What Drives Movements in the Unemployment Rate? A Decomposition of the Beveridge Curve
Figure 1: Shifts in the Beveridge curve.
Figure 1: Shifts in the Beveridge curve. This figure presents the theoretical relationship between unemployment and vacancies and highlights the possible factors that can shift it: layoffs, quits or movements in and out of the labor force, i.e. when st or λt, moves.
Figure 2: Empirical (log) job finding rate, model job finding rate and residual, 1967-2009.
Figure 2: Empirical (log) job finding rate, model job finding rate and residual, 1967-2009. This figure plots the residual of equation (3) estimated over 1967-2009. While the matching function appears relatively stable over time, a testimony of the success of the matching function, the residual can become large. In the third quarter of 2009, the residual reached an all time low of three standard-deviations.
Figure 3: Decomposition of unemployment fluctuations into labor demand movements, labor supply movements and shocks to matching effciency over 1976-2009. The y-axis uses a log-arithmic scale. The decomposition uses 2000Q3 as the base year. The colored areas sum to the approximated steady-state unemployment. The dashed red line is the exact value of steady-state unemployment.
Figure 3: Decomposition of unemployment fluctuations into labor demand movements, labor supply movements and shocks to matching efficiency over 1976-2009. This figure plots (log) unemployment and its components relative to their 2000q3 values. It suggests that both changes in labor demand and changes in labor supply contribute to unemployment's fluctuations. However, the secular trend in unemployment appears to originate in changes in labor supply, while changes in labor demand appear to be mainly cyclical. Figure 3 also shows some marked decrease in matching efficiencies in the aftermath of the 82 peaks in unemployment and during the 2008-2009 recession. Without any loss in matching efficiency, Figure 3 shows that unemployment would have been about 50 basis points lower over 1984-1988 and about 150 basis points lower in 2009
Figure 4: Decomposition of labor demand movements into movements along the Beveridge curve and Beveridge curve shifts from permanent layoffs or temporary layoffs, 1976-2009. The decomposition uses 2000Q3 as the base year. The y-axis uses a logarithmic scale.
Figure 4: Decomposition of labor demand movements into movements along the Beveridge curve and Beveridge curve shifts from permanent layoffs or temporary layoffs, 1976-2009. This figure shows that there is no clear trend in any of the components of unemployment due to labor demand.
Figure 5: Decomposition of labor supply movements into Beveridge curve shifts due to quits, movements in-and-out of the labor force and demographics, 1976-2009. The decomposition uses 2000Q3 as the base year. The y-axis uses a logarithmic scale.
Figure 5: Decomposition of labor supply movements into Beveridge curve shifts due to quits, movements in-and-out of the labor force and demographics, 1976-2009. This figure shows that labor supply seems responsible for the secular decline in unemployment since 1976. It also shows that movements in-and-out of the labor force contribute to the rise in the unemployment rate in recessions.
Figure 6: Transition rates for in-and-out of the labor force movements for women aged 25-55, 1976-2009. The dashed line represents the corresponding HP-filter trend (λ = 105).
Figure 6: Transition rates for in-and-out of the labor force movements for women aged 25-55, 1976-2009. This figure displays the hazard rates of women moving and-and-out of the labor force and shows that attachment to the labor force is countercyclical, with women more likely to join/stay in the labor force during recessions.
Figure 7: Transition rates for in-and-out of the labor force movements for men aged 25-55, 1976-2009. The dashed line represents the corresponding HP-filter trend (λ = 105).
Figure 7: Transition rates for in-and-out of the labor force movements for men aged 25-55, 1976-2009. This figure compares the behavior of prime-age men with prime-age women from Figure 6 and shows that women's attachment to the labor force is more countercyclical than for men.
Figure 8: Transition rates for in-and-out of the labor force movements for men and women aged over 55, 1976-2009. The dashed line represents the corresponding HP-filter trend (λ = 105).
Figure 8: Transition rates for in-and-out of the labor force movements for men and women aged over 55, 1976-2009. This figure shows that older workers can also experience strong cyclical movements in λIU.
Figure 9: Transition rates for in-and-out of the labor force movements for men and women aged 16-25, 1976-2009. The dashed line represents the corresponding HP-filter trend (λ = 105).
Figure 9: Transition rates for in-and-out of the labor force movements for men and women aged 16-25, 1976-2009. It shows that young workers are less likely to join the labor force (λIE and λIU are both on downward trends since the mid-90s)
Figure 10: HP-filter trends (λ = 105) in Beveridge curve shifts due to changes in labor supply or to changes in demographics, 1976-2009. All variables are expressed as log-deviations from their average values.
Figure 10: HP-filter trends (λ=105) in Beveridge curve shifts due to changes in labor supply or to changes in demographics, 1976-2009. The right panel displays the contribution of demographics and shows that the decline in the share of young workers (male and female) contributed to the trend in unemployment. The left panel displays the contribution of changes in labor supply and highlights a downward trend in unemployment caused by a change in the behavior of women.