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Whenever unemployment stays high for an extended period, it is common to see analyses, statements, and rebuttals about the extent to which the high unemployment is structural, not cyclical.1 As the measure of the cyclical portion is viewed as identifying the size of a potential role for some forms of stimulus, this debate is about the scope for stimulative policies.2 Much discussion refers to the Beveridge curve, made salient by monthly publication by the Bureau of Labor Statistics (BLS) of the unemployment and vacancy rates that form the curve.3 In bad times we expect to see lower vacancy rates and higher unemployment rates. Figure 1 - See PDF, shows the October 2012 BLS report, with data through August. As shown in Figure 1 - See PDF,, starting with the business cycle peak in December 2007, there was a period with the monthly figures lying along a smooth downward sloping curve. However, since the June 2009 cyclic trough, the pattern has been erratic--two periods of rising vacancy rates with little impact on unemployment, two periods of falling unemployment without steadily rising vacancy rates. Starting shortly after the trough, all the observations are noticeably above a curve that would connect the observations before and during the recession. That is, we have three observations: (1) unemployment is high, (2) vacancies are low, and (3) unemployment is higher than it was at the same vacancy rates during the recession, or, equivalently, vacancies are higher than they were at the same unemployment rates during the recession.4
The analyses using the Beveridge curve typically assume that movements along the curve reflect cyclical effects whereas shifts in the curve reflect structural effects, effects expected to be sufficiently lasting to limit the potential effect of stimulus policies.5
Not surprisingly, the period of rising vacancies without falling unemployment generated reactions suggesting that the United States had just had a leap in structural unemployment--that the economy may now have a longer-term higher level of unemployment as the "new normal." This inference was taken to imply that we should not be so concerned with stimulating aggregate demand through monetary and fiscal policies.6
These assumptions on movements along and across curves have been in common use for a long time (see,...