The Micro-Foundations of High Unemployment in Developed Countries: Are Labor Market Rigidities the Problem?
Author(s)
Howell, David R.
Abstract
Concerning unemployment rates of less-skilled workers in Europe, it is believed that by the early 1990s, they were a result of increased technology in a newly computerized economy. It was thought that the high unemployment in developed countries could be explained largely by labor market rigidities that follow from Welfare State regulations and institutions. This chapter discusses the evidence for this widely accepted Labor Market Rigidity explanation for persistent high unemployment. The main conclusions drawn are that supportive evidence has remained remarkably thin, especially given its widespread acceptance. The author suggests that high earnings inequality in the US and high unemployment in many parts of Europe reflect substantial pro-market ideological shifts in both the US and Europe. This has eroded institutional projections for lower skill workers in the US and constrained growth in job opportunities in Europe.
