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The Political Consequences of Unemployment

We analyze the channels by which an ill-functioning labor market changes the preferences of the people for public policy and therefore the decisions that are made. We not only discuss labour market reform but other important aspects of policy making such as the size and structure of government spending. The class of mechanisms that we highlight can be summarized as showing that the very existence of unemployment generates political support for "sclerosis". This observation may help to explain the timid pace of reform, in particular the fact that any recovery removes reform measures from the political agenda, and the sometimes violent opposition generated by some measures, as we have seen mostly in France.