Scottish Journal of Political Economy, Vol. 46, No. 4, September 1999 # Scottish Economic Society 1999. Published by Blackwell Publishers Ltd, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA POLICY INFLUENCES ON UNEMPLOYMENT: THE EUROPEAN EXPERIENCE Christopher A. Pissarides  ABSTRACT This paper considers the implications of four kinds of labour market policies for the 1980s rise in European unemployment: unemployment compensation, active labour market policies, employment protection legislation and taxation. It finds evidence that all have played a role in the determination of unemployment and discusses the mechanisms involved, the extent of the influence of each and the lessons learned from this experience. One of the main findings is that there is a trade-off between wage inequality and unemployment. Policy has played a role in determining how a country responded to the negative macroeconomic shocks of the 1980s but policy alone cannot explain the full rise in European unemployment and North American wage inequality. Spud and Renton were sitting in a pub in the Royal Mile. Ð Weird man, though, like I say, you and me getting sent for the same job, hey? Spud said, slurping at his Guinness. Ð Disaster for me mate. I'm not wanting the job. It would be a nightmare. Renton shook his head. Ð Yeah, I am happy staying on the dole now, know what I mean? Ð Trouble is, though, Spud, if you don't try, if you blow the interview on purpose, they tell the dole and they stop your giro. Happened to us in London. I'm on my last warning down there. Ð Yeah ... me and all man. What are you going to do? Ð Well, what you have to do is to act enthusiastic, but still mess up the interview. As long as you come across keen, they can't say a thing. If we just be ourselves, and be honest, they will never give either of us the job. Problem is, if you just sit there and say nothing, they are straight onto the dole. They will say: He just can't be bothered. Ð It's hard for me man ... you know? It's difficult to get it together like that, like I say, you know, I just get sort of shy. Ð Well, I'm at one. I will see you back here at two. I'll give you my tie to put on. adapted from Irvine Welsh, Trainspotting, London: Minerva, 1993 (`speedy recruitment'). 389  Centre for Economic Performance, London School of Economics