Economic Freedom Propels Job Creation

by Anthony B. Kim, Heritage Foundation

Economic freedom boosts job growth, as the Heritage Foundation’s 2010 Index of Economic Freedom empirically demonstrates. Now, there is more evidence in a state-level study just released by the Federal Reserve Bank of St. Louis, “Economic Freedom and Employment Growth in the U.S. States.”

According to the Fed research, “states with greater economic freedom – defined as the protection of private property and private markets operating with minimal government interference – experienced greater rates of employment growth.” The authors of the study further note, “Our results suggest that policy-makers concerned with employment should seriously consider the degree to which their own labor market policies, as well as those of the national government, may be limiting economic growth and development in their respective states.”

According to the 2010 Index, the U.S. economy has quite flexible labor market policies in general, with relatively few labor restrictions in place. The big exceptions relate to union membership. It is not a coincidence that among the states identified as least free in the Fed study are New York, Hawaii and Alaska, the three most heavily unionized workforces in the country.

According to “What Unions Do: How Labor Unions Affect Jobs and the Economy,” by Heritage labor policy scholar James Sherk, unionized companies earn profits 15% less than those of comparable non-union firms. Not surprisingly, such companies have trouble competing, and unionized manufacturing jobs fell 75% between 1977 and 2008. By contrast, non-union manufacturing jobs jumped 6% over that same period.

In a time of high unemployment, there is definitely something to note here!

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Federal Reserve Bank: “Economic Freedom and Employment Growth in the U.S. States.”