Beveridgean unemployment gap in Finland

Abstract

Following a recently proposed sufficient statistics approach that builds on the socially optimal trade-off between vacancies and unemployment along the empirical Beveridge curve, we study the efficient unemployment rate in Finland and a number of other European countries. On average, the efficient rates of unemployment are found to be below realized unemployment rates and quite stable over time. For Finland, the resulting Beveridgean unemployment gap indicates a chronically slack labour market with large inefficiencies during economic downturns. Unemployment gaps behave countercyclically in other countries as well.