Question

Unemployment rates have been higher in many European countries in recent decades than in the United States. At the same time, the unemployment rates differ among different countries in the Euro Area. Explain what are the main reasons for this difference in unemployment rates between Europe and the United States, and among European countries?

Answer 1

For many reasons the unemployment rate differs between United States (US) and Europe. Firstly, unemployment benefit is provided to the unemployed in US only for a short period of time whereas in Europe many countries allow individuals to collect the same for many years. Secondly,  the demand for unskilled workers has decreased significantly in both Europe and the US as more and more skilled workers are in demand due to advancement in technology. However,US has seen adjustment in the wage rates but in Europe it resulted in the fall in unemployment.

The European countries have preferential trade agreements between themselves. Therefore depending on their specialization they export and import goods. Therefore, the quantity of trade, if high, then consequently the workers involved in those sectors will be employed. Thus if more workers are involved in those sectors in some countries their unemployment rate will be low. Moreover, the policies such as social safety nets, job prospect differ among them. These various factors interact to determine the unemployment rate. Thus heterogeneity of those sorts are responsible for the evident divergency among the countries