Observations and Conjectures on the U.S. Employment Miracle
Alan B. Krueger
Princeton University - Industrial Relations Section; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics
London School of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics
MIT Department of Economics Working Paper No. 97-16
This paper has three goals: first to place U.S. job growth in international perspective by exploring cross-country differences in employment and population growth. This section finds that the U.S. has managed to absorb added workers--especially female workers--into employment at a greater rate than most countries. The leading explanation for this phenomenon is that the U.S. labor market has flexible wages and employment practices, whereas European labor markets are rigid. The second goal of the paper is to evaluate the labor markets rigidities hypothesis. Although greater wage flexibility probably contributes to the U.S.?s comparative success in creating jobs for its population, the slow growth in employment in many European countries appears too uniform across skill groups to result from relative wage inflexibility alone. Furthermore, a great deal of labor market adjustment seems to take place at a constant real wage in the U.S. This leads to the third goal: to speculate on other explanations why the U.S. has managed to successfully absorb so many new entrants to the labor market. We conjecture that product market constraints contribute to the slow growth of employment in many countries.
JEL Classification: E24, J21, J23
Date posted: November 20, 1998