Reference no: EM131250797

Back in 1997, The Economist described the plight of the unskilled worker in the rich world. "In America the problem takes the form of poverty wages, in Europe of unemployment. The underlying cause appears to be the same. There are more unskilled workers than jobs at decent wages for them to do. In America, wages are allowed to fall far enough to match the demand for unskilled labor with the supply. Unemployment is low and millions of new jobs have been created; but low-wage workers earn too little to live comfortably, and their incomes in real terms have fallen for 20 years. In Europe, wages and other employment costs are buoyed by minimum-wage laws and comparatively generous welfare benefits, so unskilled workers are less poor than in America; but unemployment is far higher." ("Ballad of the Global Worker." The Economist. September 18, 1997).

Use a demand and supply diagram of the labor market to explain why the decrease in demand for skilled labor led to low wages in the United States, but high unemployment in Europe.