FRBSF Economic Letter
2006-08; April 21, 2006
Job Matching: Evidence from the Beveridge Curve
Conditions in labor markets are largely reflected in the number
of jobs employers want to fill (job vacancies) and the number
of people seeking jobs (the unemployed). Over the business cycle,
for example, job vacancy rates and unemployment rates generally
exhibit negative co-movement, with high vacancies and low unemployment
when the economy is growing and vice versa when the economy is
contracting. Beyond that short-run relationship, however, positive
co-movement of the vacancy and unemployment series over longer
time periods reflects changes in the speed and effectiveness
of job matching between employers and job seekers. When the job-matching
process is slow, perhaps due to changes in the amount of necessary
job reallocation across geographic regions or industries, both
unemployment and vacancies can coexist at high levels, representing
underutilized labor resources.
This Economic Letter examines the evidence on long-term shifts
in the speed and efficiency of job matching in U.S. labor markets
by using the so-called Beveridge curve. The Beveridge curve
is an empirical measure of the relationship between the job vacancy
rate and the unemployment rate. Changes in the job-matching
process
suggested by movements in the Beveridge curve, and their implications
for U.S. labor market performance, have not been extensively
analyzed, due in part to the absence of consistent data on
job vacancies over a long time period. In this Economic Letter,
we
utilize new data from the U.S. Bureau of Labor Statistics (BLS)
to construct a long-term vacancy series and corresponding estimates
of the Beveridge curve. We find that declining dispersion of
economic growth across geographic regions helps explain improvements
in the job-matching process since the mid-1980s and reinforces
existing depictions of improved performance of the U.S. aggregate
labor market in the 1990s (for example, Katz and Krueger 1999).
Forming the empirical Beveridge curve
Empirical representation of the Beveridge curve requires choosing
measures of the job vacancy rate and the unemployment rate.
Because there is no continuous aggregate job vacancy series
covering
a sufficiently long period in the United States, the literature
on the U.S. Beveridge curve has largely relied on the help-wanted
advertising index to measure changes in job vacancies over
time. The help-wanted index is compiled by The Conference
Board, based
on counts of help-wanted advertisements appearing in the
classified section of a major newspaper in each of 51 cities
nationwide;
the data by city are aggregated to provide help-wanted
index series for the nine major census divisions and the U.S.
as
a whole (see Abraham 1987 for more details). After normalizing
by employment or labor force size, changes over time in
the help-wanted
index are interpreted as reflecting corresponding changes
in the overall rate of job vacancies.
Abraham (1987) argued that the volume of help-wanted advertising
has been affected by long-term changes in the occupational
composition of employment (towards white-collar jobs
that are more likely
to be advertised), increased job advertising linked to
equal employment opportunity pressures, and consolidation
in newspaper
markets, each of which arguably contributed to an upward
drift in the help-wanted index during the 1960s and 1970s.
In more
recent work, however, Zagorsky (1998) extended the help-wanted
series back to 1923 and applied updated correction factors
to account for the influences identified by Abraham;
he found little
evidence of long-term trends in the vacancy series (relative
to labor market conditions) over the period 1923-1994.
On the other hand, a strong downward trend in the help-wanted
series
is evident since the early to mid-1990s. This downward
trend
appears to be due to growing reliance on alternative
sources of job search, such as the Internet, which have substantially
reduced employers' reliance on traditional help-wanted
advertising.
Fortunately, relatively new data are available to serve
the dual purpose of pinning down the recent trend in
help-wanted advertising
and also translating the help-wanted series into a
job vacancy
series: the monthly "Job Openings and Labor Turnover
Survey" (JOLTS)
conducted by the U.S. BLS beginning in December 2000.
The JOLTS survey is administered to a representative
sample of about 16,000
establishments nationwide and provides data on job
openings as well as hires and separations. In addition
to the national series,
the data are available for the four broad census regions.
The job opening (vacancy) rate is defined as the ratio
of the number
of job openings to the sum of employment and job openings
(JOLTS survey information is available online).
The JOLTS series only became available in December
2000, near the peak of the last expansion, which limits
its
direct use
for analysis of the Beveridge curve. However, it is
straightforward to use the JOLTS data to translate
the help-wanted index
into a long-term vacancy series, using standard regression
techniques.
In doing so, we accounted for the downward trend in
the help-wanted index since the early 1990s. Examination
of the data and
sensitivity tests revealed that accounting for a downward
trend beginning
in 1993 produced the most plausible range of values
for
the fitted
vacancy rate series at the national and regional level
(see Valletta 2005 for more details).
Like the vacancy rate measured by the help-wanted index,
the U.S. unemployment rate also has undergone long-term
changes in recent decades (Valletta and Hodges 2005).
The most important
long-term influence has been the aging of the U.S.
population; due to the lower unemployment rates experienced
by older
age
groups, population aging has reduced the average unemployment
rate since the late 1970s. We account for this factor
and its influence on the Beveridge curve by using an "age-adjusted" unemployment
rate, which represents what the unemployment rate would be if
the labor force shares of seven age groups had not changed since
a particular "base year." We use a base year
of 1978; as noted by Shimer (1999), the age structure
of the U.S. labor
force in 1978 was the most conducive to high unemployment
rates of any year during the post-war period.
