Competition. The only way a company will pay you more is if you threaten to go work for the one across the street. European labor laws actually work against the interest of employees in this case, since everyone there has longer term contracts, long notice periods and strict non-compete agreements.

I also don't agree with your second point. Salaries of software engineers in the US aren't "skewed" or "inflated". If anything they are underpaid. Up until recently there was a lot of illegal anti-poaching collusion happening among the big tech companies which kept salaries low.