A Decomposition of Shifts of the Beveridge Curve

Public Policy Brief No. 13-1
by Rand Ghayad

The apparent outward shift of the Beveridge curve—the empirical relationship between job openings and unemployment—has received much attention among economists and policymakers in the recent years with many analyses pointing to extended unemployment benefits as a reason behind the shift. However, other explanations have also been proposed for this shift, including worsening structural unemployment.

If the increased availability of unemployment insurance (UI) benefits to the long-term unemployed is responsible for the shift in the Beveridge curve, then allowing these benefits to expire should move many of the long-term unemployed back to work (or out of the labor force).

Evidence from decomposing the job openings and unemployment relationship using data on unemployed persons by reason of unemployment shows that a significant portion of the outward shift in the Beveridge curve is concentrated among new entrants and unemployed re-entrants—those generally not eligible to collect regular or extended benefits. The decomposition reveals that at most half of the shift in the aggregate Beveridge curve is attributable to the disincentive effects of unemployment benefit programs.

JEL Classfications: D31, D63, I32

Full-text brief pdf