Behind the Curve: Econometric Estimation and Sectoral Decomposition of the Japanese Beveridge Curve's Evolution Around the COVID-19 Pandemic

This paper examines the Japanese Beveridge curve in order to identify a possible structural break prior to the COVID-19 pandemic and uncover its potential causes. We utilize two levels of analysis. First, the relationship for the period January 2000 - June 2024 is estimated by means of a Vector Error Correction Model, through which we detect a structural break at the end of 2019. Second, we use disaggregated vacancy and unemployment data to analyze the Beveridge curves for sub-groups at the occupational, industrial, and contractual levels, and carry on an extensive mismatch analysis. We argue that the asymmetric evolution of the different segments of the market together with tight market conditions are at the root of the modification in the responsiveness of vacancies to unemployment recorded from the end of 2019. More specifically, the change originated in the services-related sector, which recorded extremely tight market conditions since 2018, leading firms to reduce vacancies without any significant impact on the sector-level unemployment rate. This trend was subsequently compounded by the measures introduced by the government in 2020 in order to support employment during the COVID-19 pandemic.