We get thoughtful articles like this mixed with shitposting. I agree that shitposting drives short term engagement, but it could very well reduce influence among the “cognitive elite. “
Well, markets are the best way to make and distribute stuff we want. Free market economics is basically right. And people who use “neoliberal” as a pejorative tend to be economic imbeciles.
I didn’t say neoliberalism was wrong, I said it was boring.If wonking out in Ezra Klein, Yglesias’ or Noahpinions comments section is your bag, fine. But part of Hanania’s appeal is his edginess and willingness to deal with issues those people won’t touch.
Hanania is a conservative but he's really, really irritated by a lot of characteristics of many conservatives. "Most writers have to worry about "audience capture," but for me it's the opposite. When I see what those around me think, I have to struggle not to get consumed by all the ways in which they're wrong about the world." So his griping about the Epstein furor is part of his cultural criticism of conservatives.
I suspect as an 'outlaw' he has to carefully titrate producing enough offensive content to maintain his reputation with what he actually cares about.
You can complain about marketing but ultimately this is a capitalist society and that's what you need. Other ways have been tried...they didn't end well. The exception I think is modern China but we don't have their strong meritocratic traditions and ethnic/cultural homogeneity.
Another argument to make against labor protections is that it directly helps workers by encouraging them to become more entrepreneurial, rather than resting on their laurels.
Consider two economies: in economy A, Joe works the same job for 20 years. He considers quitting and starting his own business, but the time is never *quite right*, so he remains employed.
In economy B, Joe works a series of similar jobs with small interruptions between each one. We will assume that due to greater productivity, Joe's wages in economy B are slightly higher, which compensate for his temporary unemployment between jobs.
So far, so good: economy A and B are exactly equal with respect to Joe (ignoring other second-order effects like innovation, downstream from corporate profits).
But since Joe is let go in economy B, he now has an excuse to start his own business.
Another way to look at this problem is to say that each worker exists on a bell curve of motivation. In economy A, there are "threshold workers" who would like to start businesses, but are slightly too fearful to quit their jobs. In economy B, these "threshold workers" are confronted with opportunities to try something new.
In my case, for example, if I was never laid off, I would never start writing on Substack. I was a "threshold worker" who considered my salary to be high enough that I couldn't rationally quit on any given day; however, after being laid off, I decided to do something risky that I had never tried before. Whether this was a good decision for me personally or not is beyond my ability to calculate, but it is potentially an example of how even workers can benefit from being fired, given these ambiguous thresholds of fearfulness and risk-taking behavior.
Yes. I was attracted to Right-populism because I thought the excesses of post-2008 would be best combatted by unions who worked in the interest of the employee and of the nation. Unfortunately everything I've learned since around 2018 has shown me that this was a stupid thing to want, and that laissez-faire actually just works better for the intended purpose of moving money around, and a rising tide actually does lift all boats. The only people truly destitute in the US are the massively mentally ill. Otherwise there's enough to keep even the laziest people fat, clothed, and with reactive health care.
I think that the most economically correct position, and the position that we should hope that "Left of Center" would align with is that we have free labor market and use taxation to sustain social safety nets
Or, perhaps consider incentivizing savings and investment more effectively so that people can provide their own safety net. And also consider favoring industries that train and employ people who lack the higher skill and aptitude levels that a tech/service society favors.
I favor moving away from redistributive policies to expanding employment and self sufficiency.
There's a bell curve meme where the dumb people just want the government to leave them alone because of instinctual dislike of government, the smart people want big government as a rational allocator fixing problems, then the really really smart people know the government is actually shit at fixing stuff
This is a perfect example of why economics is a shit subject. You make a lot of assertions about ‘innovation,’ all of which are within the last ten years. When the US had much stronger labor unions between the 30’s to the 50’s we had quite a bit of innovation then, too.
Labor protection means protection PEOPLE. Germany’s strict labor laws contribute to social stability and a good quality of life for ordinary Germans, which is better for Germany. All those Silicon Valley innovations have done nothing to improve American lives and in many cases — AI data centers being the best example — have made things much, much worse for all of us.
Social stability and the prospect of a decent life for Americans is worth losing a few less iPhone updates.
Did the US have stronger labor protections from the 30s-50s than Europe did?
> All those Silicon Valley innovations have done nothing to improve American lives
False. We benefit from using those innovations!
> and in many cases — AI data centers being the best example — have made things much, much worse for all of us.
You present zero evidence for this.
> Social stability and the prospect of a decent life for Americans is worth losing a few less iPhone updates.
America has long had a net positive rate of migration with basically every country except Australia. People "vote with their feet" in favor of capitalism more than not only socialism but also social democracy.
