A Beveridge curve, or UV 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 labour force. It typically has vacancies on the vertical axis and unemployment on the horizontal. The curve, named after William Beveridge, is hyperbolic-shaped and slopes downward, as a higher rate of unemployment normally occurs with a lower rate of vacancies. If it moves outward over time, a given level of vacancies would be associated with higher and higher levels of unemployment, which would imply decreasing efficiency in the labour market. Inefficient labour markets are caused by mismatches between available jobs and the unemployed and an immobile labour force.
The position on the curve can indicate the current state of the economy in the business cycle. For example, recessionary periods are indicated by high unemployment and low vacancies, corresponding to a position on the lower side of the 45° line, and high vacancies and low unemployment indicate the expansionary periods on the upper side of the 45° line.
In the United States, following the Great Recession, there was a marked shift in the Beveridge curve. A 2012 International Monetary Fund (IMF) said the shift can be explained in part by "extended unemployment insurance benefits" and "skill mismatch" between unemployment and vacancies.
History
The Beveridge curve, or UV curve, was developed in 1958 by Christopher Dow and Leslie Arthur Dicks-Mireaux. They were interested in measuring excess demand in the goods market for the guidance of Keynesian fiscal policies and took British data on vacancies and unemployment in the labour market as a proxy, since excess demand is unobservable. By 1958, they had 12 years of data available since the British government had started collecting data on unfilled vacancies from notification at labour exchanges in 1946. Dow and Dicks-Mireaux presented the unemployment and vacancy data in an unemployment-vacancy (UV) space and derived an idealised UV-curve as a rectangular hyperbola after they had connected successive observations. The UV curve, or Beveridge curve, enabled economists to use an analytical method, later known as UV-analysis, to decompose unemployment into different types of unemployment: deficient-demand (or cyclical) unemployment and structural unemployment. In the first half of the 1970s, that method was refined by economists of the National Institute of Economic and Social Research (NIESR), in London, so that a classification arose that corresponded to the 'traditional' classification: a division of unemployment into frictional, structural and deficient demand unemployment, according to a 1976 analysis. Both the Beveridge curve and the Phillips curve bear implicit macroeconomic notions of equilibrium in markets, but the notions are inconsistent and conflicting. Most likely, because the curve enabled economists to analyze many of the problems that Beveridge had addressed, like mismatch between unemployment and vacancies, at aggregate level and industry levels and trend v. cyclical changes and measurement problems of vacancies, the curve was named in the 1980s after William Beveridge, who never drew the curve, and the exact origin of the name remains obscure.
Movements
The Beveridge Curve can move for the following reasons: