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

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.