Unemployment in Europe: A problem of relative or aggregate demand for labour?

The United States and the European Union have exhibited markedly different labour market developments since 1980: relatively low unemployment despite strong labour supply growth in the US; slow labour supply growth and huge unemployment in the EU. The authors critically examine the ''consensus view'' that EU unemployment is due mainly to inability to manage relative shifts in demand for low-skilled labour because of wage rigidities and generous social benefits. They offer an alternative view emphasizing major differences in aggregate demand policy. They point out that without economic growth and the resulting employment opportunities it is difficult to advance EU labour market reform.