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

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Introduction

"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. Introduction 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. ...read more.

Middle

Other issues are high taxes in Europe, product market rigidities, and a large welfare system. In the Euro zone regulation is high. Europe demands different things from its economy it has different expectations. An article in The Economist newspaper puts it like so, "America has been the world's economic leader for over a century. Economic theory suggests that Western Europe should be catching up. Yet average GDP in the European Union, measured at purchasing power parity, is only three quarters of that in the United States." Chasing the Leader (2003). Living standards in the United States compared with European countries tell us a lot. A good example is Germany compared with the United States, in Germany GDP (gross domestic product) per hour is 1% higher than that of the United States but on the other hand GDP per person is 25% lower. Looking at high taxes as a reason for Europe being less dynamic than the USA, there is a lot of information explaining the reasons why high taxes might hold back the European economy. It is well known that in the United States taxes are significantly lower than that of the countries within the Euro Zone. ...read more.

Conclusion

And US law does not require companies to compensate laid-off workers or consult with worker representatives." Houseman (1994). Lay offs in Europe are more costly because of the tighter legislation. The short-term compensation helps workers in the US, this is not available to the workers in Europe that get their hours cut rather than a laid off. As William A. Douglas summed up the American situation "The United States has unusually weak provisions for job security, both in its labour legislation and in the contents of many collective-bargaining agreements. For decades it has been common for US employers to "lay off" workers for weeks or months during times of slack product demand, and then bring them back" Douglas (2000). On the other hand there are many countries in Europe that apply policies that encourage companies to train workers. "Workplace training increases job security in several ways. Employers are more reluctant to lay off workers in whom they have heavily invested, particularly during a temporary downturn." Houseman (1994). Europeans therefore tend to have more transferable skills but overall the United States is still more dynamic an economy. Conclusion Evidence shows that the United States is a more dynamic Economy than Europe. There are several contributing factors to why this is histioric reasons, issues of welfare playing to great a role in Europe, also the United States ...read more.

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