EMPLOYMENT OPPORTUNITIES IN CANTERBURY
APPENDICES
Appendix 3: The Beveridge Curve
The Beveridge Curve[37] shows the relationship between job vacancies and unemployment in the overall economy. The Beveridge Curve (Chart 9) illustrates that a low vacancy rate is associated with high unemployment and a high vacancy rate is associated with low unemployment.
Chart 9: Example of a Beveridge Curve
The Beveridge Curve shows that, when the economy is expanding, job vacancies are high; the demand for labour is high and unemployment is low as most people who are looking for work have already found employment. Alternatively, when the economy is slowing or contracting, unemployment is high with fewer job vacancies; there is little demand for additional workers and available jobs can be filled quickly. These effects result in movements along the Beveridge Curve.
During the recovery of an economy from a recession or an economic shock, such as an earthquake, the Beveridge Curve temporarily shows both a high vacancy rate and a high unemployment rate. This is because vacancies can be posted quickly, whereas unemployment adjusts sluggishly because of the frictions inherent in matching unemployed people to the new jobs. There seems to be inertia in unemployment at the tail end of a recession, but often the labour market will then make its way back to a point on the stylised curve.
However, a long term increase in both the vacancy rate and unemployment rate indicates a structural mismatch between the vacancies available and the people looking for work. This would cause the Beveridge Curve to shift upwards.
[37] Named after British economist, William Beveridge.