Matt’s Chart of the Week
Do the Unemployed Have the Skills to Fill the Jobs Open Right Now?
While the last chart dealt with the debate about whether it was possible for the Fed to fight inflation without significantly increasing unemployment, today’s chart looks at the labor market itself through analyzing recent changes to the Beveridge Curve in the U.S. The Beveridge Curve tracks the relationship between the percentage of job openings and the unemployment rate. The curve generally slopes downward, meaning that as the number of job openings goes down the unemployment rate should go up. Then, we can compare any point in time along the curve to determine whether the job market is tight (more job openings, lower unemployment) or loose (fewer job openings, more unemployment. More recently, the monthly data points have clustered toward the left of the curve i.e. tight labor market with many openings and low unemployment.
Additionally, though, the Beveridge Curve can provide some insight into how well those that are unemployed are able to fill the positions that are currently open. In essence, when the curve itself moves to the right, in each instance, you’ll have more job openings at a higher unemployment rate than before. If we see this move, the Beveridge Curve is indicating that the unemployed are less likely to be able to fill open positions than in the past, and in fact, this is precisely what we’re seeing when we compare the 20 years prior to the pandemic with the period from the pandemic to the present. While we haven’t seen any firm evidence of why that might be the case, we speculate that the data indicates that many who left either stressful jobs (e.g. nursing) or jobs in fields that were particularly hard hit by the pandemic (e.g. hospitality) have chosen not to come back to the workforce in the same positions, though those same positions remain open. Furthermore, this could also evidence workers who shifted from in-person positions to remote positions have not shifted back to the now-available jobs in the office.
This phenomenon provides another example in our mind of how the current economic slowdown will likely be milder. If our assumptions as to the reason for the recent Beveridge Curve shift are correct, then there’s plenty of room for workers, if necessary during an economic slowdown, to shift back to the jobs that were done pre-pandemic, and therefore, we should see only a mild increase in unemployment even in recession. In such instance, the Federal Reserve would have plenty of room to hike rates to bring inflation down to a reasonable level.
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