The European Employment Problem

Arizona State University, Scottsdale AZ

Investigators

Abstract

This project will improve our understanding of the "European Unemployment Problem". Many economists have reported that there have been persistent differences between the U.S. and a group of Eurpean countries in unemployment since about 1970. Unemployment has been substantially higher in Europe than in the U.S., and many scholars have suggested that this difference is due to how European labor market institutions handled the global economic shocks of the 1970s. However, looking at employment rates rather than unemployment rates tells a different story. The difference between the U.S. and Europe does not first appear in the 1970s, but appears to persist throughout the post-WWII period. The cause appears to be the differential evolution of the service sector employment rate, which has grown in the US while remaining largely stable in Europe. The goal of this project is to determine the role of various factors in creating this difference. The PI will conduct further data analysis to better document the differences across economies, he will develop theoretical models to study how employment in different sectors of the economy has changed over time, and he will use the models to evaluate how factors such as taxes, productivity, and unionization can account for the differences. The project will therefore improve our fundamental understanding of labor market outcomes and how policy decisions shape employment rates.