Many economists (including Prescott, below) attribute some of Europe's problems to labor market restrictions. In the New York Times, Alan Krueger focuses on Italy.

A study led by Stefano Scarpetta of the O.E.C.D. released last week found that the average American company that survives two years increases its employment 160 percent, while the average Italian one that survives as long grows only 20 percent. Although many factors are undoubtedly at work, stiff firing restrictions probably account for some of Italy's lower job growth.

Discussion Question. Labor market restrictions like those in Italy make businessmen leery of hiring too many workers. How might this lead to relatively high productivity?

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