Your Teacher Said What?! by Joe Kernen

Author:Joe Kernen
Language: eng
Format: epub
Publisher: Penguin Group USA, Inc.
Published: 2011-04-18T04:00:00+00:00

Every year, the Heritage Foundation publishes an index to economic freedom around the world. The index compares ten different aspects of each nation’s economy—including tax rates, government spending, the ease with which new businesses can be started, the freedom to hire and fire workers, how well property rights are enforced, and levels of corruption—on a scale of one to one hundred and averages them to come up with a total score. Okay, it’s more than a little wonky, but it’s also useful.

It turns out that not all of the components measured are really strong indicators of economic success. The top scores in “fiscal freedom” (the taxes paid by individuals and businesses) include countries like Oman, the Maldives, and the Kyrgyz Republic; two of the “best” countries in the category of government spending are Burma and Turkmenistan. However, the top performers in other categories, such as trade freedom and property rights, are also the most free and most productive economies in the world: Western European countries such as France and Germany; English-speaking countries (Canada, Australia, New Zealand, and the United States), Japan, Hong Kong, and Singapore.24

One result is that on most of the measures of economic freedom that matter, the world’s rich countries are hard to tell apart: Germany, Japan, and the United States all enforce property rights, are generally free of corruption, and permit the free flow of capital.

However, there is one measure on which they are wildly different—and it’s the one that not only explains the differences in economic performance but also is a clue to its source. It’s the category called labor freedom.

Labor freedom is the result of an equation that includes six different values: the ratio of the minimum wage to the average value added per worker, legal hindrances to hiring new workers, the flexibility in the number of hours an employer can ask an employee to work, the difficulty of firing employees, and how much notice and severance are required to do so (I told you it was wonky). The world’s top three countries in labor freedom are Singapore, Australia, and the United States, all scoring at least ninety-four out of one hundred. In the same category, France scores a 54.7 and Germany less than 40. (A different study, performed by the Organisation for Economic Co-operation and Development—OECD—in 1999, found that the countries with the strongest employment protections were Italy, Greece, Turkey, and Portugal. The weakest were the United States, the UK, New Zealand, and Canada.)

The European “way” in labor relations has some appeal, of course:

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