The article discusses the rise in European unemployment since the 1980s, attributing it to changes in the economic environment, such as the shift from manufacturing to services, technological advancements, and globalization. It presents a general equilibrium search model where workers' skills depreciate during unemployment and unemployment benefits depend on past earnings. The model shows that increased economic turbulence leads to higher unemployment, as workers with depreciated skills are less likely to find new jobs. The analysis contrasts the European welfare state with a laissez-faire economy, finding that the welfare state is more vulnerable to economic shocks. The study uses data from Gottschalk and Moffitt to show how economic turbulence affects earnings distributions, with higher variability in the 1980s. The model also highlights the impact of generous unemployment benefits on long-term unemployment, as workers with high benefits are less likely to search for new jobs. The study concludes that the welfare state's structure, including high taxes and generous benefits, distorts labor supply decisions and makes it harder for workers to adapt to economic changes. The analysis shows that the European welfare state's unemployment rates are higher due to its inability to cope with economic turbulence, while the laissez-faire economy is more resilient. The study also finds that the welfare state's unemployment problem is exacerbated by the fact that workers with depreciated skills are less likely to find new jobs, leading to longer unemployment spells. The model suggests that the welfare state's unemployment problem is more severe in turbulent economic conditions, as workers are less motivated to search for new jobs. The study concludes that the European welfare state's unemployment problem is a result of its structure and the changing economic environment, and that the welfare state is more vulnerable to economic shocks than a laissez-faire economy.The article discusses the rise in European unemployment since the 1980s, attributing it to changes in the economic environment, such as the shift from manufacturing to services, technological advancements, and globalization. It presents a general equilibrium search model where workers' skills depreciate during unemployment and unemployment benefits depend on past earnings. The model shows that increased economic turbulence leads to higher unemployment, as workers with depreciated skills are less likely to find new jobs. The analysis contrasts the European welfare state with a laissez-faire economy, finding that the welfare state is more vulnerable to economic shocks. The study uses data from Gottschalk and Moffitt to show how economic turbulence affects earnings distributions, with higher variability in the 1980s. The model also highlights the impact of generous unemployment benefits on long-term unemployment, as workers with high benefits are less likely to search for new jobs. The study concludes that the welfare state's structure, including high taxes and generous benefits, distorts labor supply decisions and makes it harder for workers to adapt to economic changes. The analysis shows that the European welfare state's unemployment rates are higher due to its inability to cope with economic turbulence, while the laissez-faire economy is more resilient. The study also finds that the welfare state's unemployment problem is exacerbated by the fact that workers with depreciated skills are less likely to find new jobs, leading to longer unemployment spells. The model suggests that the welfare state's unemployment problem is more severe in turbulent economic conditions, as workers are less motivated to search for new jobs. The study concludes that the European welfare state's unemployment problem is a result of its structure and the changing economic environment, and that the welfare state is more vulnerable to economic shocks than a laissez-faire economy.