Abstract

The average unemployment rate in Europe in2001 was 7.6 percent. This is higher than in any of the developed countries of the OECD outside Europe.1 So, in this average sense, there is a European unemployment problem. But averaging in this way is silly. Europe, by which we mean Western Europe, consists of fifteen countries (we omit Luxembourg) with fifteen more or less inde-pendent labour markets. As we shall see, it is how these labour markets operate which determines unemployment over the longer term. And by 2002, nine of these fifteen labour markets were operat-ing well enough to produce unemployment rates lower than in any of the non-European developed OECD countries including the US. So why is aver-age unemployment in Europe so high? The answer is that unemployment is high in the four largest economies of Continental Western Europe, namely