Its level is determined by institutional factors and fiscal measures (unemployment benefits, tax rates) which influence the reservation wage. Structural unemployment, often referred to as a jobs or skills mismatch, results from workers either being in the wrong place for the jobs that are available or having the wrong skills. E24,E32,E6,J23 ABSTRACT Whenever unemployment stays high for an extended period, it is common to see analyses, statements, and rebuttals about the extent to which the high unemployment is structural, not cyclical. Special thanks go to David Autor for his advice on … Keywords: Unemployment, Skill Mismatch, Structural Change, Great Recession. Cyclical Unemployment, Structural Unemployment Peter A. Diamond NBER Working Paper No. This essay ∗I thank Daron Acemoglu, Abhijit Banerjee and Ivan Werning for their thorough guidance with this project.

18761 February 2013 JEL No. JEL Classification: E24, E32, J21, J24. Structural unemployment is the 'natural' rate of unemployment that the economy would settle at in the long run in the absence of shocks. Empirically structural unemployment cannot be observed.

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