US Beveridge Curve – a concern for long-term unemployment.

I did an earlier post on the Beveridge Curve which explained what it shows – The Beveridge curve plots the job openings (vacancy) rate against the unemployment rate. It is downward sloping as job vacancies tend to be low when unemployment is high and vice versa. As you can see from the chart the pink dots indicate that job vacancies are not being taken by those who are unemployed which indicates that there is a mis-match in the US labour market. This suggests that structural unemployment is on the increase and unlike cyclical unemployment cannot be reduced by an expansionary monetary policy. Simply put easing monetary policy to reduce structural unmeployment will just create inflation. As cyclical unemployment becomes structural this does have implications for long-term unemployment and the natural rate of unemployment – that is the level of unemployment that is achievable without generating inflation.

Structural Unemployment – Unemployment arising from changes in demand or technology which lead to an oversupply of labour with particular skills or in particular locations. Structural unemployment does not result from an overall deficiency of demand and therefore cannot be cured by reflation, but only by retraining or relocation of the affected work-force, some of which may find work at low wages in unskilled occupations.

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