Severity Of Structural Shift In US Employment Dynamics Underestimated

 | Sep 10, 2012 02:39AM ET

Continuing on the topic of the US labor markets, it's worth taking another look at the concept called the Beveridge curve. Per Wikipedia: "a Beveridge curve is a graphical representation of the relationship between unemployment and the job vacancy rate (the number of unfilled jobs expressed as a proportion of the labor force)."

In the see discussion ). The chart below compares the two measures, showing a clear divergence as fewer people who are out of work are counted in the official unemployment statistics.


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Now we plot the Beveridge curve using the Bureau of Labor Statistics Employment Population Ratio on the x-axis (reverse order) and the JOLT Job Openings Ratio (% of jobs not filled as percentage of all jobs) on the y-axis. This tells us how the labor market in the US responds to job openings. In a healthy job market one wants to see increasing employment-population ratio as more jobs become available - which was the case prior to the Great Recession.

Modified Beverage Curve


As the chart above shows, not only has the curve shifted since the recession, but the slope rose dramatically as well - something that is not visible in the traditional Beveridge curve. In the post-recession environment, the employment-population ratio is no longer responsive to increases in job openings. This is a severe structural shift driven by a spike in the length of unemployment. People don't have the skills, the mobility, or the will to fill those job openings. The problem is significantly worse than what economists have been estimating by using the official unemployment rate.

Which takes us back to the issue of monetary expansion. Even if the Fed somehow manages to increase the number of job openings (a highly unlikely outcome in this environment), the structural shift that has occurred makes it unrealistic to expect the overall employment picture improving.

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