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135 Monthly Lab. Rev. 25 (2012)
Which Industries Are Shifting the Beveridge Curve

handle is hein.journals/month135 and id is 753 raw text is: Which industries are shifting the Beveridge curve? According to JOLTS data, thefiilure of the unemployment rate to improve much despite gro wth in the economy is attributable to a shor fall in hires per vacancy in all industries, especially construction; this shorttll is what is causing the cur- rent labor marketb shfft in the Beveridge curve, which measures the negative relationshi> between the unemployment rate and the job openings rate Regis Barnichon, Michael Elsby, Bart Hobijn, and Aysegul Sahin Regis Barnichon is a re- searcher at CREi; Michael Elsby is professor of eco- nomics at the University of Edinburgh; Bart Hobijn is senior research advisor at the Federal Reserve Bank of San Francisco, part-time visiting professor of eco- nomics at VU University Amsterdam, and a research fellow at the Tinbergen Institute; and Aysegbl Sahin is an assistant vice president at the Federal Reserve Bank of New York. Email: rbarnichon@crei. cat, mike.elsby@ed.ac.uk, bart.hobijn@sf.frb.org, and aysegul .sahin@ny.frb. org. The views expressed in this article solely reflect those of the authors and are not necessarily those of the Federal Reserve Bank of New York, the Federal Re- serve Bank of San Francis- co, or the Federal Reserve System as a whole. I Ithough economic activity in the 4 U.S. economy has grown, albeit - t-slowly, since the summer of 2009, the unemployment rate has remained stub- bornly high. his continued high level of un- employment is especially puzzling in light of the fact that, during the same period, U.S. employers have started to post substantially more vacancies.1 Historically, there has been a tight negative relationship between the unemployment rate and the job openings rate. This relationship is known as the Beveridge curve. However, since the summer of 2009, this relationship seems to have broken down. In March 2012 the unemployment rate was 2.8 percentage points above its level implied by the Bev- eridge curve. The Beveridge curve can be in- terpreted as the job openings rate at which the current unemployment rate would be in its flow steady state. A flow steady state, so named because the Beveridge curve involves the measurement of flows from one labor force status (employed, unemployed, or not in the labor force) to another, occurs when these flows do not cause a change in the un- employment rate. In this study we decompose the gap be- tween the actual unemployment rate and that implied by the Beveridge curve into dif- ferent parts using data from the Job Open- ings and Labor Turnover Survey (JOLTS). In order to implement our decomposition, we construct the Beveridge curve by solv- ing a fitted flow-steady-state equation using data on job openings, hires, layoffs, and quits from JOLTS as well as data on entry and exit from the labor force from the Current Pop- ulation Survey (CPS). The Beveridge curve that we construct in this way fits the pre- 2007-recession data very well. We then use the estimated flow-steady-state equation to derive an approximate additive decomposition of deviations of the unem- ployment rate from the Beveridge curve into parts attributable to hires per vacancy; layoffs, and quits, as well as labor force entry and exit. We find that the current Beveridge curve gap is almost fully attributable to an unexplained shortfall in the vacancy yield-i.e., the num- ber of hires per vacancy-while a lower-than- expected quits rate reduces the gap. We further decompose the Beveridge curve gap in order to consider which indus- tries account for the unexplained decline in the vacancy yield as well as for the behav- ior of the quits and layoffs rates. The result of this industry decomposition is that the shortfall in the vacancy yield is widespread across all industries. The vacancy-yield defi- cit is particularly pronounced in construc- tion, manufacturing, trade and transporta- tion, and leisure and hospitality, as well as in the industries not classified in JOLTS. From January 2012 through March 2012, the dif- ference between the observed and predicted Monthly Labor Review - June 2012 25

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