When an Accountant Becomes a Taxi Driver: Unemployment, Labor Market Institutions, and Economic Theory

This article reconstructs the history of how economists came to understand unemployment as a distinct category and how that understanding transformed over time. In the early twentieth century, governments regulated access to unemployment benefits and established labor market protections, drawing sharper boundaries between employment and unemployment. Historians have shown that these boundaries were politically constructed, but economic theory largely treated them as given. Postwar Keynesian models assumed that unemployment was a temporary and measurable condition between spells of stable, high-wage work. However, that assumption rested on a historically specific labor market structure that began to unravel in the 1970s and 1980s. As stable jobs contracted, more workers cycled through precarious employment rather than remaining fully unemployed or finding new stable work. Economic theory responded with new models focused on individual incentives and firm behavior, but these also tended to treat emerging patterns as evidence of how unemployment had always functioned, rather than as signs of a shifting institutional landscape. By tracing how the category of unemployment was constructed and transformed—and how economists responded to those shifts—this article shows how changes in institutional context shape the development of economic thought itself.