Cyclical Unemployment, Structural Unemployment

Whenever unemployment stays high for an extended period, it is common to see analyses, statements, and rebuttals about the extent to which the high unemployment is structural, not cyclical. This essay views the Beveridge curve pattern of unemployment and vacancy rates and the related matching function as proxies for the functioning of the labor market and explores issues in that proxy relationship that complicate such analyses. Also discussed is the concept of mismatch. JEL Classifications: E24, E32, E6, J23 Peter Diamond is an emeritus professor of economics at the Massachusetts Institute of Technology and a visiting scholar at the Federal Reserve Bank of Boston. His e-mail address is [email protected]. This research was presented as the Mundell-Fleming Lecture at the Thirteenth Jacques Polak Annual Research Conference at the International Monetary Fund in Washington, DC, held November 8–9, 2012. The author thanks Gadi Barlevy, Olivier Blanchard, Steven Davis, John Haltiwanger, Bart Hobjin, Marianna Kudlyak, Giuseppe Moscarini, Peter Orszag, Jim Poterba, Sarah Bloom Raskin, Robert Triest, Rob Valletta, and participants for their comments, as well as James Fogel and Caroline Shinkle for research assistance. The views expressed in this paper are those of the author and do not necessarily represent those of the Federal Reserve Bank of Boston, or by the principals of the Board of Governors, or the Federal Reserve System. This paper, which may be revised, is available on the web site of the Federal Reserve Bank of Boston at http://www.bostonfed.org/economic/wp/index.htm. This version: May 30, 2013