The Flow of Vacancies and Unemployment

Abstract

The U.S. unprecedented tight labor market has been driving inflation pressure since the break of the pandemic. Currently, dropping vacancies is cooling off the labor market. This study analyzes the flow of vacancies and unemployment within the Beveridge relationship during such a period. The Cobb-Douglas matching function is adopted to analyze labor market dynamics. The epilogue of the regressive model finds a proper estimation of the matching function, which the study uses to show that the matching efficiency has worsened since 2022. The study concludes that cooling off the labor market with barely an increase in unemployment is unattainable under the super tight monetary condition.