Crowding out on the labour market typically refocusses the policy co-ordination problem to the lower end of the market. This phenomenon tends to reduce the problem and our vocabulary in these pages to social subsistence, tax exemption and (legal) minimum wage.
Poverty
A crucial difference between the United States and Europe is that the US accept more poverty (e.g. by low controls on its minimum wage laws), while Europe chooses high minimum wages and benefits to raise standards of living. The shift of the Phillipscurve thus is more obvious and stronger in Europe than in the US. In the US the working poor still work, so unemployment is lower, and the shift of the Phillipscurve is less strong. Sometimes the argument stops here. It remains a topic of consideration though whether more than just this can be said about poverty.
Poverty affects productivity directly. A clear case is medical care. With less medical care, there are longer periods of illness, and more chances for complications of a less well attended illness. Employers are less likely to hire less healthy persons.
Poverty affects personal appearance. A shabbily dressed and badly groomed individual has less chance of employment than a person of average appearance.
Poverty affects social attitudes. Social seggregation and cultural differences reduce the chances of employment.
Poverty affects capacities. Rich people need not study much, need not read many papers, and may only watch soap operas. They are rich, and can enjoy themselves. But those of the rich who would like to study, read, watch serious tv programs, and drive out to educational events, have the means to do so. Those who are not that rich, and those who have to study to maintain a higher living standard, may work and still earn enough to enable them to study. Those of the poor section that might want to do the same, do not have those means.
One aspect of US poverty is crime. Poverty does not actually force people to crime, as some people demonstrate, but for many it in fact appears to be very seductive. Jacobs (1996:573), referring to Freeman (1996:25-42), explains that about 2% of US males is in prison, about the same rate as long term unemployment in Germany. Taking account of women, the overall US imprisonment rate is about 1.2%. The highest rate of European imprisonment is for the UK, with 0.3%. So for the US we might add 0.9% to the unemployment rate.
Also, additional 5% of US males is on conditional leave etcetera from the prison system. More have a criminal record. Those points reduce the chance for employment.
Some of these points, like imprisonment, work directly as a minimum wage. Some other points rather affect the employment or earnings distribution, and cause a structural rise of Ul.