Are European Labor Markets As Awful As All That?
“The standard explanation of why advanced Europe has generated less work per adult than the US is that something is seriously amiss with EU labor markets. The theme of this piece is simple. Compared to an ideal competitive market, EU labor markets fall seriously short, but compared to labor markets in the US and to other markets in advanced capitalist countries, EU labor markets do not live up to their awful press. The variety of labor market institutions among EU countries, moreover, reveals a much richer picture of performance and diversity than the blanket condemnation of inflexibility suggests. I make my case in four propositions, with supporting evidence. My comparisons are with the actual labor market in the US and with other real world markets, not with the economists’ dream ideal competitive markets. I review briefly the evidence that labor markets in the EU have performed worse on the quantity side of the market but better on the price or wage side of the market than the US labor market, then consider the extent to which differences in outcomes are attributable to differences in the performance of labor markets.”
August 2004 Paper Number CEPDP0644
This CEP discussion paper is published under the centre's Labour markets programme.