Structural and Cyclical Unemployment: What Can Be Derived from the Matching Function? (in English)

We explain movements in the U-V (unemployment and vacancy) space – that is, the relation-ship between stocks of unemployment and job vacancies, known as the Beveridge curve – in the Czech Republic during 1995–2004. While the Beveridge curve is described by labor-market stocks, we explain shifts in the Beveridge curve using gross labor-market flows by estimating the matching function. We interpret parameter changes of the matching function during the business cycle, distinguishing cyclical and structural changes to the unemployment rate. We find that the labor-market flows are good coincidence predictors of business-cycle turning points. We show that the Czech economy suffers hysteresis (path dependency) on the labor market, which is common in many other developed market economies in the European Union.