Why is the average unemployment rate so high in Europe? This question has kept economists busy for some time and various explanations has been proposed: the type of shocks Europe faces combined with the type of education, the generosity of unemployment insurance, tax rates, "culture", measurement. All these explanations have some merit, but I like to see the bigger picture, especially as these factors are not necessarily exogenous.
In this respect, Jean-Baptiste Michau, provides an interesting exercise, where the work ethic culture parents teach their children depends on what they expect unemployment insurance generosity will be, and the latter depends on the work ethic of the population. Such a model can provide a story on how work ethic and unemployment insurance evolve over time. There is now a large literature on policy formation, and I think this paper makes a good point that policy can have a feed back of preference formation.