This is an ambitious book. Blau and Kahn summarize the differences between labour market outcomes in the USA and other OECD countries over the last twenty years, describe the key economic events and labour market institutions that have shaped labour market performance and evaluate the research that has attempted to explain it. They manage (somehow) to do it all in a readable 266 pages, without the crutch of mathematics. The result is an impressive accomplishment that deserves to be widely cited—but it is also not surprising that some important gaps remain. The book begins with an overview of economic performance in the USA and elsewhere, concentrating on trends in employment, unemployment, working hours, wage levels and wage inequality. In the end, Blau and Kahn will conclude that “institutions matter,” and Chapter 4 is devoted to the conceptual issue of how one might be able to distinguish the influence of institutional structure from the workings of market forces. However, a prior issue is the extent of international institutional differences in collective bargaining, wage setting, minimum wages, employment protection and mandated benefits—and many readers will likely find themselves using the succinct summary of Chapter 3 as an authoritative reference for their own research. The book then focuses on the impact of labour market institutions on unemployment, relative wages and the gender pay gap. The puzzle is that European labour markets always have been more highly regulated than those in the USA and on average had much less unemployment until the late 1970s. Since about 1980, however, high unemployment has plagued France, Germany and several other countries. The organizing framework for Blau and Kahn’s discussion is the so-called “unified theory,” which explains all this in terms of the interaction of economic shocks and labour market institutions: “The EU experience of rising unemployment, rising real wages, and comparatively stable relative-wage levels and the U.S. experience of falling unemployment, falling to steady real wages, and rapidly rising wage inequality are two sides of the same coin. The United States permitted real and relative wages to adjust, while, in other Western nations, employment took the brunt of the shocks.” (p. 5). A key idea in this approach is the presumption that U.S. labour markets are more “flexible”—although it is notable that “flexibility” is never defined explicitly or tested directly. Blau and Kahn summarize their own research and that of others with admirable clarity and encyclopaedic thoroughness. In the end, they conclude that although the evidence for institutional impacts on the wage structure is much stronger than for employment effects, the unified theory is a useful framework. However, the demand side of labour markets is not directly examined. Micro data on households and individuals is used extensively, but firm level micro data is not examined—an issue which is important since it is the presumed hiring behaviour of firms in response to wage (in)flexibility that is assumed to be responsible for differences in employment levels. Nor is there any consideration of macro economic demand management policies—one looks, for example, in vain for any reference to the hypothesis of Akerlof, Dickens and Perry (“Near-Rational Wage and Price Setting and the Long-Run Phillips Curve,” Brookings Papers on Economic Activity 1, 2000, 1-60) that when monetary policy is focussed solely on attaining a very low inflation target (as in the EMU), a permanently higher unemployment rate is the cost. However, for this reviewer, the book also raises the broader issue of how we should construct, and test, theories. In economics, one often encounters the idea that theory is a way of making sense out of “stylized facts,” i.e. a plausible explanation …