Why are European Countries Diverging in their Unemployment Experience?

In he 1960’s and early 1970’s, after the completion of the postwar recoveries, unemployment rates throughout Europe were generally in the range of 2 to 3 percent or lower. Some three decades later and in the wake of the major recessions of 1974-75, 1980-84 and 1991-94, Europe was afflicted with enduring high levels of unemployment. The only big country that seems to have escaped from persistent long-term unemployment is the United Kingdom. The three largest continental economies, France, Italy and Germany, have all seen continued high unemployment. Throughout the 1990’s the member states of the European Union experienced an average rate of unemployment of about 10 percent, an almost fivefold increase from the average for the states in the 1960’s.
These high and low unemployment rates in different countries cannot be explained by obvious measurement issues. For example, France uses a definition of unemployment that does not include government relief jobs or early retirement, and France also has the lowest work week in Europe for full-employed workers, but the unemployment rate in France is high.…