International Finance Discussion Papers

<p>This paper presents a framework to interpret movements in the Beveridge curve and analyze unemployment fluctuations. We decompose the unemployment rate into three main components: (1) a component driven by changes in labor demand--movements along the Beveridge curve and shifts in the Beveridge curve due to layoffs--(2) a component driven by changes in labor supply--shifts in the Beveridge curve due to quits movements in-and-out of the labor force and demographics--and (3) a component driven by changes in the efficiency of matching unemployed workers to jobs. We find that cyclical movements in unemployment are dominated by changes in labor demand but that changes in labor supply due to movements in-and-out of the labor force also play an important role. Further cyclical changes in labor demand lead cyclical changes in labor supply. Changes in matching efficiency generally play a small role but can decline substantially in recessions. At low-frequencies labor demand displays no trend and changes in labor supply explain virtually all of the secular trend in unemployment since 1976.</p><p>This work has been selected by scholars as being culturally important and is part of the knowledge base of civilization as we know it. This work was reproduced from the original artifact and remains as true to the original work as possible. Therefore you will see the original copyright references library stamps (as most of these works have been housed in our most important libraries around the world) and other notations in the work.</p><p>This work is in the public domain in the United States of America and possibly other nations. Within the United States you may freely copy and distribute this work as no entity (individual or corporate) has a copyright on the body of the work.</p><p>As a reproduction of a historical artifact this work may contain missing or blurred pages poor pictures errant marks etc. Scholars believe and we concur that this work is important enough to be preserved reproduced and made generally available to the public. We appreciate your support of the preservation process and thank you for being an important part of keeping this knowledge alive and relevant.</p>