What the Beveridge Curve may tell us about the U.S. labor market
Earlier today the U.S. Bureau of Labor Statistics released the newest data from the Job Openings and Labor Turnover Survey, also known as JOLTS. The data survey has become slightly less obscure lately because Federal Reserve Board Chair Janet Yellen appears to be a fan of the data set. The series offers important insights into the strength of the labor market.
The widely publicized net job growth numbers released every month simply lets us know how many more jobs were created than destroyed. But the JOLTS data lets us look at other labor market phenomena such as the percent of workers that are quitting their jobs or the turnover rate. Looking at the changes in those labor market flows and their relationship with other data can help us get a deeper understanding of the labor market and our economy.
One relevant relationship is the Beveridge Curve. Named after research conducted by British economist William Beveridge on data from the United Kingdom in the postwar era, the curve shows the relationship between the unemployment rate and the jobs vacancy rate, or the number of job opening as a share of the labor force. Other research has found that the relationship holds in other countries as well. The curve shows that as the unemployment rate decreases, employers will post more job openings.
The movement in the data in recent years indicates the curve might have shifted. From January 2001 to July 2009, the curve appeared to be set, meaning the data traced roughly the same line over time. But as the labor market began to recover beginning in July 2009, the data sketched out a new curve that was higher and further to the right than the previous curve. This movement indicates that after July 2009, employers are posting jobs at a rate that would have happened previously at a lower unemployment rate. That finding would indicate that employers think the number of qualified workers is lower than in the past.
In other words, this outward shift might mean there’s more structural unemployment today than other labor market indicators are capturing.
As useful as the JOLTS database is, the data only start in December 2000. Using only this data series restricts the study to the past decade or so. Luckily, researchers at the Federal Reserve Bank of Cleveland used historical data on printed job advertisements to create a jobs opening rate for years prior to 2000. And if you look at their Beveridge Curve for economic recoveries going back over 60 years, you see the current shift is actually quite typical. The curve appears to shift quite a bit (up and over to the right) after large recessions and shifts back (down and over to the left) after the labor market recovers from the large shock.
Remember that the Beveridge Curve looks at the jobs opening rate, which is as a share of the labor force. The current labor market recovery has seen quite a bit of workers drop out of the labor force, which would explain some of the shift up and to the right since mid-2009 in the Beveridge Curve. If in the future more discouraged workers reenter the work force encouraged by stronger growth then the job opening rate and the unemployment rate would decrease, shifting the curve down and further to the left.
Should that happen then policymakers would know that even though some of the labor force dropouts are forever lost to the labor market and that some of the shift is structural in nature, nonetheless the larger picture would appear to be just another cyclical labor market problem. If that new shift occurs then the case for expansionary policy remains strong.