The bizarre labour market situation in Europe

The US labour market situation is easy to understand: there are hiring difficulties among companies and faster wage increases associated with a decline in labour supply (and in the participation rate). But in Europe (we look at the euro zone and France), there are major hiring difficulties for the time being without a sharp acceleration in wages, and moreover these hiring difficulties are not associated with a decline in labour supply, since on the contrary it is higher than before the COVID crisis. The bizarre situation of the European labour market can probably be explained by: The decline in productivity, which generates a sharp increase in labour demand; Strong sectoral mismatches between labour supply and demand, as employees reject certain business sectors; Companies’ refusal, for the time being and on average, to react to hiring difficulties by faster wage increases, for fear of not being able to pass on wage increases to prices (this fear does not exist in the United States).