The Icelandic Beveridge Curve: Matching efficiency of the Icelandic labor market after the financial crisis of 2008

Abstract

In recent years, the Beveridge curve has received increasing attention in labour market analysis. The curve depicts the joint movement of the unemployment rate, the supply side of labor, and the job vacancy rate, the demand side. Furthermore, shifting of the curve reflects changes in the efficiency of the matching process in the labor market. There have been written few papers on the Icelandic Beveridge curve considering whether the curve shifted outwards during the severe financial crisis of 2008. In previous estimations, researchers used a different job vacancy rate compared to what is presented in this paper. For the first time the Icelandic Beveridge curve will be depicted with a new vacancy series accurately counted in the weekly job announcement paper from the year 2002 and throughout 2014.Description of the new data and a comparison between it and the old vacancy series will be made. Next, presenting the Icelandic Beveridge curve and preforming a visual inspection. Thereafter, I introduce two methods to estimate a fitted Beveridge curve in order to develop a statistical interpretation of what has happened to the unemployment-vacancies relationship.I show that the Icelandic Beveridge curve has not shifted outwards, which is in contrast to previous conclusions. In other words, the matching efficiency of the Icelandic labor market has not declined because the current Beveridge curve seems to continue to be remarkably close to the pre-crisis Beveridge curve. Arguing that perhaps the ongoing efficiency in matching workers to jobs is due to some unique structural characteristics of the Icelandic labor market or the implementation of various labor market programs by the Icelandic government.