The Beveridge curve

The Beveridge curve (after British economist William Beveridge), looks at the relationship between job vacancies (or job openings) and the level of unemployment. The curve suggest that this relationship is negative – as vacancies rise the amount of unemployment falls.

Illustrating cyclical unemployment

The curve gives an insight into two key types of unemployment – cyclical changes in aggregate demand, which will cause an economy to move along the curve. For example, in a recession, unemployment will rise and vacancies will fall as economic activity declines. During the growth phase of the cycle, unemployment will fall and vacancies will rise.

The Beveridge curve

Illustrating structural unemployment

A shift in the curve suggests there are structural changes in the labour market, and provides clues about structural unemployment. When labour is mobile, and labour markets are more efficient, with information flowing between firms and potential employees, the curve will shift inwards to the left. When inefficiency sets in, will a poor flow of inflation, the Beveridge curve shifts to the right. In this case short term frictional unemployment may exist along-side longer term structural unemployment.

The Beveridge curve

Although not the result of a lack of total demand, structural unemployment exists because the current ‘effective’ demand for labour is not satisfied by the current ‘effective’ supply of labour. Structural unemployment is regarded as a significant economic problem as it indicates the extent of unused labour.

The Beveridge curves for different countries show consideraable variation, reflecting institutional and cultural differences affecting labour markets.

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