Equilibrium unemployment, search behaviour and unemployment persistency

Unemployment persistency and high equilibrium unemployment is often assumed to be caused by rigidities and low search efficiency in the labour marker, especially in European welfare states with generous income replacement sch emes. These arguments are tested on data from Sweden, an old welfare state with a long period of full employment that has changed into a situation wit h high unemployment. Data show a clear and very strong unemployment duratio n dependency, but it is not possible to prove that this is a result of low employability among the long-term unemployed. Getting a job is most of all associated with relative qualifications, recall expectations and local labo ur market conditions, and not with search behaviour or high wage demands. I t is argued that unemployment duration when unemployment is high can best b e understood as a selection process rather than a search process, and that econometric estimations of equilibrium unemployment are too pessimistic abo ut the potential for an expansive economic policy. It is also argued that a n active labour market policy is a more efficient compliment to such a poli cy than changes in income replacement ratios.