Working Paper: CEPR ID: DP14132
Authors: Pascal Michaillat; Emmanuel Saez
Abstract: This paper measures the unemployment gap (the difference between actual and efficient unemployment rates) using the Beveridge curve (the negative relationship between unemployment and job vacancies). We express the unemployment gap as a function of current unemployment and vacancy rates, and three sufficient statistics: elasticity of the Beveridge curve, recruiting cost, and nonpecuniary value of unemployment. In the United States, we find that the efficient unemployment rate started around 3% in the 1950s, steadily climbed to almost 6% in the 1980s, fell just below 4% in the early 1990s, and remained at that level until 2019. These variations are caused by changes in the level and elasticity of the Beveridge curve. Hence, the US unemployment gap is almost always positive and highly countercyclical---indicating that the labor market tends to be inefficiently slack, especially in slumps.
Keywords: unemployment gap; Beveridge curve; labor market efficiency
JEL Codes: E24; E32; J63; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Changes in the level and elasticity of the Beveridge curve (J69) | Variations in the efficient unemployment rate (J64) |
| Unemployment gap (J64) | Variations in the efficient unemployment rate (J64) |
| Efficient unemployment rate (J64) | Unemployment gap (J64) |
| Unemployment gap (J64) | Labor market inefficiency (J48) |
| Economic downturns (E32) | Labor market inefficiency (J48) |
| Fiscal and monetary policies (E63) | Stabilization of the labor market (J48) |