SHIFTS IN THE BEVERIDGE CURVE, JOB MATCHING, AND LABOR-MARKET DYNAMICS

The Beveridge curve-the scatter plot of unemployment rates versus vaca ncy rates-has recently shifted inward dramatically. While the Beveridg e curve is often used to summarize the state of the labor market, it i s not a structural economic relationship. Thus, in order to understand the labor market implications of recent shifts in the curve, we must first understand the labor market activities that give rise to the Bev eridge curve. The article examines the Beveridge curve over the past 3 0 years. The authors discuss some of the issues surrounding the job-ma tching process and attempt to estimate the extent to which changes in the job-matching function are responsible for changes in the position of the Beveridge curve. They also consider other potential sources of shifts in the Beveridge curve, including shifts in the age and gender composition of the labor force and changes in the amount of ''churning '' in the labor market. They find significant increases in matching ef ficiency, significant drops in labor force growth, and a decrease in l abor force churning, the sum of which account for the inward shift in the Beveridge curve since 1987.