Unemployment - taken from an article from Mesirow Financial

An elevated level of the “natural rate” of unemployment is a worrisome development in the United States, but it has been a sad reality in Europe for at least two decades. As is widely known, Europe has suffered higher unemployment rates than the U.S., and until recent years, European countries achieved little success in improving the performance of their labor markets.

There are at least six factors that are commonly advanced to explain this differential:

1- Generous levels of unemployment benefits
2- Longer duration of unemployment benefits
3- Higher degree of workers’ protection
4- Higher rates of unionization
5- Centralization of wage bargaining
6- Broader safety net provided by families to young adults

Overall, these six factors contributed to create and preserve a labor market significantly more rigid than the one existing in the United States. It was only after the roll-back of some of these protections that Europe began to experience some improvement in the 2000s.

Are we Europe yet? No. While recent policy decisions have moved us closer our supporting of the unemployed lifestyle it is not nearly the same as it was and is for Europe. Learning from the European mistakes, we should resist short-term fixes that would make the labor market more rigid, preventing the market to adjust to the new economic realities. Instead, we should focus on programs that facilitate, rather than hinder, the underlying changes taking place in the economy. From re-training programs to the portability of healthcare benefits, from the revision of the way unemployment benefits are calculated, to having them progressively phased-out rather than abruptly interrupted, there are many options to make incentives more aligned with the dynamics of the market process. The preservation of flexibility in the U.S. job market is of paramount importance.