Thursday, January 28, 2010

Labor Rigidities

A commenter named Hudson wrote the following over at A&J:
Don't conservatives favor labor mobility as being economically rational, efficient and leading to the highest benefit for individuals as well as productivity/wealth generation for the economy at large? Aren't you a capitalist?

Americans who want EU citizenship are just laborers who want the mobility to seek the best jobs/benefits/lifestyle available to them. What the desire for EU citizenship tells us is that the EU economy is offering attractants the US economy isn't. (Money, vacation time, health benefits, parental leave, worker friendly labor laws, etc.) The classic reasons for a brain drain.

Recognizing this doesn't make these folks unpatriotic, it makes them observant. Anymore than the millions of immigrants, legal and illegal, to America are not unpatriotic Mexicans, Chinese, etc., they just figured out they could get a better return on the investment of their labor here in America.

If you want to avoid a brain drain from America to Europe, (not to mention losing top international talent to the EU) appealing to people's patriotism will go only so far. Offering salaries and benefits and lifestyle that are competitive with the EU's is the only real solution.

I replied with the following:
Uh-huh. I seriously doubt that the truly talented and ambitious, the people who really are who we care about when talking about brain-drain, are saying to themselves, "Man, it would be so much better if I could work in a place with higher taxes and larger labor rigidities."

Hudson responded:
When you add the cost of health insurance to taxes in the US it's the same as the cost of taxes (which include health insurance) in the EU. But you get better services for your tax/insurance money in the EU. 'Truly talented people' figure this out quickly. The only group of people whose net tax burden is significantly lower in the US are the mega-rich Are you a multi-millionaire? Then why be a schill for them?

As far as 'labor rigidities'--most people are employees, not employers, including the international corporate elite, so 'labor rigidities' like job security, health benefits, parental leave, number of work hours, workplace safety, etc. appeal to them too. Truly talented and ambitious people care about not being worked to death, being able to spend time with their families too.

And then me again:
Your analysis is flawed. Sure, it would seem, prima facie, that employees would want labor rigidities, but a more careful analysis reveals that these increased rigidities adversely affect a talented employee's ability to take advantage of better opportunities indirectly thorough the disincentives to create jobs.

A plodder, who just wants a 9-5 job for the rest of their life with a single employer with no real ambition, loves the perks that come with labor rigidities. An ambitious person is constrained.

So, in the short-term, direct scope you proposed, yes, your logic makes sense, but if you broaden the analysis the opposite is true.

I just want to be clear about this because I think it makes perfectly understandable and logical sense. Above average workers, all things being equal, benefit less and have higher costs from labor protections. Employers want to hire and keep above average workers almost by definition. Therefore, their jobs are generally not in jeopardy and to the extent that employers have difficulty getting rid of unproductive workers or creating new positions it hurts above average workers more. The people who benefit most from labor protections are below average workers. When you are talking about global brain drain, for la creme de la creme, don't think the relative labor market flexibility doesn't play a role.

And anecdotally and empirically, but FLG would have to do research, this is supported:
Stephanie Wahl, of the Institute for Economics, based in Bonn, said that those who are leaving Germany are mostly highly motivated and well educated. "Those coming in are mostly poor, untrained and hardly educated," she added.

Fed up with comparatively poor job prospects at home - where unemployment is as high as 17 per cent in some regions - as well as high taxes and bureaucracy, thousands of Germans have upped sticks for Austria and Switzerland, or emigrated to the United States.

This doesn't mean that any particular program that adds labor protections or raises taxes should be opposed, but the overall scope of labor protections and tax burden relative to the rest of the world is something to at least keep in mind if you are concerned about brain drain.

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