On the Identifiability of the Relation Between the Rate of Unemployment and the Vacancy Rate

The massive unemployment in Europe which now persists for more than a decade has led many European governments to shift from Keynesian macroeconomic stabilization policy towards more microeconomically oriented labor market policies which intend to reduce labor market frictions. This shift in economic policy was motivated by the conviction that unemployment in the European countries is largely frictional and structural and is caused by a deterioration in the working of the equilibrating mechanisms between labor demand and labor supply.1