Do Employment and Income Security Cause Unemployment? A Comparative Study of the US and the E-4

Robert Buchele and Jens Christiansen

Cambridge Journal of Economics, 1998, vol. 22, issue 1, 117-36

Abstract: High unemployment in Europe has led many economists and policy-makers to praise rapid job creation and low unemployment in the United States and to credit its relatively unregulated labor markets for this success. The authors question the implication that Europe should adopt U.S.-style labor market deregulation and flexibility. A detailed examination of the U.S. and E-4 (French, German, Italian, and U.K.) data reveals almost no difference in unemployment rates for 'prime-age' males but large ones for other demographic groups both within and among all countries (and not just between the United States and the E-4). They also assess the impact of various employment regulations, wage-setting institutions, and income security policies on E-4 unemployment. The authors conclude that the evidence is mixed, and, more importantly, that the same institutions which may raise unemployment in Europe are also contributing to its more rapid earnings growth and greater earnings equality relative to the United States. Thus, European labor market deregulation would at best be a very mixed blessing. Copyright 1998 by Oxford University Press.

Date: 1998
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