Abstract

Twenty years ago, on the eve of the first of the great post-Bretton-Woods recessions, unemployment did not appear to be a major problem for advanced economies. Among what would later be dubbed the G7 nations, the United States had the highest unemployment rate at 5.5 percent; but very little of this unemployment was long term, and the extent of short-term unemployment could be rationalized as the inevitable and even desirable result of a dynamic economy. Western Europe had an unemployment rate that, measured on a comparable basis, was only 3 percent. Japan’s unemployment rate was a trivial 1.4 percent, a performance nearly matched by West Germany’s 1.6 percent. Whatever their other economic and social problems, the world’s industrial nations seemed to have left fears of mass unemployment far behind. Today, of course, unemployment is back with a vengeance. In Europe, in particular, the seemingly inexorable rise in the unemployment rate has led to the creation of a new word: Eurosclerosis (Chart 1). The United States has not seen a comparable upward trend—indeed, the unemployment rate in 1989-90 was lower than in 1974, and the current

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