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Labour Market Inflexibility In Europe Essay

1196 words - 5 pages

Labour market inflexibility in Europe is the main reason why Europe is
not as dynamic an economy as the United States” Critically discuss.

“Labour market inflexibility in Europe is the main reason why Europe
is not as dynamic an economy as the United States”

In not more than 2500 words and not less than 1500, critically discuss
the above statement.


Today labour markets in Europe and the USA are often compared and
discussed. The general view seems to be that the US has a more dynamic
economy, people tend to believe Europeans are worse off than
Americans. The main reason given for Europe lagging behind the USA
economically is “Labour market inflexibility” other reasons why the
European Economy is not as dynamic, include labour rigidities, high
taxes, and too big an emphasis on the welfare system. This essay will
discuss why US labour markets are considered dynamic and superior, in
doing this unemployment, employment and wages.

A Historic Explanation

Historically the USA and Europe are very different. The USA is a
relatively modern country and Europe consists of many countries each
with its own individual past. Differences within Europe are a major
factor when critically discussing why Europe is behind the USA on an
Economic basis. The EU is a group of countries with very diverse
countries. Each has varied economic, and to an extent political
circumstances. Historically, the Second World War changed the
countries in Europe a great deal the effect on the USA was little in

European Labour Markets

Labour markets can be defined as the way employers and workers are
brought into contact with each other. This is how conditions of work
and wages are decided. Some may be formal others informal. So, labour
market flexibility is simply the flexibility of labour markets. The
concept of making labour markets more flexible came about in the
European Commission’s White Paper on “Growth, Competitiveness, and
Employment” in 1994. The advent of the Euro was claimed to make labour
markets more flexible. As top economist Michael Burda said, “My
predication is that unless an improbable miracle occurs in
pan-European collective bargaining, labour markets will become less
flexible in the future” Cited

Ten years on and we still have the same problem that Europe does not
seem to be flexible enough to provide an adequate rival to the world
superpower the USA. “Whilst there appears to be general agreement that
increases in flexibility are necessary to increase the competitiveness
of European Economies, there is no such consensus about what
constitutes a ‘flexible’ labour market” Adnett, (1996).

For a long time now Europeans have been told they need to make their
labour markets more like the USA, in the USA things tend to be much
more flexible when it comes to “hiring and firing”. However many
Europeans do not want a system like that in the USA, as put in an

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