The economic performance of the countries of the Organization for Economic Cooperation and Development (OECD) has deteriorated by almost every measure from the 1950s and 1960s to the 1980s and 1990s. Growth in gross domestic product has slowed significantly, in many cases to less than half its previous levels. This slowdown has hit the less-affluent segments of society especially hard, since it has been accompanied by an upward redistribution of income, particularly in the United States. It also has coincided with a large increase in unemployment. Countries such as Germany, France, and the U.K., which generally had unemployment rates below 3 percent, and often below 3 percent, during the earlier period, now regularly experience unemployment rates between 8 percent and 10 percent. These high rates of unemployment have placed an enormous strain on public budgets through the demands they place on the social welfare system, in addition to imposing hardships on the people experiencing or fearful of unemployment.

This chapter will examine the causes of this rise in unemployment. Specifically, it will attempt to address the question of whether there has really been a qualitative change in the labor markets of the OECD nations that leads to these higher rates of joblessness. The main method for this analysis will be an examination of the evidence for the existence of a non-accelerating-inflation rate of unemployment (NAIRU) in the various OECD countries.