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In fact, it has been estimated that one half of the dramatic increase in European unemployment from the golden days of full employment in the 1960s to the high and persistent unemployment levels of the mid-1990s can be explained by institutional factors (Nickell et al., 2002). Which “institutions” are particularly relevant? Let me mention three of them: first and foremost, employment protection legislation. Second, tax-benefit-systems, which determine the so-called tax wedge between workers’ gross and net incomes, the transfers to the unemployed, and the tax burden on the employed. Third, wage bargaining structures and procedures and the role of trade unions. Let us consider employment protection legislation. Workers can be protected against unemployment in various ways: either by strict regulations against layoffs, or through unemployment benefits, or a combination of both. The two are interrelated: in theory, employment protection legislation need not be very restrictive if an unemployed worker can rely on generous benefits, and vice versa. What does the empirical evidence tell us? Generous protection of “insiders”, i.e. those who have a job, seems to have a negative impact on overall employment, since it affects the probability of employment of the “outsiders”, especially women, the young and the long-term unemployed.3 The validity of this proposition is illustrated in Chart 6 on the basis of the evidence from European countries. The lower job turnover and hiring also increases both the duration of unemployment and the proportion of long-term unemployed.