unemployment benefits; we find that the MW is preferred by the majority of workers (even when the unemployed receive very generous … unemployment benefits). In the second model, the government engages in redistribution through the public provision of private goods … given generosity of the unemployment benefit scheme, the maximum, politically viable, MW is lower than in the absence of in …

taxation. In addition, the appearance of equilibrium unemployment also provides an incentive for the government to directly tax …

this unforeseen increase in unemployment. We then discuss the role of labour market institutions in the adjustment process … that has brought unemployment back to normal' levels. We argue that these institutions cannot be blamed for the increase in … unemployment, but that more flexible institutions could have lead to a more rapid decline in unemployment. …