Beveridgean Unemployment Gap

Pascal Michaillat and Emmanuel Saez

No 26474, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a sufficient-statistic formula for the unemployment gap-the difference between the actual unemployment rate and the efficient unemployment rate. While lowering unemployment puts more people into work, it forces firms to post more vacancies and to 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: elasticity of the Beveridge curve, social cost of unemployment, and cost of recruiting. Applying this formula to the United States, 1951-2019, we find that the efficient unemployment rate averages 4.3%, always remains between 3.0% and 5.4%, and has been stable between 3.8% and 4.6% since 1990. As a result, the unemployment gap is countercyclical, reaching 6 percentage points in slumps. The US labor market is therefore generally inefficient and especially inefficiently slack in slumps. In turn, the unemployment gap is a crucial statistic to design labor-market and macroeconomic policies.

JEL-codes: E24 E32 J63 J64 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-lab, nep-mac and nep-ore
Note: EFG ME PE
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Citations: View citations in EconPapers (4)

Published as Pascal Michaillat & Emmanuel Saez, 2021. "Beveridgean unemployment gap," Journal of Public Economics Plus, .

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Working Paper: Beveridgean Unemployment Gap (2021)
Working Paper: Beveridgean Unemployment Gap (2019)
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