The "Beveridge Curve" predicts unemployment to recover by 2014.

[Direckshun]

I've never heard of the Beveridge Curve before, but here:



You can read about it more here, by Timothy Taylor.

Taylor writes that the Curve offers several insights to the current scenario:

• Job openings are increasing, but the unemployment rate is not.
• There are threey key reasons for this: "a mismatch between the skills of unemployed workers and the available jobs; incentives from extended unemployment insurance that have slowed the incentive to take available jobs; and heightened uncertainty over the future course of the economy and economic policy"
• These three factors have a historical tendency of correcting themselves over time.
• By early 2014, the curve will have righted itself, and unemployment will drop like a rock.

Well, here's hoping.

[jiveturkey]

Does this take into account the rise of machines?

[HonestChieffan]

Happy days are here again!!!!

[Direckshun]

The piece.

http://conversableeconomist.blogspot...hat-is-it.html

What is a Beveridge Curve and What is it Telling Us?
Timothy Taylor
Monday, August 20, 2012

A Beveridge curve is a graphical relationship between job openings and the unemployment rate that macroeoconomists and labor economists have been looking at since the 1950s. But in the last decade or so, it has taken on some new importance. It is used as part of the explanation for search models of unemployment, part of the work for which Peter Diamond, Dale Mortensen and Christopher Pissarides won the Nobel Prize back in 2010. It also has some lessons for how we think about the high and sustained levels of unemployment in the U.S. economy in the last few years. In the most recent issue of my own Journal of Economic Perspectives, Mary C. Daly, Bart Hobijn, Aysegül Sahin, and Robert G. Valletta provide an overview of the analysis and implications in "A Search and Matching Approach to Labor Markets: Did the Natural Rate of Unemployment Rise?" (Like all JEP articles back to 1994, it is freely available on the web courtesy of the American Economic Association.)

Let's start with an actual Beveridge curve. The monthly press release from the Job Openings and Labor Turnover Statistics (JOLTS) data from the U.S. Bureau of Labor Statistics offers a Beveridge curve plotted with real data. Here's the curve from this month's press release:



BLS explains: "This graph plots the job openings rate against the unemployment rate. This graphical representation is known as the Beveridge Curve, named after the British economist William Henry Beveridge (1879-1963). The economy’s position on the downward sloping Beveridge Curve reflects the state of the business cycle. During an expansion, the unemployment rate is low and the job openings rate is high. Conversely, during a contraction, the unemployment rate is high and the job openings rate is low. The position of the curve is determined by the efficiency of the labor market. For example, a greater mismatch between available jobs and the unemployed in terms of skills or location would cause the curve to shift outward, up and toward the right."

Thus, on the graph the U.S. economy slides down the Beveridge curve during the recession from March 2001 to November 2001, shown by the dark blue line on the graph. During the Great Recession from December 2007 to June 2009, the economy slides down the Beveridge curve again. On a given Beveridge curve, recessions move toward the bottom right, and periods of growth move toward the upper left.

However, the right hand-side of the Beveridge curve seems to convey a dispiriting message. Instead of the economy working its way directly back up the Beveridge curve since the end of the recession, it seems instead to be looping out to the right: that is, even though the number of job openings has been rising, the unemployment rate has not been falling as fast as might be expected. Why not?

One possible reason is that this kind of looping counterclockwise pattern in the Beveridge curve is not unusual in the aftermath of recessions. Daly, Hobijn, Sahin, and Valletta provide a graph graphing Beveridge curve data back to 1951. Notice that the Beveridge curve can shift from decade to decade. Also, if you look at the labels for 1990s and 1980s, it's clear that the Beveridge curve can have an outward counterclockwise shift for a time. A partial explanation here is that at the tail end of recession, employers are still reluctant to hire, so that even as they start to post more job openings, their actual hiring doesn't go full speed ahead until they are confident that the recovery will be sustained. Conversely, if employers aren't fully confident that the recovery will be sustained, they won't be quick to hire.



My own thoughts about the pattern of U.S. unemployment situation developed along these lines: The unemployment rate hovered at 4.4-4.5% from September 2006 through May 2007. In October 2009 it peaked at 10%. By December 2011 it had fallen to 8.5%, but since then, it has remained stuck above 8%--for example, 8.3% in July. How can these patterns be explained?

As a starting point, we should recognize that the 4.4% rate of unemployment back in late 2006 and early 2007 was part of a bubble economy at that time--an unsustainably low unemployment rate being juiced by the bubble in housing prices and the associated financial industry bubble. Estimating the sustainable rate of unemployment for an economy--the so-called "natural rate of unemployment"--is as much art as science. But in retrospect, a reasonable guess might be that the dynamics of the bubble were pushing the unemployment rate down from a natural rate of maybe 5.5%.

