Wage Bargaining and Unemployment Persistence

This paper looks at models of unemployment which make two central assumptions. The first is that wages are bargained between firms and employed workers, and that unemployment affects the outcome only to the extent that it affects the labor market prospects of either employed workers or of firms. The second is that the duration of unemployment affects either the search behavior or the skills of the unemployed, and/or the perceptions of firms of such skills. It argues that such models may explain riot only the evolution of European unemployment over the last two decades -an evolution which triggered their development, but many of the cyclical features of labor markets in general.