertainty on shifts in the Beveridge curve
Conclusion
35
64. Effects of policy uncertainty on shifts in the Beveridge curve
Conclusion
All else equal
35
65. Effects of policy uncertainty on shifts in the Beveridge curve
Conclusion
All else equal
Increase in
policy
uncertainty
35
66. Effects of policy uncertainty on shifts in the Beveridge curve
Conclusion
All else equal
Increase in
policy
uncertainty
Significant
decline in
recruiting
intensity
35
68. Conclusion
In an uncertain economic environment, businesses reduce
their recruiting intensity.
As the economy recovers and uncertainty recedes, the
Beveridge curve should return to its pre-recession position and
the pace of job recovery should accelerate.
37