Introduction

Over the years, I have had a number of interesting dreams. But I had not dreamt that I would stand in front of such a large and distinguished audience to address the first Congress of the European Economic Association.

Unbeknown to them, students often figure in my dreams. (On one occasion, I dreamt that I had fallen asleep while lecturing – and woke up in a nightmare, to realise that I was indeed standing in front of my undergraduate statistics class…) Recurrently, I dream about students at the University of Nirvanah, taking up different subjects – like microtheory, macrotheory, welfare economics, business cycles and economic policy – all taught within the same methodological framework and fitting nicely together, like the pieces of a jig-saw puzzle, to form a coherent picture. I wish to share with you today some glimpses of that dream, and my hope that it may come true.

My topic is ‘underemployment equilibria’, meaning situations where substantial unemployment, as defined in statistical practice, persists with no clear tendency to disappear. ‘Equilibrium’ is thus defined by absence of movement, not by conformity to some concept.

Today, most European countries are in a situation of underemployment equilibrium; this is a fact, a distressing fact (see table 1.1). Unemployment rates among the young are alarmingly high (see table 1.1). The social cost of letting one out of three or four young adults out of work for a prolonged period is hard to assess.