Others focus on the market power of employees, supported by union actions and labour turnover costs. Still others concentrate on wage formation under asymmetric information. And yet others argue that since wages and prices are often sluggish, a drop in spending might create unemployment of the Keynesian kind.

In view of these fragmented perspectives, policy-makers seem to have become increasingly disillusioned by unemployment theory. Consequently, their policies often rest more heavily on political instinct than on rigorous economic analysis.

In turn, many academic economists in the field appear to have retreated to their ivory towers. Their work is often analytically rigorous but the policy conclusions are sometimes little more than vague pronouncements, afterthoughts tucked away in the concluding sections.

A new CEPR volume attempts to swim against this tide. In it, leading contributors to the unemployment literature explain their positions in easily accessible terms without sacrificing intellectual rigour. The result is a lucid picture of the policy instruments available for combating unemployment and a reasoned assessment of their effectiveness.

In many important respects, countries with high unemployment – both in Europe and elsewhere in the OECD – face a number of common problems:

• how to create new employment opportunities without reducing existing ones;
• how to promote more equal employment opportunities for those out of work, targeting both the short- and long-term unemployed, and both young people entering the labour force and older employees who have been laid off;
• how to create more skilled, relatively well-paid jobs and how to promote the education and training necessary for such jobs;
• how to encourage the private sector to adapt its jobs promptly in response to changes in market conditions;
• and how to avoid the need for large and expensive government programmes.

Different countries have dealt with these problems in very different ways. Some have concentrated on supply-side policies in an attempt to improve the productivity of their workforce. Others have relied more on demand management policies. Still others have offered subsidies for the creation of jobs. And yet others have experimented with changes to labour market institutions designed to create more employment opportunities.

Considering the diversity in economic institutions and policy goals from country to country, this disparity in policy approaches is hardly surprising. What is surprising, however, is that existing policies are generally not responses to specific diagnoses of why unemployment has arisen, where the resulting inefficiencies and inequities lie, and which measures can tackle these problems without creating another set of potentially even more serious inefficiencies and inequities.

Recently, for example, policy-makers in some European countries have shifted their attention to the task of spreading the cost of unemployment across the population through job-sharing and early retirement programmes. The implicit underlying assessment is that the existing unemployment is inevitable and that unemployment policy should aim only to redistribute the resulting hardship.

But such an assessment is at variance with the analysis of many economists, who propose measures for creating more jobs with more satisfying career prospects. It is often apparent that policy is formulated and designed in isolation from the best current economic thinking.

What’s more, policy-makers are often unaware of the full range of policy instruments that can be used to create employment and thereby promote competitiveness, social solidarity and growth. Different countries have tended to focus on different groups of measures, but the policy choice is often not grounded in a full understanding of the range of options.

These include demand management policies, productivity-enhancing supply-side policies, wage subsidies, recruitment vouchers, training subsidies, policies to make more credit available to unskilled workers, reductions in payroll taxes, government employment and training programmes, changes in job security legislation, reform of unemployment benefit and welfare systems, reform of wage bargaining systems, negative income taxes and basic income guarantees. Each of these policy options is covered in the CEPR volume.

The book also demonstrates that one major cause of unemployment is unemployment policy itself. Frequently, policies designed to combat unemployment or the effects of unemployment – ranging from unemployment benefits and other welfare state entitlements to job security legislation to tax and transfer systems – introduce inefficiencies that serve to increase unemployment.