 Figure 1 displays the U.S. Beveridge curve based on
the fitted vacancy rate series and age-adjusted unemployment
rate series
for selected periods between 1960 and 2005. The Beveridge
curves in this figure exhibit a typical counterclockwise
adjustment
pattern around recessions (1960-61, 1981-82, and 2001),
as vacancies rise more quickly than unemployment falls
during
the recovery
phase. The outward shift in the Beveridge curve between
the periods 1960-69 and 1979-85, as identified by Abraham
(1987),
is clearly
evident, as is a substantial inward shift between 1979-85
and 2000-05. This pattern suggests that the speed and
effectiveness of the job-matching process deteriorated
in the 1970s through
the early 1980s and then improved.
Regional mismatch
One leading explanation for these movements in the
Beveridge curve is changes in the dispersion of employment
growth
across regions. If labor demand is growing in some
parts of the
country and shrinking in others, a "regional mismatch" can
occur, whereby large numbers of unemployed individuals
must move across geographic regions in order to be
matched with available
jobs. The need for such costly and time-consuming
geographic reallocation slows down the job-matching
process and increases
the likelihood that unemployment and vacancies will
both exist at high levels. Indeed, Abraham found
that rising regional mismatch
accounted for a large share of the outward shift
in the Beveridge curve between the 1960s and early
1980s (as depicted in Figure
1).
As a graphical illustration of changes in the degree
of regional mismatch, Figure 2 displays Beveridge
curves for
two of the
nine census divisions: New England and the Pacific.
Their Beveridge curves were far apart during the
years 1979-85,
reflecting
substantial
geographic mismatch in the strength of labor demand.
Since then, the regional curves have largely converged,
indicating
a decline
in mismatch. While we only display two regions
in Figure 2, this pattern of convergence in labor demand
and
supply conditions
is evident across U.S. regions and states more
generally. Figure 3 shows the overall degree to which patterns
of growth in labor demand have converged across
regions; it displays
the dispersion (standard deviation) of yearly
employment growth across
census divisions. This series plays a key role
in explaining the outward and inward movements
of the
U.S. Beveridge
curve in recent decades. The dispersion of employment
growth increased
substantially between the late 1960s through
about 1980,
when the Beveridge curve shifted out, and then
declined by an even
greater amount since the early 1980s, when the
Beveridge curve shifted back in.
On net, the magnitude of the Beveridge curve
shifts and changes in regional growth dispersion
are quite
consistent
over the
period 1970-2005. Abraham (1987) found that
about 1.4 percentage points
of the 1.8 percentage point increase in the
unemployment rate associated with Beveridge curve shifts between
1970 and 1985
was due to rising geographic dispersion of
employment
growth. By contrast, we find that geographic
growth dispersion fell below its 1960s levels
by the early
2000s, reversing
the
pattern identified
by Abraham. The result was a 1.5 to 2 percentage
point decline in the unemployment rate associated
with Beveridge
curve
shifts between the mid-1980s and early 2000s,
producing a Beveridge
curve that is interior to any observed since
the 1960s.
Conclusion
The adjusted vacancy and unemployment data
that we use indicate that a pronounced
inward shift
in the
position
of the Beveridge
curve has been evident since the mid-1980s,
reversing the earlier pattern identified
by Abraham (1987)
and implying
reduced job
reallocation or increased efficiency for
the job-matching process in the United States.
Our analyses of regional
Beveridge curves
and the dispersion of labor demand across
regions suggest that a decline in necessary job reallocation
was responsible
for
this shift. In particular, the process
identified by Abraham (1987),
whereby increasing dispersion of labor
demand growth across geographic areas caused the
Beveridge
curve
to shift out,
has been reversed,
causing the Beveridge curve to shift back
in.
More generally, our finding of inward shifts
in the Beveridge curve over the past
two decades reinforce
Katz and Krueger's
(1999) conclusions regarding improved
U.S. labor market performance in the 1990s.
The inward shift
in the Beveridge
curve may
underlie the more favorable tradeoff
between unemployment and wages
that has been estimated for the 1990s.
Moreover, we find that these
favorable trends continued into 2005.
These findings suggest that the Beveridge curve
may merit renewed
attention by
researchers.
Rob Valletta
Research Advisor
Jaclyn Hodges
Research Associate
References
Abraham, Katharine G. 1987. "Help-Wanted Advertising,
Job Vacancies, and Unemployment." Brookings Papers on
Economic Activity 1, pp. 207-248.
Katz, Lawrence F., and Alan Krueger. 1999. "The High-Pressure
U.S. Labor Market of the 1990s." Brookings Papers
on Economic Activity 1, pp. 1-65.
Shimer, Robert. 1999. "Why Is the U.S. Unemployment Rate
So Much Lower?" In NBER Macroeconomics Annual 1998,
eds. Ben S. Bernanke and Julio J. Rotemberg. Cambridge, MA:
MIT Press,
pp. 11-61.
Valletta, Robert G. 2005. "Why Has the U.S. Beveridge Curve
Shifted Back? New Evidence Using Regional Data." FRBSF
Working Paper 2005-25 (December).
Valletta, Robert G., and Jaclyn Hodges. 2005. "Age
and Education Effects on the Unemployment Rate." FRBSF Economic
Letter 2005-15 (July 15).
Zagorsky, Jay L. 1998. "Job Vacancies in the United States,
1923 to 1994." Review of Economics and Statistics 80(2),
pp. 338-345.
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