The concept of 'Hysteresis' in unemployment suggests that prolonged periods of high cyclical unemployment can permanently increase the natural rate of unemployment due to skill degradation and loss of professional networks.

Answer: True

Hysteresis implies that history matters; short-term economic shocks can have permanent, long-term effects. If workers remain unemployed for years, their skills become obsolete (human capital depreciation), and they become marginalized from the labor force. Thus, a severe recession can structurally damage the labor market, raising the NAIRU even after the economy recovers.