The figure shows the inverse relationship – the Beveridge curve – between the unemployment rate and the vacancy rate. This relationship arises through a process that matches jobseekers with vacant positions.
Consider a business cycle downturn. With weak economic activity, many workers will have lost their jobs and few companies will have open positions to fill. But with many workers looking for employment, it is easy for hiring firms to find workers. Positions therefore stand vacant for short periods of time and at any point in time few positions are available.
The situation is the opposite in a business cycle expansion: many firms want to find new workers, but there are few workers unemployed. It is therefore difficult to find a good match for vacant positions, leading to longer search times and therefore to many vacant positions at any point in time. As these thought experiments indicate, business cycle fluctuations will trace out the Beveridge curve.
However, and as shown in Chart 2, the Beveridge curve can shift over time because of changes in the process matching workers looking for jobs with firms seeking workers.
Suppose that firms become pickier in selecting workers or that workers may be choosier in accepting job offers, both of which would result in positions being vacant for longer periods of time. During Covid, workers often avoided jobs with frequent customer contact and some decided to retire early because of the risk of contagion. Since the matching process functioned less well, there were a larger number of vacant positions for any given unemployment rate, that is, the Beveridge curve shifted outward.
With that as background, it is instructive to look at the Beveridge curve since early 2023. The figure below shows that the joblessness rate has risen by about 0.6% and the vacancy rate has fallen by around 0.4% over this period.
