Beveridgean Unemployment Gap

Pascal Michaillat, Emmanuel Saez

NBER Working Paper No. 26474
Issued in November 2019, Revised in April 2020
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics, Public Economics

This paper proposes a new method to estimate the unemployment gap (the actual unemployment rate minus the efficient rate). While lowering unemployment puts more people into work, it forces firms to post more vacancies and devote more resources to recruiting. This unemployment-vacancy tradeoff, governed by the Beveridge curve, determines the efficient unemployment rate. Accordingly, the unemployment gap can be measured from three sufficient statistics: the elasticity of the Beveridge curve, cost of recruiting, and social cost of unemployment. In the United States the unemployment gap is countercyclical, reaching 1.5--6.5 percentage points in slumps. Thus the US labor market appears inefficient---especially inefficiently slack in slumps.

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Document Object Identifier (DOI): 10.3386/w26474