A Beveridge curve decomposition for Austria: did the liberalisation of the Austrian labour market shift the Beveridge curve?

Abstract

The Austrian Beveridge curve shifted in 2014, leading to the ongoing academic discussions about the reasons behind this shift. While some economists have argued that the shift was caused by a supply shock related to the labour market liberalisation during the course of the eastern enlargement of the European Union (EU), others have stated that a decrease in matching efficiency led to the shift. Using a new decomposition method, we combine labour market flow data and disentangle labour supply, labour demand, separation and matching factors, which can be potential reasons behind the shift in the Austrian Beveridge curve. We find empirical evidence that the increase in the unemployment rate in Austria after 2011 can indeed be attributed to a supply shock related to the EU enlargement. On the contrary, the data reveals that the shift after 2014 and the related increase in unemployment was almost exclusively caused by a decrease in matching efficiency, indicating a rising mismatch problem in the Austrian labour market.