Chapter 51: The UV or Beveridge Curve
Peter Rodenburg DOW AND DICKS-MIREAUX’S UV CURVE The UV curve originates from the work of two British economists, Dow and Dicks-Mireaux (hereafter DDM). In their seminal 1958 paper they were interested in measuring excess demand in the goods market for the guidance of Keynesian fiscal policies. Since excess demand is unobservable, they suggested using data on vacancies and unemployment in the labour market as a proxy. The application of this simple idea was possible for Britain since the British Government had started collecting data on unfilled vacancies from notification at labour exchanges in 1946. DDM argue that, though the recording of vacancies at labour exchanges might be incomplete or faulty, the behaviour of vacancies relative to unemployment shows that vacancy statistics can be considered as rather reliable indicators. DDM presented the unemployment and vacancy data in an unemployment-vacancy (UV) space and connected successive observations (Figure 51.1). An important feature that DDM assumed about the behaviour of unemployment is that unemployment below a certain level would be decreasingly sensitive to demand. That is, a further increase in demand should lead to a disproportionately small decline in unemployment rates (and vice versa for vacancies). Following this rationale and based on the observations of Figure 51.1, (particularly the years 1951–56), DDM derive an idealized UV curve as a rectangular hyperbola (Figure 51.2). The idealized UV curve has the following features. Firstly, an inverse relation between vacancy and unemployment rates. When the economy is in recession (point 1), it experiences high unemployment rates...
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