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America’s Exceptional Labor Force

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America’s economy benefits from its mobile society and dynamic labor force. American rates of mobility are much higher than in other developed countries. And immigrants in America come to work. In fact, workforce participation by immigrants is higher than that of native-born Americans.

Click below to watch the other videos in Examining America's Exceptional Economy.
This four-part video series explores what has made America's economy successful, what sets it apart from other nations, and what needs to be done to sustain its prominence in the global economy. Lazear shows that America and its people have prospered by prioritizing economic freedom, industriousness, low taxes, light regulation, free trade, and openness to immigration.
 
Edward Lazear studies labor markets, tax reform, human capital, and their effects on economic growth. He is the Morris Arnold and Nona Jean Cox Senior Fellow at the Hoover Institution and the Davies Family Professor of Economics at Stanford University's Graduate School of Business. He also served at the White House from 2006 to 2009 as a chairman of the President's Council of Economic Advisers.
 

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The US is a mobile society. Americans are willing to move. This is exceptional. In any given year, 16 percent of the U.S. population has moved, compared to 7 percent in the EU. If a good job comes up on the other side of the country, Americans are willing to take it.

Historically, Europeans haven’t wanted to move and have been unwilling to do so, although that may be changing recently. Mobility is an important factor in affecting economic growth. When I was growing up, California had 10 million people. It now has 3.5 times that. Californians may not be so thrilled about that, but it happened for a reason: There were tremendous opportunities on the west coast and Americans moved to take advantage of those opportunities.

An example of another kind of mobility that was extremely important in the development of this country is the migration of African-Americans from the rural south to the urban north, which took place starting in the late 1940s and continued pretty much throughout the 1980s and 1990s. Cities like Detroit, which started out with very low African-American populations, became very highly African-American in large part because of economic opportunities presented as a result of manufacturing.

More recently, we’ve seen movement back down to the urban south, adding to the growth of cities like Dallas, Houston, Miami, and Atlanta, and showing that people are willing to move when the opportunities are there. This is an exceptional, American phenomenon, which doesn’t happen elsewhere in the world.

Aside from geographic mobility, we have job mobility in our workforce of about 150 million people. In any given year, about 60 million people are hired. That’s two-fifths of the labor force. At the same time, 58 million are separated, while the net is two million—that’s roughly the growth in the size of the American employment force each year.

That tells us that there is a tremendous amount of churn and dynamism in our labor force. People are moving from bad jobs to better jobs. They’re moving from jobs to which they’re poorly suited into jobs to which they’re better suited, and that happens constantly. We lead the world in this type of mobility. Ten years ago, a colleague and I did a book in which we looked at a dozen countries and compared labor-force mobility. Some other countries also do fairly well in this respect. Denmark, surprisingly, is a very mobile and quite open labor market. But we’re still the best. 

In this particular political moment, it’s relevant that America is exceptional in the opportunities it offers immigrants. We are the only country, including Canada, where the unemployment rate among the foreign-born is lower than that among the native born. Our immigrants actually do better in employment than does the native-born population. The fact that we are able to bring immigrants in and get those people into jobs is a very good sign—and reflects the fact that we are still a welcoming nation.

This good news is related to our relatively light labor regulation. Employment-at-will essentially says that the employer is free to decide whether or not you work for his firm. That’s not true in Europe. When you lay off a worker, you have to compensate that worker for being laid off. That may sound like a socially just contract, but it has consequences. In Spain, for instance, employers have to give a laid-off employee six months of pay for 10 years of service. In Italy, it’s about $2,000 for three years of service. As a reaction to that, these countries have lowered their hiring rates dramatically. If a company fears that it cannot lay off a worker, it’s not going to hire in the first place unless it’s pretty certain that it can afford to retain that worker.

European companies also institute temporary, as opposed to permanent, contracts. In France today, virtually everyone is hired into a temporary job: People who stay in the jobs for long enough become permanent. As a consequence, the companies fire them to avoid making them permanent. Now that’s kind of crazy. Just when you're getting good at the job, after three years’ worth of experience, they say, “Hey, you're out the door because I can’t afford to keep you.If do, I’m locked into keeping you forever or paying you to leave.” That’s not a very effective way to run a system. That’s just one example of regulatory differences across the two continents.

America has also had historically light taxes. The ratio of combined state, local, and federal tax to GDP in the United States is 26 percent. In France, the figure is 45 percent. By international standards, our taxes are still quite low. 

There are also less quantitative elements that differentiate our economy from other economies in the world. We are much less tolerant than most of class-welfare based on economic situations. We don’t have labor parties in the United States. Socialism has never taken off here. Even the union movement in the United States is thought of as one of business unionism, as opposed to social or revolutionary unionism.

Sam Gompers, the founder of the AFL, said he believed that management and workers could get together to reach beneficial understandings—to get the job done, with a fair day’s work for a fair day’s pay. Other countries have revolutionary unionism, which is essentially the desire to displace, rather than work with, capitalists.