UNEMPLOYMENT IN EUROPE - A PROBLEM OF RELATIVE OR AGGREGATE DEMAND FOR LABOR

The United States and the European Union have exhibited markedly diffe rent labour market developments since 1980: relatively low unemploymen t despite strong labour supply growth in the US; slow labour supply gr owth and huge unemployment in the EU. The authors critically examine t he ''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 alternativ e view emphasizing major differences in aggregate demand policy. They point out that without economic growth and the resulting employment op portunities it is difficult to advance EU labour market reform.