DP262 | Wages and Unemployment Half a Century on


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The paper surveys recent analyses of rising unemployment in Europe based on the concept of the natural rate. It argues that there is a continuity of analysis from the classics through Keynes to these more recent approaches. Theories of efficiency wages, hysteresis, and insiders/outsiders are related to a core theory in which the unemployment benefit is the basic source of rigidity. It is argued that these more recent approaches are either variations of or additions to this core theory, and that in its absence they would fail to explain unemployment.