| Abstract: | After two decades of ratcheting unemployment in Europe, most economists agree that structural changes associated with higher equilibrium rates of unemployment have occurred. But the direction of causality is a matter of controversy: Have the structural changes caused the long-lasting increases in actual unemployment? Or have the increases in actual unemployment caused the structural changes? The latter possibility is often referred to as hysteresis. During the past decade, a distinct research program has evolved around the idea that equilibrium employment tracks actual unemployment. This survey reviews the various hysteretic explanations offered in the literature and evaluates their empirical standing. |
