• By
  • Justin Lahart


Last week the Labor Department reported that the job vacancy rate — job openings as a percentage of the labor force — stood at 2.8% in November. That’s just a snick higher than the median rate of 2.7% since the Labor Department started collecting the data in late 2000. But the median unemployment rate over that period was 6%, far lower than the November rate of 7%. So something is awry.

Plotting out a chart of the unemployment rate against the vacancy rate yields what is called the Beveridge curve, a downward-sloping line named after the late British economist William Henry Beveridge. Movements along the Beveridge curve reflect the usual ups and downs of the economy — when unemployment is high, vacancy rates are low, and vice versa. But the massive job losses that occurred in the year that began August 2008 sent things awry, shifting the curve outward, with unemployment rates much higher versus job opening rates than prior to the recession. It’s a sign that there may have been a structural shift in the labor market, and that the economy can’t generate as low rates of unemployment as it did in the past without getting into trouble.

That’s a big concern for Federal Reserve, and will be a major topic of debate for it in the months ahead. If the natural rate of unemployment is higher than it used to be, then the economy may not be able to grow as quickly without generating wage inflation. That could lead it to raise short-term rates earlier than it now expects.

One theory for the shift in the Beveridge curve is that the labor market has a skills mismatching problem — there are a lot of unemployed people who know how to lay bricks, but what companies want are accountants. But unemployment and vacancy-rate data at the sector and industry level suggest this is a red herring. Another theory is that many companies’ opening rates reflect wishes and not needs. If they can’t get the Python-programming, virtuoso violin-playing, short-order cook they want, they’ll leave the job unfilled. But slower productivity growth suggests companies really have reached a point where it is difficult for them to eke any more work out of employees they have, and they need to hire.

A possible clue to what’s really going on is that much of the shift in the Beveridge curve owes to the jump in long-term unemployment.

In November, the short-term unemployment rate — people unemployed for less than 27 weeks as a share of the labor force — was 4.4%. (In December it fell to 4.2%). That’s a bit below the median of 4.6% since late 2000. Make a Beveridge curve plotting the job opening rate against the short-term unemployment rate, and it doesn’t show an outward shift.

The unemployment rate for people out of work at least 27 weeks was 2.6% (falling to 2.5% in December). For comparison’s sake, during the wrenching 1981-1982 recession, when the overall unemployment rate reached 10.8%, the peak long-term unemployment rate was 2.5%. Make a Beveridge curve plotting the long-term unemployment rate against the vacancy rate, and the outward shift is huge.

With the expiration of extended jobless benefits this year, the January employment report will likely indicate that some of the long-term unemployed have dropped out of the labor force. That is because some people who were receiving benefits up until last month may no longer feel compelled to tell Labor Department surveyors they are seeking work. Even allowing for that, however, it seems likely that the Beveridge curve for the long-term unemployed will look strikingly different from before the recession.



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