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The Shameful Rate of Unemployment in the EMS 247
u
C(B)
C(A)
u(B)
u(A)
B
A
j(B) o j(A) v(B) v(A)
uv = k
v
Figure 8.2
The Beveridge curve
date t, U t , V t is given by the intersection (simultaneous solution) of the Beveridge
curve at that date and the labor market constraint of budget equation, tying U to
V. Denoting by J the total number of job openings in the economy, whether filled
of not, and by LF, the total labor force, or sum of employment E plus unemployment,
that constraint takes the form: V = J - E = J - (LF - U) or expressing
both sides as a percentage of LF, v = (j - 100) + u, where v and u are the unemployment
and vacancy rate, respectively and j = 100J/LF, the number of jobs
expressed as a percentage of the labor force.
This constraint can be represented in figure 8.2 as a linear relation between v
and u with slope one and an intercept (j - 100) such as the line BB. The coordinates
of the point of intersection A with the Beveridge curve expressed as a relation
between v and u, u a and v a represent the current unemployment and vacancy
rate. (Note that J can be directly observed, being the sum of employment and
vacancies.)
3.2 The Response of the Unemployment and Vacancy Rate to a
Change in Jobs
Now suppose there is a decrease D j in the number of job openings. If LF is
constant, the constraint BB will exhibit a downward parallel shift by 100D j /LF,