Unemployment in the Euro Area : A Matching or a Demand Issue?– a Diagnosis from the Beveridge Curve –

The nature of unemployment has been long disputed among economists. Is it a matching problem between job–seekers and the profiles sought by employers (structural unemployment) or rather a macroeconomic shortage of labour demand compared with aggregate supply (cyclical unemployment)? Different schools of thought have tried to answer this question without reaching a consensus, partly due to the lack of precise and measurable concepts. In this article, we propose a simple and robust method to estimate structural and cyclical unemployment in real time. For this purpose, we first prove that the Beveridge curve is a regular hyperbola with one single parameter equal to the square of the structural unemployment rate. We then apply this equation to estimate structural and cyclical unemployment in the euro area and measure the impact of the great recession and of the sovereign debt crisis. We finally propose that statistical institutes publish the breakdown of unemployment as official statistics in order to complement the existing set of macroeconomic indicators