Beveridge curve

A Beveridge curve, or UV-curve, is a graphical representation of the relationship between unemployment and the job vacancy rate (the number of unfilled jobs expressed as a proportion of the labor force). It typically has vacancies on the vertical axis and unemployment on the horizontal. The curve is named after William Beveridge and it is hyperbolic shaped and slopes downwards as a higher rate of unemployment normally occurs with a lower rate of vacancies. If it moves outwards over time, then a given level of vacancies would be associated with higher and higher levels of unemployment, which would imply decreasing efficiency in the labour market. Inefficient labour markets are due to mismatches between available jobs and the unemployed and an immobile labour force.

The position on the curve can indicate the current state of the economy in the business cycle. For example, the recessionary periods are indicated by high unemployment and low vacancies, corresponding to a position on the lower side of the 45 degree line, and likewise high vacancies and low unemployment indicate the expansionary periods, above the 45 degree line.

The Beveridge curve, or UV-curve, was developed in 1958 by Christopher Dow and Leslie Arthur Dicks-Mireaux. They were interested in measuring excess demand in the goods market for the guidance of Keynesian fiscal policies and took British data on vacancies and unemployment in the labour market as a proxy, since excess demand is unobservable. By 1958 they had twelve years time series data available since the British Government had started collecting data on unfilled vacancies from notification at labour exchanges in 1946. Dow and Dicks-Mireaux presented the unemployment and vacancy data in an unemployment-vacancy (UV) space, and derived an idealized UV-curve as a rectangular hyperbola after they had connected successive observations. The UV-curve, or Beveridge-curve, enabled economists to employ an analytical method—which later became known as UV-analysis—for the decomposition of unemployment into different types of unemployment: into deficient-demand (or cyclical) unemployment and structural unemployment. In the first half of the 1970s this method was refined by economists of the National Institute of Economic and Social Research (NIESR) in London, so that a classification arose that corresponded to the ‘traditional’ classification: a division of unemployment into frictional, structural, and deficient demand unemployment. Both the Beveridge-curve and the Phillips-curve bear implicit macroeconomic notions of equilibrium in markets, though these notions are inconsistent and conflicting. Most likely because the Beveridge-curve enabled economists to analyze many of the problems Beveridge addressed, such as, mismatch between unemployment and vacancies, both at aggregate level and industry levels, trend versus cyclical changes and measurement problems of vacancies, the curve was named in the 1980s after William Beveridge. Beveridge, however, never drew the curve and the exact origin of the name remains obscure.

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