I forgot to mention that Blanchard and Wolfers are relatively optimistic about the European labor market situation:

. . . one can be mildly optimistic about the future of European unemployment. The effects of some of the adverse shocks should go away. The real interest rate is likely to be lower in the future than in the recent past. The dynamic effects of . . . adverse labour demand shifts should eventually prove favorable to employment. Institutions are also slowly becoming more employment-friendly. . . . the more favourable macroeconomic environment and the improvement in institutions should lead to a substantial decline in unemployment.

Of course, that was written in 2000 . . .

The Baker et. al. paper also contains this little tidbit that the "party line" always fails to mention:

. . . the mode of bargaining coordination appears to have a substantial impact on the unemployment rate. . . . Increasing bargaining coordination . . . may allow for lower unemployment without the same welfare costs [as deregulation] for workers.

Both Ireland and the Netherlands, for example, relied heavily on negotiated wage moderation via coordinated "social partnership" bargaining between labor, business, and government to reduce unemployment. Wage moderation allows for more expansionary fiscal and monetary policies, because the risk of inflation is reduced.