Identifying Structural and Cyclical Shocks Across U.S. Regions (original) (raw)
short essays and reports on the economic issues of the day 2012 ■ Number 5 I t is well known that unemployment and job vacancy rates tend to move in opposite directions over the business cycle. This famous statistical relationship is called the Beveridge curve. The mechanism generating this relationship is intuitive enough: During a cyclical upturn, businesses are motivated to create and/or reopen job positions. An increase in the job vacancy rate makes it easier for unemployed workers to find jobs. The unemployment rate falls. The statistical relationship between vacancies and unemployment, however, is not always a stable one. The first chart shows that the same level of recruiting intensity before the financial crisis, as measured by the job vacancy rate, is now associated with a higher unemployment rate. Some economists have speculated that this shift is possibly due to a structural shock that now makes it more difficult for employers to find the right kind of worker for a different kind of job (in contrast to a cyclical shock that simply makes it less profitable to find the same kind of worker for the same kind of job). Jobs can differ along many dimensions, including occupation, skill level, industry, and location. This essay reports how (i) job availability varies across major U.S. metropolitan statistical areas (MSAs) and (ii) job vacancy rates correlate with regional unemployment rates before and after the peak of the most recent recession. Specifically, this exercise is performed as follows. Consider a major U.S. metropolitan area. Compute the average job vacancy rate and unemployment rate for this area over the May 2005-November 2007 period that preceded the December 2007 National Bureau of Economic Research (NBER) business cycle peak marking the beginning of the Great Recession and the period thereafter (December 2007-It is not clear how monetary policy might be used to reduce local unemployment rates where recruiting intensity is high but the right kind of worker is hard to find.
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