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248 Unemployment and Monetary Policy in the European Union
determining a new point of intersection B, with coordinates u b and v b (see figure
8.2). Clearly u a - u b measures the increase in the rate of unemployment due to the
loss of jobs, on the assumption of an unchanged Beveridge curve. Thus, if we
know the availability of jobs at different dates as measured by j, we can compute
the level of unemployment corresponding to j and a given Beveridge curve.
3.2.1 Computation of the Unemployment Rate Implied by
Availability of Jobs—Comparison with Actual Unemployment
Table 8.2, column (3) reports for Germany the rate of unemployment calculated
from job availability j and a reference Beveridge curve, which for the table is that
of 1960 (uv = 2.7). It can be seen that the figures of column (3) track very closely
the actual jobless rate u reported in column (1): out of the 23 years in which u
exceeds 1 percent, there are only three in which the computed unemployment
figure of column (3) differs from that of column (1) by more than 10 percent.
(When u is less than 1 percent, the percentage difference is not informative.) Thus
in Germany (and Europe, see below) the level and movement of the jobless rate
is largely explained by a single factor: the demand for labor, as measured by the
availability of jobs j of column (2), and its effect on vacancies. In particular, the
huge rise in the jobless rate, from 1 percent in 1973 to 9 percent in 1986, is
accounted for by a similar decline in column (3), reflecting the massive decline
in jobs. Between 1986 and 1991 there is a modest pick up in jobs, promptly
accompanied by a fall in u. But already by 1993, u is back to near peak levels,
as vacancies have dried out.
Table 8.2, column (2) reports similar calculations for the U.K. The results are
very similar, except that the figures of column (3) tracks those of column (1) even
more closely than in the case of Germany. For France, reported in table 8.2,
column (3) the tracking is a little less close.
We must at this point give some consideration to the difference between actual
u of column (1), and u*, the computed u of column (3). Both figures reflect the
actual job availability in the given year. However, the actual figures of column
(1) result from the intersection of the current labor market constraint and the
current Beveridge curve, while those of column (3) are based on the reference
Beveridge curve of the base year. Thus the difference of between 0 and 10 percent
between the two columns reflects the effect of the shift of the Beveridge curve.
If it is positive, it implies an outward shift of the Beveridge curve since an
outward shift generally increases u. By failing to take into account a shift, column
(3) underestimates u. And a prevailing outward shift is consistent with the hypothesis
that there are some supply effects of the type claimed in the European literature.
Each of these effects (except for the minimum wage discussed below)
implies a longer duration of u, and hence a larger u, for given vacancies. However,