Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 481: The European Unemployment Dilemma

Lars Ljungqvist and Thomas J. Sargent
Additional contact information
Lars Ljungqvist: Stockholm School of Economics, Postal: Box 6501, 113 83 Stockholm, Sweden
Thomas J. Sargent: Hoover Institution, Stanford, and University of Chicago

Abstract: Post World War II European welfare states experienced several decades of relatively low unemployment, followed by a plague of persistently high unemployment since the 1980s. We impute the higher unemployment to welfare states' diminished ability to cope with more turbulent economic times, such as the ongoing restructuring from manufacturing to the service industry, adoption of new information technologies and a rapidly changing international economy. We use a general equilibrium search model where workers accumulate skills on the job and lose skills during unemployment.

Keywords: Unemployment; Economic turbulence; Welfare state; Europe

JEL-codes: E24; J64

39 pages, April 21, 1997

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