A tale of two labor markets.

• Author: Higgs, Robert
• Position: Western Europe and United States

The post-World War II economic history of Western Europe and the United Sum Tune of divides neatly into two halves, winch we might call the Golden Age and the Troubles, respectively In the latter era Europe achieved only a small increase in employment and suffered a huge increase in unemployment, while the United States achieved a huge increase in employment and kept its unemployment in check.

What Has Happened?

During the Golden Age, from 1945 to 1973, the European economics recovered from the war and enjoyed high rates of economic growth. The United States, having emerged from the war with relatively little loss of human and material capital, experienced somewhat slower economic growth but remained the world's most productive and prosperous nation.

Before 1974, despite concerns about certain lagging industries and regions, unemployment did not seem to constitute a major problem in the North Atlantic economy. In the 1960s the unemployment rate ranged from 1.3 to 2.6 percent in France, from 0.3 to 1.4 percent in West Germany, from 2.4 to 3.8 percent in Italy, and from 2.0 to 3.4 percent in the United Kingdom (U.S. Council of Economic Advisers, Report [Washington, D.C.: U.S. Government Printing Office, 19801, p. 326). For the group of countries that eventually became the first twelve members of the European Union (EU), unemployment stood at about 2.5 percent from 1960 through 1974 (George Alogoskoufis and others, Unemployment: Choices for Europe [London: Center for Economic Policy Research, 1995], p. 6). In the United States the long economic expansion of the 1960s brought the jobless rate down to 3.5 percent by 1969, though it did rise thereafter, reaching 5.9 percent in 1971 (U.S. Council of Economic Advisers, 1980 Report, p. 326).

On both sides of the Atlantic, the recession of 1973-75 ushered in the Tune of Troubles. The U.S. unemployment rate rose to 8.5 percent in 1975, the EU rate to about 4 percent. After the recession, unemployment fell during the latter half of the 1970s in the United States, but it continued to climb in Europe, and by 1979 the U.S. and the EU jobless rates had converged at about 6 percent. With the onset of another recession, the two rates rose in tandem for the next three years, reaching nearly 10 percent in 1982. After 1983, the U.S. recovery pushed unemployment down rapidly, but in Europe unemployment continued to climb until mid-decade. Though European joblessness declined a good deal in the late 1980s, it stood about 3 percentage points above the U.S. level when the recession of the early 1990s began to push it up again. In the early 1990s, just as in the early 1980s, Europe's unemployment continued to rise long after the U.S. rate had peaked and begun to fall (Alogoskoufis and others, p. 6; Alan R. Townsend Making a Living in Europe: Human Geographies of Economic Change [London and New York: Routledge, 1997], pp. 27, 62; U.S. Council of Economic Advisers, Report [Washington, D.C.: U.S. Government Printing Office, 1997], p. 421). By 1997 the U.S. rate had dipped below 5 percent, while the EU rate remained well above 10 percent.

France, whose unemployment rate...