However, the decline in the profit rate in Europe is not the single cause to which the
increase in European unemployment can be attributed, as Bean notes that movements in the
terms of trade and counter-inflationary demand policies are also definitely part of the cause.
Furthermore, since wages are highly rigid in the European Community and the United States,
these factors have had a much greater effect on the unemployment in these regions than in
Japan and in European nations that are not part of the European Community. This
demonstrates the significance of institutional differences in the process of setting wages.
Furthermore, a significant reason for the higher level of unemployment in the European
Community than in the United States is that the behavior of the unemployed in the European
Community, which leads to the coexistence of unemployment and job vacancies, makes
temporary shocks on unemployment have persistent effects, while this is not the case in the
United States. This implies that although measures such as reducing hiring and firing costs,
limiting union power, and improving training which increase the flexibility of the labor
market may decrease the persistence of unemployment in the long-run, additional active labor
market policies must be pursued to reduce the current high levels of unemployment