Are those immigrants coming from social democratic nations? Yes, we HAD — note the verb tense there — positive rates of immigration, but part of that was because of factors other than the economy. The climate of Scandinavia is not exactly appealing to many people, to use just one example. Also, we didn’t have massive waves of immigration from northern Europe since before WWI. We had a sharp increase in immigration from the former Warsaw Pact because their economies reeked for reasons having exactly nothing to do with labor laws. Most of our immigration since 1965 has been from Latin America, Asia, and Africa. Those places don’t have robust legal protections for workers. Talk to me when we suddenly have millions of Germans or Swedes showing up at immigration ports.
More importantly, you might consider what other benefits the population gets from labor protections?
More immigration is from Latin America, which is both poorer than Europe and nearer to the US such that people can cross the border illegally, and once given amnesty able to take advantage of our immigration system's priority of family unification: https://www.econlib.org/archives/2016/03/the_accidental.html
I don't know what "worker protections" are in such countries (Cuba & Venezuela are one-party communist/socialist countries but I believe the government also controls the unions there), but also don't care much for the sake of this discussion since it doesn't change the comparison of the US vs Europe.
> We had a sharp increase in immigration from the former Warsaw Pact because their economies reeked for reasons having exactly nothing to do with labor laws.
Because of communism, which has its origins in the labor movement.
> More importantly, you might consider what other benefits the population gets from labor protections?
Why should I believe there are any? Do I see people "voting with their feet" for them?
The barrier to immigrating to Sweden is that you have to speak Swedish to get a real job there....unless the only language you speak is Arabic or whatever they speak in Somalia, and then you don't work at all except sell drugs to your countrymen.
Richard's point isn't that Scandinavian or German workers would rather work/live in America. I'm sure they would rather stay where they are where they have a soft life.....and get free health care too. The point is that the American economy is more dynamic because workers are coddled less. We hope German and Scandinavian and Canadian workers stay where they are. We don't want them infecting us with demands for socialism.
Americans live materially better lives because of the USA's better economic growth. They have bigger houses, are more likely to own a car, and have more money for travel, leisure, and charity. It's not just iPhone updates (is this the Euro version of "your kid only needs one doll?") - American kids get their own bedrooms far more often than European kids, for example.
So you’re fine with companies requiring, say, truck drivers, to work 100-hour weeks? No wage and hour laws, no laws requiring safe workplaces, nothing like worker’s comp or health insurance or ANYTHING but brutal feudal companies lording it over helpless peasants? Because without unions and laws, that’s exactly what you’ll get. Somalia is a libertarian paradise.
Is that what I said? As for 100 hour-a-week truck drivers, as long as the trucks are driven by AI, sure...and please, spare me your Somalia comparisons. Somalia is a beautiful country with many wonderful people, albeit a terribly dysfunctional (not libertarian) government. Somaliland is living proof that what matters is institutions, not people.
I know some Somalis; they’re quite wonderful! Somalia’s problems stem from it having almost nothing in the way of natural resources and desperate poverty, not because the people are terrible. A decent government could develop some amazing tourism, especially related to Somalia’s many ancient sites. We can both hope that happens.
Oh you are a vile vile vil human, disrespecting the pursuit of economic development for your saccharine concerns for social safety. The people in the sectors that is at the forefront of technological development and that are benefitting the most from a very free labor market in San Francisco also have the highest salaries and would stand to benefit more from advancing in their carers by drawing benefit from their bargaining power in a more competitive labor market. They are also young, and young people today need to be engaging in more high competitive environments that encourage them to develop their strengths, than to have their vitality suffocated in the name of "Safety"
And yet somehow you are able to express this thought, in real time, at no cost to you. Must be magic. Or because some politician issued an edict to “make it so”. (No government, or even corporate monopoly) wants you to have this power, no matter what they say.)
You say "social stability and a good quality of life for ordinary Germans" but that's the tradeoff: security vs. consumption. You say things are much worse for all of us but would you really trade 1/3 of your living space for a job you couldn't be laid off from?
Even if you don't like AI, phones, etc., the US' business environment is clearly conducive to human flourishing. The majority of the world's medical advances come from the US, from a combination of public universities and - in first place - pharmaceutical and med equipment conglomerates.
Age-adjusted cancer death rate is down over 30% over the last 30 years, which is incredible when you think about obesity in that time. (Obviously lung cancer is down as smoking decreases but it's still very good.) 5-year survival rate in general is up to almost 80% now, which was unthinkable just a few decades ago.
We also are far better stewards of the environment than we used to be. The country was completely filthy from the 50s through to the 80s, now it's not.
And how does abandoning labor protections affect any of those things? Medical advances and environmental protection are actually ALL the result of government grants or government regulations. If the government doesn’t force industry to be decent, industry will destroy the world.
Surely this must have something to do with the low wages for similar work in Europe. Good software engineers make terrible pay in the EU versus the US, and I've always wondered why. This article makes me think it's partly because their pay has to get amortized out over all the people who should've been fired!
