On the Stability of the German Beveridge Curve: A Spatial Econometric Perspective

26 Pages Posted: 8 May 2006

See all articles by Reinhold Kosfeld

Reinhold Kosfeld

University of Kassel - Economics

Christian Dreger

European University Viadrina Frankfurt (Oder); IZA Institute of Labor Economics; Chinese Academy of Social Sciences (CASS)

Hans-Friedrich Eckey

University of Kassel

Date Written: April 2006

Abstract

In this paper, the framework of the aggregated Beveridge curve is used to investigate the effectiveness of the job matching process using German regional labour market data. For a fixed matching technology, the Beveridge curve postulates a negative relationship between the unemployment rate and the rate of vacancies, which is efficiently estimated using spatial econometric techniques. The eigenfunction decomposition approach suggested by Griffith (2000, 2003) is the workhorse to identify spatial and nonspatial components. As the significance of the spatial pattern might vary over time, inference is conducted on the base of a spatial SUR model. Shifts of the Beveridge curve will affect its position, and time series estimates on this parameter are obtained. In contrast to findings for the US and the UK, the results provide serious indication that the degree of job mismatch has increased over the last decade. Although the outward shift of the Beveridge curve can be explained by structural factors such as the evolution of long term unemployment, it is also affected by business cycle fluctuations. The role of cyclical factors challenges the stability property of the curve. The relationship might be inappropriate to investigate policy measures directed to improve the mismatch, such as labour market reforms.

Keywords: Beveridge curve, job mismatch, business cycle, long-term unemployment

JEL Classification: C21, C23, E24, E32

Suggested Citation

Kosfeld, Reinhold and Dreger, Christian and Eckey, Hans-Friedrich, On the Stability of the German Beveridge Curve: A Spatial Econometric Perspective (April 2006). IZA Discussion Paper No. 2099, Available at SSRN: https://ssrn.com/abstract=900368

Reinhold Kosfeld

University of Kassel - Economics ( email )

Nora-Platiel Str. 4
34109 Kassel
Germany

Christian Dreger (Contact Author)

European University Viadrina Frankfurt (Oder) ( email )

Frankfurt (Oder)
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

Hans-Friedrich Eckey

University of Kassel ( email )

Fachbereich 05
Nora-Platiel-Stra├če 1
34109 Kassel, Hessen 34127
Germany

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