The causes and consequences of longterm unemployment in Europe

One of the most striking features of European labor markets is the high incidence of longterm unemployment. In this chapter, we review the literature on its causes and consequences. Our main conclusions are that: the rise in the incidence of longterm unemployment has been "caused" by a collapse of outflow rates at all durations of unemployment; while the longterm unemployed do leave unemployment at a slower rate than the shortterm unemployed, this has always been the case and their relative outflow rate has not fallen over time; there is no evidence that, for a given level of unemployment, the incidence of longterm unemployment has been ratcheting up over time; once one controls for heterogeneity of the unemployed, there is little evidence of outflow rates that decline over a spell of unemployment. While these findings suggest that longterm unemployment is not a problem independent of unemployment itself, one should recognize that the experience of longterm unemployment is a horrid one for those unfortunate enough to experience it.