Question

Unemployment rates have been higher in many European countries in recent decades than in the United States. Is the main reason for this long-term difference in unemployment rates more likely to be cyclical unemployment or the natural rate of unemployment? Explain briefly.

Short answer

The main reason for the long-term difference in the unemployment rate is the natural rate of unemployment because of public policies in Europe.

Step-by-step solution

Step 1. Unemployment Rate

The unemployment rate is the percentage of adults who are able to work and are willing to work, and actively looking for work but are not able to find a job.

Step 2. Long-term difference.

The main reason for the long-term difference in the unemployment rate is the natural rate of unemployment because of public policies in Europe. Europe offers many unemployment benefits and they strongly favor labor unions and high minimum wages.