The Type of Job Vacancy Matters When Reading the Beveridge Curve

St. Louis Fed Economic Policy Advisor Paulina Restrepo-Echavarría.

The Beveridge curve is a graphical representation of the relationship between the job vacancy rate and the unemployment rate. It shows what happens to unemployment when job vacancies increase or decrease.

In an August 2024 Timely Topics Podcast episode, St. Louis Fed Economic Policy Advisor Paulina Restrepo-Echavarría discussed her co-authored research on the Beveridge curve and how an expanded analysis of the indicator can help gauge whether a soft landing is possible.

During the podcast episode, Restrepo-Echavarría described how she and Dallas Fed macroeconomist Anton Cheremukhin found that the Beveridge curve was behaving in “very unusual” ways in recent years. The curve was not displaying its typical negative slope reflecting a negative relationship between vacancies and unemployment.

The authors pursued the idea that not all job vacancies are equal. That is, not all vacancies are filled by the unemployed—some firms open vacancies for poaching workers from other employers, Restrepo-Echavarría noted. These poaching vacancies affect only job-to-job transitions, not unemployment, and so have nothing to do with the Beveridge curve, she explained.

“In my work with Anton, we come up with a methodology to be able to estimate and measure the fraction of vacancies that are open for poaching versus the number of vacancies that are open for hiring from unemployment,” Restrepo-Echavarría said. “We find actually, that since 2015, the fraction of poaching vacancies has been going up drastically to the point that they make up 80% of total vacancies at some point.”

Prior to 2015, the poaching vacancies’ share was about 50%, she noted.

What are the implications for monetary policy and a soft landing, according to Restrepo-Echavarría?

“Here’s where our theory comes in,” she said. “Because the job openings that were ‘sacrificed’ were poaching vacancies … that allowed the increase in unemployment to be much lower. And that’s exactly the definition of a soft landing.”

Asking whether this trend could be expected to continue, Restrepo-Echavarría pointed again to her co-authored research on the Beveridge curve.

“What we show in our paper is that what has changed since 2015 and over time to generate this increase in poaching vacancies is the profit-to-cost ratio,” she said. “There’s something that has made poaching vacancies to be more profitable, or better for a firm to open, and so the question is what can be generating this.”

Restrepo-Echavarría highlighted the expansion of online search tools, AI and available temporary or remote work as among the possibilities. During the episode, she also discussed other factors that economists take into account when thinking about a soft landing.

For more of Restrepo-Echavarría’s insights on this topic, listen to the episode.

A transcript of the podcast episode is available at What an Expanded Beveridge Curve Could Tell Us about Soft Landings.