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Cambridge Journal of Economics 2005 29(6):975-995; doi:10.1093/cje/bei082
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© The Author 2005. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Article

Long-term unemployment, the invention of ‘hysteresis’ and the misdiagnosis of structural unemployment in the UK

David Webster*

* Chief Housing Officer (Policy Review and Development), Glasgow City Council, and Honorary Senior Research Fellow, Department of Urban Studies, University of Glasgow

Address for correspondence: Housing Strategy & Investment, Development & Regeneration Services, Glasgow City Council, 229 George Street, Glasgow G1 1QU, UK: email: david.webster{at}drs.glasgow.gov.uk

Abstract

This paper investigates the empirical basis for the belief that unemployment makes people less ‘employable’, and that the existence of a pool of long-term unemployed people is therefore in itself a barrier to full employment. Drawing on data for Great Britain from the 1940s to the present day, it shows that this idea has arisen through misinterpretations of the statistical evidence. The resulting policies, besides diverting resources from the demand-side programmes appropriate to the true situation of structural unemployment, appear to have created a problem of the kind they were intended to address, by encouraging unemployed people to move onto sickness benefits.

Key Words: Long-term unemployment • Unemployment persistency • Hysteresis • Employability • State dependence

JEL classifications: B22, I38, J64, R23

Manuscript received December 1, 2003; final version received January 24, 2005.


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