Large fluctuations in unemployment frequently recur across the United States and Europe, most recently in 2009, and remain a major concern for policymakers. Many different macroeconomic theories of unemployment have been offered. These theories deliver conflicting results about the welfare cost of unemployment and the impact of various labor market policies, which makes it difficult to develop policy recommendations. In fact, there seems to be no consensus on how much governments should spend on unemployment-reducing policies, and which specific policies they should implement. Therefore, it is critical to identify the main sources of unemployment over the business cycle in order to develop effective unemployment-reducing policies
