Macro and Other Market Musings: A Great Vacation or a Great Recession?: Casey Mulligan is back:
A high ratio of unemployed to job openings [could] mean… a reduction in labor supply in the form of additional subsidies for unemployed people… [who] would be choosier about the jobs they accept, especially the low-wage ones….
[But] unemployment across all groups has been slow to come down, not just with the low-skill laborers looking for low-paying jobs…. Weak labor demand is a powerful explanation for much of these developments and is borne out by the data from the NFIB's Small Business Economic Trend survey… [which] asks firms what is the single most important problem they face…. The number one answer over the past few years has been concerns over a lack of sales…. Labor concerns are near the bottom of this list, not something one would expect if the labor market distortions were as important as Mulligan thinks they are….
[W]eak labor demand is not the whole story. Demographics are important too…. [C]hanges in the labor force over the past few years can be explained in part by long-term trends in the baby-boom population…. But looking at the employment-population ratio for prime-age workers (which controls for retiring baby boomers) in the age bracket of 25-54 years shows that this ratio is recovering in a pattern similar to that of unemployment…. There is no need to resort to implausibly large labor supply effects arising from distortionary government policies…. [I]ncentives matter… [but there] are far easier ways to explain the Great Recession than claiming it was a Great Vacation.
Update: Below is a modified Beveridge Curve. It shows the relationship between employment and job vacancies. Presumably, employment would rise with increasing job vacancies. Following Soberlook, I have drawn the Beveridge Curve with job vacancies plotted against the employment to population ratio for prime age workers (to avoid the demographic changes noted above).
The figure shows the expected positive relationship up through August 2009, after which it seems to break down for about 20 months. Some have attributed this to structural shifts in the economy. However, this figure also shows that the relationship picks back up in early 2011 as seen with the red triangles. I am not sure how to interpret the black diamond period, but given the return of the relationship I would wary to attribute it to structural shifts. Especially with studies like these.