Fifth, there is a risk that the forecast turns out wrong - but not in a good way. In other words, that the unemployment gap turns out to be lower than forecast, because the NAIRU turns out higher. We know that unemployment (especially youth unemployment) has "scarring" effects; i.e. that an individual experiencing a spell of unemployment has lower employment probabilities later in life, presumably because they become disconnected from the labour market, or their skills atrophy. But this is structural, not cyclical, unemployment; it adds to the NAIRU. In other words, if we accept a persistently high level of cyclical unemployment now, we will condemn ourselves to a persistently high level of structural unemployment in the future.
Note on construction of the NAIRU series: I have taken estimates of the NAIRU from the OECD (up to 2002) and HM Treasury/Office of Budget Responsibility (from 2003 on), when the series are in fact quite close. This isn't ideal; I wanted to use Treasury/OBR numbers throughout because I'm focusing on the "official" forecast and its implications, but they don’t seem to publish a consistent series (if the Treasury give me their estimates of the NAIRU back to the early 1970s, I will amend the chart accordingly). The key point here is that the OBR has recently restated its view that the current and prospective NAIRU is 5.25%. The unemployment forecast is also that of the OBR, so the chart gives the official forecast of the gap going forward, not NIESR’s, although assuming current policy the differences will probably not be huge. The OECD's estimates for the NAIRU going forward are somewhat higher, so the gap would be somewhat smaller; but this in part just reflects my final point above.