Wednesday, February 12, 2014

Quick Follow-Up on the Beveridge Curve (updated)

I always realize that I left out some useful item after I make a post.

For point of reference, here is the Beveridge Curve for 35-44 Year Olds.

Compare that to the two age groups I posted yesterday:

I also wondered, after I posted the original material, what effects population changes or labor force participation changes might have on this output.  The Boston Fed paper, by Rand Ghayad, used the unemployment of each group, expressed as a percentage of the entire labor force.  This was useful in their analysis, but it does allow for changes in labor force levels to affect the appearance of these Beveridge Curve outputs.

Population and labor force changes don't affect the 20-34 year old group.  But, they do have a small effect on the 35-44 and 45+ groups.  The 35-44 group Beveridge Curve would shift right by about 0.1% and the 45+ curve would shift left by about 0.15%.  So, the scale of the unusual shift among 45+ year olds is reduced by about a quarter. (See update below.) The general pattern remains, however, and this adjustment would seem to strengthen the bifurcation between job losers and job leavers, since it reduces the small Beveridge Curve shift that the Boston Fed did find among older job leavers.

The labor force shifts among 16-19 year olds has been large enough to change the character of the shift for them, however.  Adjusting for labor force changes makes the 16-19 year old pattern look more like the 20-34 year olds.

I know I'm a broken record on these issues, but I think this strengthens the argument that the effect among the 20-34 year olds (now among 16-34 year olds) is minimum wage related.

Employment loss and recovery showing up in 16-19 year olds earlier than in the other populations, and for much of the 16-19 year old employment losses to be reflected in changing labor force participation is typical pattern for the few federal minimum wage episodes that we can analyze.

The good news is that these groups are recovering as the minimum wage level is reduced in real terms over time.

PS. (Added)  Here are the Beveridge Curves for the 3 main separate groups:  The young group where the extra unemployment is from job leavers or entries, the middle aged group that didn't see much of a shift in the Beveridge Curve using the Boston Fed's measure, and the older group where the extra unemployment was from job losers (which have had especially long unemployment durations in this cycle, coincidentally with the very long Unemployment Insurance benefits).  In these graphs, I have used age-specific labor force levels in the denominators so that changes in unemployment would not reflect relative changes in age-group population levels.

y=Openings Rate, x=unemployment rate
The young group saw a shift right in the Beveridge Curve, which has been partially reversed, with a little more recovery to come.

y=Openings Rate, x=unemployment rate
The middle group had a shift in the Beveridge Curve, which was not apparent with the Boston Fed's methodology.  It has partially been reversed.  The effect still appears to be smaller here than in the other age groups.  Because the effect doesn't show up when the Fed separates the unemployed according to reasons for unemployment (job losers, job leavers, etc.), it is difficult to know the weight of the shift that can be attributed to each type.  The shift in this ratio from this age group accounts for less than a quarter of the total excess unemployment, so the difficulty of addressing this age group in the Fed paper would only make a small difference to the aggregate picture.
y=Openings Rate, x=unemployment rate

The older group saw a large shift right in the Beveridge Curve, which has recovered slightly.

I predict that the young group will continue to slowly merge toward the pre-2008 trend.  The older group will merge more quickly toward the pre-2008 trend, and will account for much of the lower unemployment rate to come over the next 6 months.

By around summer 2014, we'll see unemployment at 6.0% or less and the leading edge of the Openings/Unemployed ratio for the older age group in the same range as the pre-2008 ratio.

There, I've put the gauntlet down.  Either, come summer, I'll be proven right, or there will be some previously unknown development that will have invalidated the test of the forecast.  ;-)

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