The scale of hidden long-term unemployment in the UK suggests the true unemployment rate is 7%-8%.
Incapacity or sickness benefit rates are also relatively high in a number of countries cited here as apparently successful in reducing unemployment, while they are low in countries generally considered to have failed. (See the diary I link to in previous paragraph for OECD figures).
I realize I may be adding yet another layer of blueness to ET faces by going back over this yet again, but it does seem to me:
I would reiterate that the shocks of the 1970s were real, and they affected the whole industrialized world. Different countries responded to them in different ways: Continental Europe by beefing up unemployment insurance and job protection, the US by partially dismantling the regulatory and welfare state.
In the US unemployment went up too, by the way - it averaged 7% during the 1980s through the early 1990s, compared maybe 4-5% during the 50s and 60s. Just not as much as in Europe, which enjoyed unemployment rates of 1-2% during the 50s and 60s. The shocks hit everybody.
As for the persistence mechanisms of the 1980s - the slowdown in investment is clearly something that happened, even in the US investment was far lower in the 1980s and early 1990s than it had been before.
The thing that the US (and the UK) has that France and Germany don't is a low-wage service sector that serves as "employer of last resort." This is one point that is also implicit in Blanchard's analysis.
Scandinavia has the large state-funded social service sector as its' employer of last resort.
Much of the continent has neither. Their welfare states emphasize income transfers rather than state provision of social services. The combination of high minimum wages, "tax wedge" and generous protection for the unemployed price low-skilled low-productivity service jobs out of the market.
So perhaps part of the solution is to remove labor market rigidities that prevent firms from offering and workers from taking low-wage jobs, but then compensate the workers through a "negative income tax" or "basic income" to bring their total incomes up to or beyond the poverty level (as Blanchard recommends).
As for the little "miracle countries" - Ireland, Nehterlands, Austria - they all have the centralized wahe bargaining institutions which allows them to hold down wages (usually in return for more generous state benefits. James Galbraith argues that these countries use these institutions to strategically undercut labor in bigger neighboring countries (the UK in the case of Ireland, or Germany in the case of Austria or the Netherlands).
