What if low US labor force participation is driven by low US labor standards?

There is no cliché more beloved by chin-stroking observers of The West than the “sclerotic” labor markets of Western Europe.

• France is of course the most notoriously sclerotic labor market;
• but Spain hasn’t dodged sclerosis either;
• and even our Anglo-Saxon brethren in the United Kingdom have a certain sclerotic tendency.

There is a problem with this diagnosis, unfortunately: all three countries have higher labor force participation rates than the United States.

Sclerosis is a stiff metaphor for high labor standards

Sclerosis is such a weird metaphor that I won’t belabor its exact definition, except to say that it primarily means labor protections in excess of those in the United States, which is the only example ever used of a “non-sclerotic” labor market among industrialized countries. So, the United States:

• has a minimum wage that is a lower percentage of the median wage (35%) than any other OECD country;
• has no guarantee of paid sick, parental, or vacation leave for the vast majority of workers;
• has a workforce primarily composed of “at-will” employees who can be fired for any reason, or no reason at all;
• has an extremely low level of private sector collective bargaining;
• and allows employers to force employees into private arbitration to settle workplace disputes.

In other words, any country with a generous minimum wage, paid leave, restrictions on terminating employees, high levels of unionization, and a vigorous enforcement of workplace protections, by definition has a more “sclerotic” labor market than the one in the United States.

What keeps people out of the labor market?

It’s possible, of course, that the higher labor force participation of the French, Spanish, and British populations is a result of some national characteristic so powerful that it overcomes the sclerosis of their labor market and causes people to seek work despite the labor market’s shortcomings.

But an alternate explanation I’d like to advance is that the high, uniform labor standards of Western Europe encourage labor force participation because of their height and uniformity.

There are a few reasons this might be the case. First, due to our workplace-based benefits system, it’s genuinely unclear to workers in the United States whether they’ll be better or worse off if they move from our federal single-payer Medicaid program for low-income households to a workplace-based health insurance plan with co-payments and deductibles or to a state-based Affordable Care Act exchange. It’s not just rational, it’s correct for a low-income person with expensive health care needs to stay out of the labor market in order to avoid accidentally falling into a vastly more expensive health care plan.

Likewise, the strict eligibility conditions built into the federal Family and Medical Leave Act mean that a person who is pregnant or planning to become pregnant is perfectly rational in staying out of the labor market, knowing that there’s no chance they’ll be eligible for (unpaid) family leave after giving birth.

What if people who are confident of fair treatment are more likely to join the labor force?

Media coverage of the US labor market is confusing because there are two equally confident, contradictory assertions made about it:

• there is a critical shortage of unskilled labor;
• and there is a critical shortage of skilled labor.

You could imagine each of these conditions being true. It might be that too many people are learning too many specialized skills that make them unwilling to perform unskilled labor. It also might be that not enough people are learning enough specialized skills, making them unable to perform skilled labor.

But the fact that the labor force participation rate in Spain, France, and the United Kingdom are 5-6 percentage points higher than those in the United States makes me think a much simpler process is at work: people who expect to receive fair treatment at their places of work are more likely to seek out work than people who are certain they’ll be mistreated at their places of work.

Conclusion

Whenever I read about a business owner complaining they “can’t” find employees, I’m always the first to ask whether they’ve tried paying more, and I think it’s a good and right question to ask any employer who thinks they’re being held back by some force outside their control instead of the force directly within their control: the wage they pay.

But if there is any truth to the claim of “labor shortages,” that truth lies squarely in the fact that the United States has made labor conditions so miserable, so unappetizing, that plenty of people who might work under more appropriate conditions simply have no interest in working under the conditions that actually exist in the United States.

They have smartphones in France, they have video games in Britain, they have pornography in Spain, but all those countries have somehow managed to entice much more of their working-age population into the workforce.

That makes me think it might be time to introduce a bit of sclerosis here, as well.