The rise in European unemployment has inspired much new research on the causes and mechanisms of unemployment, analogous to the interest devoted to unemployment in the 1930s. The new research has to a large extent focused on wage-setting behaviour, as is revealed by the rapid growth of theoretical and empirical work on models of wage bargaining, insider-outsider relationships, and efficiency wages. A common theme in this new work is a desire to provide satisfactory microeconomic foundations for the existence and persistence of involuntary unemployment.

This paper offers a survey of recent research on unemployment persistence and insider-outsider forces in wage determination. It begins in Section II with an overview of major themes in the theoretical work on unemployment. Section III reviews results from a number of recent empirical studies inspired by these new theories. Section IV concludes with a discussion of directions for future research ...