The Beveridge Curve: Jobs and Jobseekers

How the relationship between job vacancies and unemployment reveals whether a labour market is healthy, and what the pandemic showed.

Why can there be many unemployed people and many unfilled jobs at the same time? The Beveridge curve helps answer this.

The curve

Named after British economist William Beveridge, the curve plots the job vacancy rate against the unemployment rate:

In booms, vacancies are high and unemployment is low.
In recessions, vacancies are low and unemployment is high.

So the curve slopes downward. Movements along the curve reflect the business cycle.

Shifts in the curve

If the curve shifts outward, the economy has both more vacancies and more unemployment than before. This signals worse matching between jobs and workers, for example because:

Workers’ skills do not match job requirements.
Jobs are in different places from jobseekers.
Information about jobs is poor.

An inward shift means better matching.

Labour market tightness

Economists use the ratio of vacancies to unemployed people to measure tightness. A ratio above one means more open jobs than jobseekers, giving workers bargaining power and pushing up wages.

The pandemic example

In the United States, after the 2020 pandemic, vacancies rose to record levels while unemployment was still relatively high. In 2022, there were about two job openings for every unemployed person. The curve appeared to shift outward, reflecting disruptions, workers changing careers and health concerns. As the market cooled, vacancies fell without a big rise in unemployment.

Why it matters

It helps central banks judge how tight the labour market is and whether wage growth might push up inflation.
Outward shifts point to structural problems that need training, mobility or better job matching.

India

India lacks comprehensive vacancy data, making such analysis difficult. Job portals and the Periodic Labour Force Survey provide partial information.

Unfilled jobs, unemployed workers

A city has thousands of unemployed factory workers and thousands of vacancies for nurses and software developers. The jobs exist, and the workers exist, but skills do not match. This is the kind of situation that shifts the Beveridge curve outward.

Thinking vacancies mean there is no real unemployment

Vacancies and unemployment coexist because of skill, location and information mismatches. Matching is not instant.

Key takeaways

The Beveridge curve shows vacancies falling as unemployment rises.
Movements along it reflect the business cycle; shifts reflect matching efficiency.
The vacancy-to-unemployment ratio measures labour market tightness.
After the pandemic, the U.S. had about two openings per unemployed person in 2022.