Regarding cultural differences: I've always been amazed Europeans work so hard for what they are paid (i.e. not very much). A software engineer with several years of experience could easily be making only $70k (USD) per year in Europe, and in terms of purchasing power that's probably only $55-60k/yr because of higher taxes. That basically means crappy car, no house, very slow savings rate. The same SWE in Texas could drive a Tesla and buy a 5-bedroom house!
30 years ago the pay disparity between the US and Europe was minimal. Now it's vast.
Many Europeans say it's balanced out by more vacation days and free (and sometimes better, they say) healthcare. As a Euro-born, I disagree with them. I think it's mostly chauvinism and cope. Their standard of living has dropped off dramatically compared to their caste in the US. They watch videos of US dysfunction, urban and rural, and don't seem to understand that that's not how they would live in the US, any more than they'd live in banlieue in Europe.
"In many European countries, companies with more than a certain number of workers – 50 in the Netherlands, 5 in Germany – are obliged to create a works council" - That's not correct; in Germany, a works council may be created in companies with more than 5 employees but only if the workers want to. Works councils are a thing mostly in large companies, while they're basically absent in small firms; around a third of the total workforce is covered by work councils.
Maybe a distinction without a difference. If the company's employees *may* create a works council, presumably they will, and then effectively every company with over 5 workers must have one, because the workers demand one.
California has one labor protection that helped it become the heart of the tech industry - non-compete clauses are not legal. So in California you can quit a job and start a competing startup the next day. I had a colleague from Missouri who forced to stay off the job market in his industry for two years after losing a job.
Since I'm in high-tech in metro Boston, I want to second this. It's generally admitted that while advanced electronics was invented in Boston, California took over high-tech precisely because non-competes are drastically restricted in California.
Many economists question your fundamental premise that the United States is much wealthier than the EU. As researchers at Bruegel put it, "measured in terms of purchasing power parity, which is the right metric for international output comparisons, total EU output is just slightly falling behind US output. But in terms of per-capita income, the EU has narrowed the gap with the US over the past two decades. EU convergence with the US has been even faster in terms of output per hours worked. Some western and northern EU countries are at least as productive as the US in terms of output per hours worked, but Europeans seem to prefer leisure time to income. Thus, the narrative about the EU significantly falling behind the US in terms of output is wrong. The crucial question is why the EU economy performs so well despite its many well-known weaknesses." https://www.bruegel.org/analysis/european-unions-remarkable-growth-performance-relative-united-states. See also "Europe's Productivity Keeps Outpacing the US," at https://sethackerman.substack.com/p/europes-productivity-keeps-outpacing.
The left wing analyst is trying to claim a win for the European system by including the rise of Eastern Europe after it adopted capitalism from starting from a low level of wealth. This is sophistry. As is the hours worked thing, where the point is Europe disincentivizes work so should be penalized for that. I’ve addressed this before https://www.richardhanania.com/p/the-neoliberal-era-was-not-pro-market
We actually do waste gobs of money to keep people in the same homes. We call it "affordable housing", "social housing", or worst of all - rent control. In Central London, there are tens of thousands of unemployed/retired/minimum wage workers squatting on subsidised rents while professionals lose over an hour a day commuting. Thankfully, we don't have rent control, but unfortunately its ugly head is rising up the political agenda.
There are well-supported alternative explanations for the EU–US gap that your post doesn't consider. IMF work attributes most of the EU-US GDP-per-capita gap to slower European productivity growth, with mechanisms like internal-market fragmentation and weaker capital markets/VC for scale-up. Labor mobility fricitons are also a factor, but not the deciding one.
Demographics are a plausible contributor as well. The US is materially younger (US median age ca. 39, German median age ca. 47) and has had stronger population growth via immigration.
None of this says employment protection has zero costs, but you haven’t shown it’s the “best explanation”.
The difference between US v European labor law has been a fact of life for decades (over a century) so it hardly explains a divergence that began 20-30 years ago.
Europe has VW, BMW, Audi, Porsche, and so on. To compare these giants with Tesla was a shame to be frank (speaking as an automotive engineer). Tesla simply got the first-mover advantage; almost all OEMs have caught up, offering all sorts of variants.
Aren't you ignoring the history of unions? Unions came about in the early years of the 19th century in response to appalling working conditions. Many of the rights we take for granted today were hard won by people who were willing to strike, fight back and risk their livelihoods, often facing down police and strike-breakers.
I believe this is a myth, and I remember seeing polls of economic historians echo my skepticism.
The explanation for higher wages, greater benefits, better and safer working conditions, etc is primarily due to supply and demand. As we became more productive, employers needed to pay employees more to attract talent from competitors, employees demanded not just higher wages but also better benefits and conditions. Companies responded as needed.
