The job market has proven resilient in the last couple of years. Per the federal Bureau of Labor Statistics, the unemployment rate has been below 4% since February 2022, and in that same period, job openings have remained relatively high. Yet inflation, as measured by the personal consumption expenditures price index and other gauges, has cooled.

Some economists didn’t think this combination of low unemployment, plentiful job openings and declining inflation would ever be possible. One reason is the Beveridge curve, an economic model that represents the relationship between employment and job openings. The theory behind the curve supports the notion that unemployment would have to rise for inflation to be tamed.

Enda Curran, a reporter at Bloomberg, recently wrote about the Beveridge curve. “Marketplace” host Kimberly Adams spoke with him about the debate over this contentious model and where it’s recently fallen short.

“There’s now a school of thought saying when you look back at what’s happened over the past few years, there were a lot of factors at play, including a supply side crunch,” Curran said. “And when some of those supply problems were unwound and unknotted, it meant that inflation could cool without people losing their jobs.”

The following is an edited transcript of their conversation.

Kimberly Adams: For listeners who don’t know, what is the Beveridge curve?

Enda Curran: The Beveridge curve is an academic theory that essentially looks at the relationship between job vacancies in the economy and the unemployment rate. The correlation is simple. Basically, the higher the vacancies, the higher the unemployment rate, and vice versa. It was a study that economists have debated a lot during the pandemic and post-pandemic years to understand what is happening with inflation and what is happening with unemployment.

Adams: How do economists usually deploy the Beveridge Curve? And why is that giving them troubles now?

Curran: Well, the central thinking during the inflation crisis of the past few years was that you cannot have inflation coming down without a big hit to the jobs market. So the point is unemployment would have to soar in order to get inflation down. And the Beveridge curve was at the center of that debate. There was another group of economists who said that this time feels a little bit different. You don’t have to have that big, painful hit to employment to bring inflation down because the reasons are mostly on the supply side of the economy, like shortages of goods and the like. And that’s why inflation can come down without hitting workers. Where we are now is proving that the latter camp was probably right. Inflation has come a long way back, and the unemployment rate has remained low, which is quite an outcome.

Adams: Give me an economics 101 lesson as simply as you can. Why is it the assumption that to bring inflation down, you have to lose jobs, maybe even to the point of a recession?

Curran: I guess it’s borne by past experience, Kimberly, to some extent. In past inflation crises, a lot of it has been driven by wage demands. So workers have looked for higher wages because prices of goods are going up. And that creates a circle whereby inflation continues to spiral. But there’s now a school of thought saying, wait a minute, when you look back at what’s happened over the past few years, there were a lot of factors at play here, including a supply side crunch, which basically means shortages of goods, shortages of services, shortages of people. And when some of those supply problems were unwound and unknotted, it meant that inflation could cool without people losing their jobs. And that’s more or less where we are now. The jury remains out on what’s the cause of the inflation crisis. But one thread that’s become evident is that people didn’t have to lose their job for inflation to come down.

Adams: So just to give a concrete example of that to make sure that I understand, I was looking for a new dishwasher during the pandemic. And because of the supply side issues, not only was it really expensive, but I could barely get one. And so, the price of that dishwasher was high, which is going to lead to higher inflation in the dishwasher category. But now that those supply chain issues have been resolved, that price can go down without really affecting anybody’s job along the way.

Curran: That’s exactly part of it. This idea that goods and services that you wanted but couldn’t get. Demand was high, so prices could go high. And now, you know, as those supply problems have become unwound, the flow of goods and services has helped offset inflation pressures. It is important to remember, though, that prices still do remain higher than they were, say, two or three years ago. The price margin that came along during the inflation crisis, that’s still very much in the system.

Adams: What kind of precedent is there for this sort of well-established economic theory like the Beveridge curve really getting challenged in this way?

Curran: I think this has been a fairly unique economic debate. The economy has been pretty complicated over the past few years. It’s been difficult to understand and has defied a lot of the norms and understood textbook practices, like you mentioned. Now, as I said, it’s becoming clear that there were a lot of different factors at play. And that’s why there’s been such a, such a pronounced debate and at times a fairly testy debate over what caused inflation and how to get inflation under control. You know, this was a once-in-a-century pandemic. This requires a once-in-a-century way of thinking about how it impacts the economy, and a lot of people will put their hands up and say, “We didn’t understand it, we got it wrong. We need to think about how we get this right the next time.”