Evening Must-Read: Robert Waldmann (2012): Beveridge Curve Loops

Robert Waldmann (2012): “Here we go a second time. Neither the Beveridge curve nor the quasi-Beveridge curve…

…show how much employment can increase without ‘truly massive and successful public active labor market policies to better match workers to jobs’. It is more useful to look at the matching function showing hires as a function of vacancies and unemployed workers (or, to be quasi-, the peak minus the current employment to population ratio). If the matching function is stable, then the lowest sustainable unemployment rate is stable. However when there is a recession the Beveridge curve will show a huge ugly (as you graph it) clockwise pattern causing alarmed reports of worsened matching. It looked much worse in the UK in the late 90s just before the UK switched from being a high unemployment to low unemployment country.