Christine Lagarde: Beyond hysteresis - resilience in Europe's labour market
Opening panel remarks by Ms Christine Lagarde, President of the European Central Bank, at "Labor markets in transition: demographics, productivity, and macroeconomic policy", an economic symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, 22 August 2025.
The views expressed in this speech are those of the speaker and not the view of the BIS.
Slides accompanying the speech
Alexis de Tocqueville – one of the keenest observers of early American democracy – once wrote: "History is a gallery of pictures in which there are few originals and many copies."
In monetary policy, too, we often look to past cycles for guidance, expecting familiar patterns to repeat themselves. But this cycle has proven to be original in striking ways.
Major central banks have undertaken the most aggressive tightening in a generation. At the outset, there were understandable concerns about how such a rapid and substantial adjustment would affect labour markets.
Historically, disinflation has come at a cost. Since the 1960s, the "sacrifice ratio" has typically been around 1. In practice, this means that permanently lowering inflation by 1 percentage point has cost about 1% of GDP in forgone output.
And given Europe's well-known structural rigidities, it was reasonable to assume that a sharp tightening could lead to rising unemployment, which might then become entrenched through hysteresis effects (Slide 2).