Publications

High unemployment rates and increasing terms of unemployment have persisted in western European countries for the past 20 years. These problems have been explained as resulting from inflexibility in the labor market created by such policies as protective labor market regulation and generous social assistance. The lower rates and shorter duration of unemployment in the United States were thought to result from greater labor market flexibility.

On the basis of this analysis, European nations enacted changes, such as weakening regulations, to increase labor market flexibility. However, labor market analysts have found not only that such efforts have been largely unsuccessful at reducing unemployment or increasing labor mobility, but also that the United States experienced rising wage inequality over the same time period that unemployment problems occurred in Europe. In other words, both the United States and Europe face serious labor market problems.

In this working paper, Rebecca M. Blank, of Northwestern University and the Northwestern University/University of Chicago Joint Center for Policy Research, analyzes these problems to assess the extent to which they reflect different institutional responses to related economic problems.