"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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“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 comparison.

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 .  

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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 ...

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