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February 27, 2008



You are almost certainly correct. But I think there is also simply a demographic effect. Employment and wages adjust with a considerable lag (because it is impossible for individual participants to know what the clearing price is). Also the rate of increase in employment is limited by the ability of firms to accomodate them (recruitment, training, facilities etc). So high numbers of new entrants will tend to push up the level of unemployment just through inertia and vice versa.

Nick Rowe

It might be (part of) the explanation, but I can't see any easy or decisive way to test it, without some theory of how long memories take to fade.

Reminds me of Minsky's(?) theory of cycles of financial instability: there's a financial crisis, which causes people to become very careful, which causes financial stability, which eventually causes memories of crisis to fade, which causes people to take more risks, which causes a crisis...

Mark Wadsworth

Probably true. Excellent point on tuition fees, yet another argument in favour (from my point of view) but could equally be seen as an argument against. Hmm.


So it's not because of Gordon's masterly macro-economic management?


Are you sure there isn't a simpler explanation, for the UK anyway? i.e. that the unemployed have mostly just been shifted to sickness benefit? The rise in sick lists in the UK pretty much cancels out the reduction in unemployment over the last 20 years.

What does the relation between inflation and total 'economically inactive' look like? I would guess that relationship hasn't changed as much, if at all.

The US keeps its unemployment low by keeping much of its jobless in prison (in effect, I'm not denying those people are also criminals), the UK puts them on the sicklist. Perhaps neither is 'unemployment' in a strict economic definition, but surely you can't talk about the subject without including those factors?

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