No Easy Answers: Comparative Labor Market Problems in the United States Versus Europe

Over the last two decades, virtually every western European nation has faced high and persistent unemployment. In frustration, many Europeans have looked to the United States, with its lower unemployment rates, as a model of labor market flexibility. The U.S. model has become less attractive, however, an analysts have come to recognize the extent of rising wage inequality in the United States over the past two decades, including sharp declines in wages among the less skilled. In short, both European countries and the United States have faces labor market problems in recent years. This article discusses some of the ways in which these labor market problems on either side of the Atlantic reflect different institutional responses to related economic problems. Both the U.S. and the European experiences demonstrate that there are no easy answers about how to operate a labor market which generates plenty of jobs for younger and less-skilled workers and which also offers these workers the opportunity to earn enough to support a family. Good policy choices will require mixing some of the best aspects of labor market flexibility with well- run activist labor market and social protection policies.