The work of Peter Diamond, Dale T. Mortensen and Chris Pissarides, winning this year by the Central Bank of Sweden prize in memory of Alfred Nobel, can be designed as a deepening of the famous "Beveridge curve", named after the famous lord, who inspired the British Welfare State.
Beveridge brings together, in a curve, the unemployment rate and the rate of vacancies. As seen on curve 1, he assumed, quite logically, that the greater the number of vacancies will be important, the higher the unemployment rate will be low. More employers need employees, they are more willing to hire even if they do not comply fully, which has the effect of lowering unemployment. Thus, over the economic cycle, the unemployment rate fluctuates along the curve 1. More good times, the number of vacancies increases, and unemployment is falling.
Beveridge calls "full employment" situation where the number of unemployed is equal to the number of vacancies, although the unemployment rate is high (point corresponding to the intersection of the curve and the right slope 45 °). Indeed, if in this situation, there are unemployed it does not result from a situation of "underemployment equilibrium" within the meaning of his contemporary Keynes. This is not because aggregate demand is lacking as there is unemployment, because employers can not find employees who meet (and vice versa). So this is a problem related to microeconomic labor market. In particular, this situation may result from the fact that employers may have difficulty in finding the employees they seek or, conversely, the unemployed may have trouble finding the jobs they wish to occupy.
If these difficulties are increasing, it does not fluctuate more then the curve 1. Instead, the curve 1, we proceed to curve 2. It is now a number of vacancies than before to achieve the same unemployment rate. The labor market works less well.
The work of Peter Diamond, Dale T. Chris Mortensen and Pissarides consisted, like many works in economics mainstream since the 1970s, finding microfoundations able to explain the labor market "works" more or less well. To do this, they made models in which rational actors seek to maximize their utility, depending on the context (including the presence of unemployment benefits) in finding jobs (the unemployed) or potential employees (for companies). There is a excellent summary of these assays Delaigue Alexander's blog éconoclaste.
The main basis for these tests are performed by a series of articles ranging roughly from 1981 to 1993. The date of these publications is not an accident. They testify to the news at the time of the Beveridge curve.
With the recession of the late 1970s, the unemployment rate does not increase: the Beveridge curve moves. One reason for this displacement is that Blanchard, who co-authored a number of articles of Diamond, called the hysteresis effect of unemployment. Gradually, as unemployment increases and its duration increases, the unemployed déqualifient lack of experience. They are therefore less employable: the unemployment rate can no longer return to its pre-crisis. The Beveridge curve and moves to the right of the graph. It is, then, essential to understand how to improve the efficiency of the labor market to reduce such effects. And that suggest that the winning work by the Bank of Sweden this year.
are not available in France series statistics on the number of vacancies. The only information, although less reliable, which is approaching the number of industrial firms that report difficulties in their recruitment. We therefore constructed from this variable, 'near Beveridge curves.
If we cross this variable and the unemployment rate for men (mainly concerned with industrial jobs), here's what we found:
As you can see, the for the 1993 recession, the near Beveridge curve moves right. We go from the blue line to the red. Between early and late 1990s, there are two points of unemployment in addition to an equivalent number of firms that report having recruitment difficulties. The reasons for this shift are many, but it seems that the hysteresis effect plays an essential role. The unemployed are unskilled as and as the crisis lasts.
With the 2000s, thanks to a modest "activation" of employment policies, the Beveridge curve was again shifted to the left, but never reached its previous position : The yellow curve shifts slowly and erratically to the left. (In women, the movement is much stronger sign of improving their integration into the labor market: Almost curve is now much more left in 1990).
We see that the recession that began in 2008 led to a shift along the new Beveridge curve (the curve ends at second quarter 2010 included).
We have indeed not changed Beveridge curve, with increasing unemployment rates: we do that we move exceptionally quickly, on the curve that existed before the crisis. This increase is the product of an economy marked by a lack of demand, not an increase in structural unemployment. That's what keeps hammering, for the case of U.S., Paul Krugman on his blog (see especially this post ).
One of the key issues of economic policy in the coming years is indeed clear: it is absolutely necessary that the curve no longer moves to the right, as it did during the 1990s. This would condemn us to relive the human and economic mess of the 1980s and 1990s.
is especially against this yardstick that must assess the potential nuisance that austerity policies proud European politicians: in stopping the recovery, they threaten to turn an unemployment "Keynesian" unemployment in structural. And put down with the scant progress achieved in the functioning of the labor market in France for 15 years.
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