After rising to 10 percent in the wake of the Great Recession, the unemployment rate is now approaching a level that many observers--including the Congressional Budget Office, as shown in Figure 1--associate with the natural rate of unemployment

The labor market occupies center stage in modern theories of fluctuations. The most important phenomenon to explain and understand in a recession is the sharp decline in employment and jump in unemployment. This chapter considers explanations based on frictions in the labor market. Earlier...