When the U.S. unemployment rate hit 10% in October 2009, it was countered with an enormous blast of expansionary fiscal and monetary policy. That is, the economy was stimulated both through huge budget deficits and through near-zero interest rates from the Federal Reserve. The ability of these policies to bring down unemployment quickly was overpromised, but they made a real contribution to stopping the unemployment rate from climbing above 10% and to getting it down to 8.3%.

But the unemployment rate still needs to come down by 2.5-3%, and that is where the Beveridge curve arguments enter in. In seeking reasons for the outward shift of the Beveridge curve in the last few years, Daly, Hobijn, Sahin, and Valletta point to three factors: a mismatch between the skills of unemployed workers and the available jobs; incentives from extended unemployment insurance that have slowed the incentive to take available jobs; and heightened uncertainty over the future course of the economy and economic policy. These factors together can explain why the unemployment rate has stayed high over the last several years. Fortunately, they are also factors which should ameliorate themselves over time. That's why the January 2012 projections from the Congressional Budget Office for the future of the unemployment rate look like this:



To put it another way, I strongly suspect that whoever is elected president in November 2012 will look like an economic policy genius by early in 2014. It won't be so much because of any policies enacted during that time, but just a matter of the slow economic adjustment of Beveridge curve.

As an afterthought, I'll add that Beveridge curve is apparently one more manifestation of an old pattern in academic work: Curves and laws and rules are often named after people who did not actually discover them. This is sometimes called Stigler's law: "No scientific discovery is named after its original discoverer." Of course, Steve Stigler was quick to point out in his 1980 article that he didn't discover his own law, either!

But William Beveridge is a worthy namesake, in the sense that he did write a lot about job openings and unemployment. For example, here's a representative comment from his 1944 report, Full Employment in a Free Society:

"Full employment does not mean literally no unemployment; that is to say, it does not mean that every man and woman in the country who is fit and free for work is employed productively every day of his or her working life ... Full employment means that unemployment is reduced to short intervals of standing by, with the certainty that very soon one will be wanted in one's old job again or will be wanted in a new job that is within one's powers.”

The U.S. economy since the Great Recession is clearly failing Beveridge's test for full employment, and failing it badly.

[Donger]

Does the conclusion take into account the possibility of Obama being re-elected?

[J Diddy]

Originally Posted by Donger

Does the conclusion take into account the possibility of Obama being re-elected?

Considering unemployment began rising at the end of 2008, peaked and his came down, I would assume so.

[BucEyedPea]

Supposedly, this curve proves that the unemployment is more cyclical than structural.
It’s not it’s more structural. Like most Keynesian babble, this is just another curve we’re being thrown like the Phillips Curve which are based on false premises.

Hey, you Keynesians how come you still don’t have structural unemployment handled after 72 years? At least Volcker was coherent, Ben is not.

Just another curve being thrown at us.

[Iowanian]

That's going to be a pretty good turnaround for less than 2 years in office for the NEW POTUS

[RINGLEADER]

...and the Obama administration promised 6.0 unemployment by 2012.

[RINGLEADER]

Originally Posted by Iowanian

That's going to be a pretty good turnaround for less than 2 years in office for the NEW POTUS

That Politico e-book that the Obama administration says isn't true had an interesting motivation for Obama along these lines...evidently, he believes there will be a huge recovery next year and he doesn't want Romney to get credit for it.

[patteeu]

Originally Posted by jiveturkey

Does this take into account the rise of machines?

I think it must take into account that Obama is a one term president.

[JonesCrusher]

Great news. Romney will be a guaranteed 2 termer.

[Direckshun]

Originally Posted by jiveturkey

Does this take into account the rise of machines?

I emailed the author this question (though I rephrased it to "rapid technological advances" to sound less creepy). We'll see.

Originally Posted by Donger

Does the conclusion take into account the possibility of Obama being re-elected?

I don't see how that would affect the curve, really.

But I emailed the author for his thoughts.

[Direckshun]

Originally Posted by Iowanian

That's going to be a pretty good turnaround for less than 2 years in office for the NEW POTUS

Originally Posted by RINGLEADER

...and the Obama administration promised 6.0 unemployment by 2012.

Originally Posted by patteeu

I think it must take into account that Obama is a one term president.

Originally Posted by JonesCrusher

Great news. Romney will be a guaranteed 2 termer.

You guys make the conversation really one-dimensional around here.

Not that you give a shit. But there it is.

[Iowanian]

Here is the thing.

As an American and a person who started a business right before the 2007 crash, I wanted Obama to be spectacular and turn things around. I really did, because it benefits all of us.

Ironically, he's had 4 years of fail, pure and utter fail, like a 12 year old handicap with no wheelchair battery in the hunger games kind of failure.

If he has all of these great, surefire plans to correct the economy, he's doing a huge disservice to this country by not doing those things NOW and using THAT as his re-election campaign instead of more empty words.