The Dual Beveridge Curve

RePEc Short ID: pre260
ORCID iD: 0000-0002-1481-051X

Cheremukhin, Anton A.; Restrepo-Echavarria, Paulina

doi:10.20955/wp.2022.021

Working Paper Revision

The Dual Beveridge Curve

Abstract: The recent behavior of the Beveridge Curve has been puzzling, significantly differs from past recessions, and is hard to explain with traditional gradual changes in fundamentals. We propose a novel dual-vacancy model that rationalizes this recent puzzling behavior, by acknowledging that not all vacancies are made equal—when firms post a vacancy they can fill it with an unemployed worker or they can fill it with an already employed worker—and by assuming that there are two separate search and matching processes, one for unemployed workers and another for the employed workers. By analyzing labor market data from 2000 onwards, we estimate the proportions of the two types of vacancies and find a significant rise in those vacancies that are meant to be filled by employed workers since the mid-2010s, substantially predating the pandemic. The increase in this type of vacancies is identified by the increase in the residual hires to quits ratio and is explained by an increasing trend in the profit-cost ratio of these positions. Once we adjust the Beveridge Curve to only include vacancies for the unemployed, the recent puzzling behavior disappears. These results imply that a slowdown in the demand for overall workers is likely to have a diminished effect on unemployment, affecting the implications of monetary policy for unemployment.

Keywords: Beveridge curve; vacancies; unemployment;

JEL Classification: J23; J63; J64; E52;

https://doi.org/10.20955/wp.2022.021