Okay, welcome back. We're continuing unit seven, looking inside the labor  market with lesson three. So inside the labor market, we have come up with  multiple stories about unemployment and how that, how unemployment can, you know, come about. 

So can these theories help to explain differences between the United States and Europe? So we looked back and we think about, you know, the sticky wages or,  you know, or the minimum wage increasing, are those the factors? You know,  some factors that played a part in unemployment in the United States. So we  kind of wanted to discuss some differences between Europe and the United  States. So first, it is generally the case that minimum wage are more generous  in Europe than in the United States. 

So it's certainly a possibility that a higher minimum wage in Europe can  contribute to higher levels of unemployment there as people will wanna trade  their time for dollars. And if they are, or for whatever monetary unit you have,  they'll wanna trade their time for that monetary unit. And if unemployment is  paying, you know, $10 an hour, let's say, you know, why go trade your time and  work when you can work for free there in Europe at a higher wage? So you can  see where people's mindsets may have been when, you know, the  unemployment rate in the European nations were, was higher than the United  States. 

So the minimum wage there is higher. So therefore, to deter more people from  going to look for jobs inside the labor market. Second, there is some evidence  that nominal wages are in some sense stickier or artificially higher in Europe  than in the United States. 

You know, the United States is going to, most firms in the U.S. are going to pay,  you know, at equilibrium labor prices or slightly above where Europe may be a  little more liberal than the United States and the fact of paying wages out. So the United States, I think it's a little more capitalistic in that sense where Europe has undertaken somewhat of a socialistic model. Third, we can observe that unions  are generally more prevalent and more powerful in Europe than in the United  States. 

Though some of the stories that have been told are potentially helpful in  explaining the differences between the United States and Europe pertaining to,  you know, unions. Unions are a large factor in the United States and were early  in the mid-1900s in the United States, the mid-20th century in the United States. But I think labor union impact has slightly dwindled over the course of history in  the United States where Europe labor impact is still rather prevalent.

So there's another difference for potential stickier wages in Europe than in the  United States. All of these theories are silent about the underlying movement of  workers from employment to unemployment, to employment and back again.  These figures, the figure of unemployment in the labor market that we discussed in lesson two paints a static picture of a world that is in fact dynamic and fluid. There's no means in the framework to explore the role of unemployment  insurance and other policies that differ across Europe and the United States. So  market forces may work differently in the labor market like in the figure  unemployment in the labor market. There are more workers wanting to work  than there are jobs offered by firms. 

That means there's gonna be a high unemployment rate here. The standard  story of market equilibrium or market adjustment is that workers willing to work  for a lower wage would approach a firm, offer to undercut the wage of an  existing worker and be immediately hired as a replacement. Those things do  happen, especially if you bring in a third-party contractor to operate inside of  your operation and another third-party contractor can come in, underbid that  labor price and the third-party contractor that's currently in place can be let go  and another contractor can come in and assume those jobs at a lower price or a lower wage. 

But this is not how hiring and firing usually works in the labor market. Firms have a relationship with their existing workers. They know if their workers are  competent or not, if they know if they're hardworking and reliable. 

Firms will not be readily able to replace them, an unknown quantity of labor,  even for a lower wage. You don't know the skill set that you're gonna bring on  with employees with lower wages. And it's tough sometimes for employers to let  these existing employees go because they already know their skill set and if  they're competent, reliable and hardworking, whereas if they bring in people with lower wages, they don't know their work habits. 

So for these reasons, researchers in the labor economics think that the figure  unemployment in the labor market is too simple a framework to explain the  realities of modern labor markets. Instead, they frequently turn to a different  framework more suited to thinking about labor market flows. 



آخر تعديل: الجمعة، 2 أكتوبر 2026، 9:31 AM