Labor Markets for Grownups

In the ongoing discussion of the Eurozone collapse, we keep hearing statistics about the extraordinarily high levels of youth unemployment in the PIIGs (Portugal, Ireland, Italy and Greece). France also has very high levels of youth unemployment, and Europe, in general, consistently has higher unemployment than the United States, despite the fact that may European countries arguably have higher overall levels of human capital. That is (in English): even though the U.S. is less successful in educating its entire population, U.S. companies can still find more employment for more of the population, especially the young (yes, even now).

It’s relatively uncontroversial among economists of all political stripes that one of the main reason for this is that European labor markets are less liquid – i.e., French law makes it more difficult to fire employees, so employers are much more circumspect about hiring people in the first pace. Since any kid with a good resume could turn out to be great or could turn out to be a slacker lemon, you’ll be less inclined to hire if it will be extremely costly to get rid of him in the latter case. (Spain tried to get around this problem by giving companies more freedom to fire “interns”—this has led to a two-tiered employment system, with many young people living in serial, monogamous, but non-committal employment relationships, getting let go from each company as soon as the government’s time limit for classifying someone as an intern runs up.)

Economists all agree that that is a cost. But some—debating as economists ostensibly do, solely with descriptive models and empirical evidence—point out that the European model has benefits which may be worth the cost. If you know you can’t get rid of your employees and they are less likely to leave, you may be more inclined to invest in them—giving them better and more extensive training, helping them continue education, sincerely caring for their health, etc. And the knowledge that it’s hard for your employer to fire you can give you greater security and certainty about the future, and consequent happiness, if you’re into that.

So it’s hard to scientifically say which model has better consequences (full disclosure: my view is that  liquid labor markets combined with reliable social insurance is the best policy overall). Economists think that this debate is just one instance of the ubiquitous dilemma between efficiency and moral goods like equity/security.

But here’s my non-empirical, non-economic, non-consequentialist, sanctimonious thought: It’s really sad and bad, deontologically speaking, to be “into that,” meaning the idea that employers can’t fire their employees.

Employers only want to fire employees who aren’t worth their paychecks—i.e., whose costs outweigh their benefits. Maybe this accounting language sounds cruel in the context of real people’s real jobs. But the alternative is worse: It is the idea that we have a right to demand succor from private employers without having a reciprocal obligation to be equally useful. And that strikes me as perverse. I could not bear to work for an employer who did not find me useful, did not want me, and were restrained from firing me only because the law made it prohibitively difficult—I would be too ashamed and humiliated to show my face in the office if I were regarded as a drag. And the kind of person who doesn’t feel that is, in two harsh words, contemptible and pathetic—not really a grownup. A society that legally enshrines and subsidizes those characteristics strikes me as one that will produce less grownup citizens. (I also think it’s hugely morally problematic for the government to forcibly prevent private business owners from shifting resources from failing employees to eager prospective employees who might better help the business achieve the goal for which it was incorporated.)

(N.B.: This is not an argument against things like disability insurance. Disability insurance is just the logical way of pooling the uncontrollable and rare but potentially devastating risk we all face. There is a difference between a policy designed to bear huge, unpredictable risks and one whose effect is to subsidize controllable and consistent failure.)

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