Interactive modelLabor Economicsadvanced

Search & Matching (Beveridge Curve)

Unemployment as a matching problem: vacancies, job-finding rates, and the Beveridge curve.

Equilibrium: u* = 4.9, v* = 2.4

Current equations

Beveridge curve: v = 12/uJob creation: v = 0.5·u

Vacancies and unemployment coexist, the puzzle a frictionless market can't explain. The Beveridge curve traces that tradeoff: when jobs are plentiful, unemployment is low, and vice versa. The economy sits where firms' hiring appetite crosses it.

Shift the curves

Matching efficiency (right = better matching)0

Better matching (job boards, mobility) pulls the whole curve toward the origin: fewer vacancies AND less unemployment.

Job creation strength (firm hiring appetite)0

A hiring boom moves the economy ALONG the Beveridge curve: up the vacancies, down the unemployment.

The Search & Matching (Beveridge Curve) model, in writing

Definition

The modern theory of unemployment: workers and vacancies search for each other, matches form according to a matching function, and the Beveridge curve traces the vacancy-unemployment trade-off.

Matches = m(U, V) ; Beveridge curve: V falls as U rises along the cycle

The intuition

Hiring is not instant shopping: both sides search, screen, and settle, so vacancies and unemployment coexist. Booms slide the economy up the Beveridge curve (many vacancies, few unemployed); a structural mismatch (wrong skills, wrong cities) shifts the whole curve outward, meaning MORE unemployment at any vacancy level, the signature of a broken matching process.

Exam tip

Movement along the Beveridge curve = business cycle; outward shift = worse matching efficiency. Post-COVID data is the go-to modern example of an outward shift.

Related models in Labor Economics

Labor Supply & Demand →Labor-Leisure Tradeoff →Human Capital & the Mincer Equation →Bathtub Model of Unemployment →