Why the Beveridge Curve Shifts Outward

The Beveridge curve plots the relationship between job vacancies and unemployment—when one rises, the other typically falls, because employers post more jobs in tight labor markets. But the curve can shift outward, meaning unemployment rises without filling vacancies, or vacancies remain high while joblessness won’t fall. An outward shift signals labor-market friction: workers and jobs are not connecting efficiently, even when demand is strong.

What the Curve Shows

The original Beveridge curve describes the negative relationship discovered by economist A.W.H. Phillips in post-war Britain: as unemployment fell, wage inflation rose, reflecting tighter labor markets and stronger worker bargaining power. In later work, economists extended this to a relationship between the unemployment rate (y-axis) and the vacancy rate (x-axis)—the share of jobs posted but unfilled.

Along the curve, there’s a stable, downward-sloping trade-off: if you want to reduce unemployment, you accept higher vacancies; if you want to lower vacancies, you accept higher unemployment. This reflects a fundamental matching friction: even in a well-functioning labor market, it takes time for a jobless worker to find a job and for an employer to hire someone to fill a vacancy. In a boom, employers post jobs faster than workers can fill them; in a bust, workers outnumber vacancies.

But the curve itself can shift. An outward shift means that for any given unemployment rate, there are now more unfilled vacancies—or equivalently, for any given vacancy rate, there’s now more unemployment. The market has become less efficient at matching workers to jobs.

Geographic Mismatch

One of the clearest sources of an outward shift is geographic mismatch—jobs are in one place, workers in another, and they don’t move. The U.S. experienced a stark version of this after the 2008 financial crisis. Detroit and the industrial Midwest saw mass unemployment as auto manufacturing collapsed. Silicon Valley and tech hubs saw labor shortages and rising wages. Workers laid off in Michigan didn’t have the savings, skills, or willingness to move to California. Employers in California couldn’t hire locally enough and faced higher wage pressure. Nationally, the unemployment rate remained elevated while vacancy rates rose in select regions. The Beveridge curve shifted outward.

Geographic immobility is persistent. It reflects the cost of moving (selling a home, relocating a family), local social ties, and regional disparities in housing costs. A worker in a low-wage, high-unemployment region may find it financially impossible to move to a high-wage, low-unemployment region even if jobs exist there. Over the past two decades, U.S. internal migration has actually fallen—fewer people move across state lines than in the 1980s and 1990s—making this friction more pronounced.

Skills and Education Mismatch

A second driver is skills mismatch—jobs are posted for workers with specific technical skills, but the unemployed lack those skills. The Great Recession disrupted this severely. Construction and manufacturing workers laid off in 2008–2010 had skills suited to those industries. As those sectors shrank, jobs in healthcare, technology, and business services grew, but not in the same regions or for the same workers. A laid-off auto assembler in Ohio couldn’t walk into a software developer job in Austin. Retraining takes time and money; many workers never completed it.

The rise of technology has accelerated skills mismatch. Employers increasingly post for workers with Python or cloud computing experience, data analysis, or specialized nursing certifications. The supply of such workers lags demand, driving outward shifts in the curve. Conversely, workers with obsolete skills (some forms of manufacturing, low-skilled clerical work) accumulate as jobless, pushing unemployment up without raising vacancy rates meaningfully. The structural unemployment rate—the rate compatible with stable inflation—rises, and the Beveridge curve shifts right.

Wage and Benefit Shifts After Shocks

In the wake of the COVID-19 pandemic, labor economists debated whether the Beveridge curve had shifted. In 2021–2022, the U.S. saw simultaneous high unemployment (above 4%) and high vacancies (above 3.5%). Some blamed enhanced unemployment benefits, which increased payments by $600/week federally. Workers, the argument went, had less incentive to take low-wage jobs quickly, slowing the matching process and shifting the curve outward. Others pointed to skill mismatches from occupational disruption—restaurant and hospitality jobs came back, but workers had moved into other sectors or retired early. Still others emphasized health concerns, with some workers reluctant to return to in-person low-wage roles.

The true answer was mixed. As benefit extensions ended (September 2021), the curve shifted partially inward, suggesting benefits played a role. But a significant rightward shift persisted, implicating occupational and geographic factors. By 2024–2025, the curve had stabilized in a position moderately right of the pre-2020 position, suggesting a mix of temporary and semi-permanent structural changes.

The Role of Recruitment and Search Effort

Employers’ behavior also shapes the curve. When labor is tight, some firms post vacancies as a precautionary measure—they don’t expect to fill them quickly but want to signal to the market that they’re hiring. This inflates the measured vacancy rate without a corresponding reduction in unemployment, shifting the curve out. Conversely, in recessions, firms may delay posting until they’re sure demand will stick, understating the true number of unfilled positions and pulling the curve inward.

Job search intensity matters too. If workers are less willing to search (because benefits are generous, or because remote work makes it easier to be selective), it takes longer to match them to vacancies. The matching function—a concept from labor economics—becomes less efficient, and the curve shifts out. Conversely, if workers are desperate and employers are aggressive, matching is fast, and the curve pulls inward.

Quantifying Structural Unemployment

When the Beveridge curve shifts outward, economists estimate how much of current unemployment is structural (long-term mismatch) versus cyclical (temporary, from lack of demand). A large outward shift after a recession suggests that much of the job loss was structural—workers in the wrong place, with the wrong skills, for the new economy—and that aggregate demand stimulus alone won’t bring unemployment back to its pre-recession level.

This distinction matters for policy. If unemployment is cyclical, an injection of stimulus (through monetary or fiscal policy) will reduce it by increasing demand and job creation. If unemployment is structural, stimulus may overheat the economy, driving inflation, while leaving mismatched workers still jobless. The U.S. Federal Reserve watches the Beveridge curve closely for exactly this reason: a rightward shift suggests the natural rate of unemployment has risen, and pushing unemployment below it may just cause inflation without creating real gains in employment.

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