Annual Report 2010| Federal Reserve Bank of St. Louis

5. Vacancies and Unemployment

A job vacancy corresponds to an "unemployed job" from the perspective of a firm. Unemployed workers are looking for unemployed jobs, and many unemployed jobs are looking for unemployed workers.5 On the surface, it seems puzzling that job vacancies should coexist with unemployment. Why do firms with job openings simply not hire available workers until the unemployment rate drops to zero or until the available supply of vacant jobs is exhausted?

One answer to this question is that resource allocation in the labor market is complicated by "search frictions." The basic idea is as follows: First, jobs and workers each possess idiosyncratic characteristics that make some job-worker pairings more productive than others. Second, jobs and workers do not necessarily know beforehand where the best pairing is located. If this is true, then it follows that jobs and workers should expend time and resources to search out the best matches. A firm will generally not want to hire the first worker who comes through the door. Likewise, an unemployed worker may not want to accept the first available job offer. The same principles are at work in most matching markets, including, for example, the marriage market.

Like unemployment, vacancies vary over the business cycle. In fact, unemployment and job vacancy rates tend to vary in a systematic way: The unemployment rate tends to be high when the vacancy rate is low, and vice versa. The relationship between these two variables is referred to as the Beveridge curve. Figure 8 uses data from the Job Openings and Labor Turnover Survey to depict the Beveridge curve for the United States from December 2000 to December 2010.



U.S. Beveridge Curve

December 2000 - December 2010

figure 8

SOURCE: Job Opening and Labor Turnover Survey, Bureau of Labor Statistics/Haver Analytics.


From Figure 8, it seems that the Beveridge curve maintains its classic negative slope through most of the decade and, indeed, throughout the recent recession. The common interpretation of this pattern is that depressed business conditions lead firms to demand less labor and post fewer job openings, making it more difficult for unemployed workers to find jobs (that is, jobs well-matched with their personal characteristics). Because jobs are harder to find, the unemployment rate rises.

The red dots in Figure 8 depict the Beveridge curve since the U.S. recession was formally declared ended in June 2009. One would normally expect the unemployment rate to decline as economic growth resumes. But here, we see evidence of increased recruiting activity on the part of the business sector together with no apparent decline in the unemployment rate. One interpretation of this recent pattern is that matching jobs with workers has become more difficult in the wake of an exceptionally severe recession. If this is the case, then it is not immediately clear how monetary or fiscal policies might alleviate the problem.


5. Of course, many job openings are also targeted at employed workers; likewise, many employed workers are also looking for better jobs. The flow of employment to employment transitions is also very large.

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