This is every bit as true in non-union fields, nations and industries as union dominated ones, probably even more so. The company I worked most of my life for never had unions, yet they prided themselves in being esteemed as a great company to work for. My wages and vacation schedule didn’t improve over time due to collective bargaining, but because the company knew they needed to attract talent (and of course to compensate for my changing skills).
I think viewing Tesla as a win for free market innovation is a mistake, but idk if this is fatal to the overall argument. Tesla makes fewer cars than BMW with worse profit margins for instance. I’m fairly convinced that Tesla gained its market cap mostly due to a misallocation of capital driven by ESG funds; funds with ESG criteria grew by $1T in 2019 alone, and Tesla was one of the few supposedly pro-climate companies of meaningful size.
OK but ... my understanding is that ESG is a lot less fashionable now, and yet Tesla is *still* worth more than the next 10 companies. Though I wouldn't be surprised if there is still misallocation of capital in that Telsa is one of the few auto manufacturers you can hope has a dramatic upside so dreamers invest in it.
Also imagine you own 20% of a company and realize sometimes buying 1% of stock raises the price by >1%. You borrow against half the value of your shares, buy more stock, and now your original shares are worth ~10% more than if you hadn’t traded… Imagine you get paid in more stock if the stock price goes up, which you can then borrow against to make it go up more/stop it from going down too much. You make it painful for people who think the company is worth less to stay short. And if you tell the SEC you’re going to buy beforehand you can’t be charged with market manipulation (safe harbor laws)…
Passive US index funds have maybe $20T in assets. Tesla went up, then got added to major indices (S&P, Nasdaq), and as its market cap increased, it became a larger percentage of the index. Now every $100 into index funds (e.g. from 401k elections each paycheck) means $2.50 of Tesla buying (they need to own ~$500bn worth of the stock). And that’s just the passive community; not including active money managers or WSB types (or dreamers as you called them).
The European system more or less prevents the "stack ranking" system which is present in essentially all large US tech companies. Basically, every six months or so you rank all your employees and fire the worst x%. (Companies will claim they don't do stack ranking because the term became unpopular but they all basically do the same thing and call it something else.)
If you don't stack rank, then your employees get worse and worse over time. The worst employees will stick around because they can't find another job. But your best employees will sometimes leave. I think this is especially true for faster-moving fields like software because there are always new opportunities to tempt away your best employees. Maybe in some fields you can hang on to your best employees forever, but not in software.
Fantastic article, but where did you get the indefinite part here “Paying employees indefinitely to leave is the optimistic scenario when they are no longer needed”? Am I wrong in reading the 15-days severance as a 1-time thing?
We get thoughtful articles like this mixed with shitposting. I agree that shitposting drives short term engagement, but it could very well reduce influence among the “cognitive elite. “
What are you referring to as shitposting?
You mean the Epstein stuff? Without that, he’s just another boring neoliberal.
Well, markets are the best way to make and distribute stuff we want. Free market economics is basically right. And people who use “neoliberal” as a pejorative tend to be economic imbeciles.
I didn’t say neoliberalism was wrong, I said it was boring.If wonking out in Ezra Klein, Yglesias’ or Noahpinions comments section is your bag, fine. But part of Hanania’s appeal is his edginess and willingness to deal with issues those people won’t touch.
Hanania is a conservative but he's really, really irritated by a lot of characteristics of many conservatives. "Most writers have to worry about "audience capture," but for me it's the opposite. When I see what those around me think, I have to struggle not to get consumed by all the ways in which they're wrong about the world." So his griping about the Epstein furor is part of his cultural criticism of conservatives.
I suspect as an 'outlaw' he has to carefully titrate producing enough offensive content to maintain his reputation with what he actually cares about.
You can complain about marketing but ultimately this is a capitalist society and that's what you need. Other ways have been tried...they didn't end well. The exception I think is modern China but we don't have their strong meritocratic traditions and ethnic/cultural homogeneity.
Another argument to make against labor protections is that it directly helps workers by encouraging them to become more entrepreneurial, rather than resting on their laurels.
Consider two economies: in economy A, Joe works the same job for 20 years. He considers quitting and starting his own business, but the time is never *quite right*, so he remains employed.
In economy B, Joe works a series of similar jobs with small interruptions between each one. We will assume that due to greater productivity, Joe's wages in economy B are slightly higher, which compensate for his temporary unemployment between jobs.
So far, so good: economy A and B are exactly equal with respect to Joe (ignoring other second-order effects like innovation, downstream from corporate profits).
But since Joe is let go in economy B, he now has an excuse to start his own business.
Another way to look at this problem is to say that each worker exists on a bell curve of motivation. In economy A, there are "threshold workers" who would like to start businesses, but are slightly too fearful to quit their jobs. In economy B, these "threshold workers" are confronted with opportunities to try something new.
In my case, for example, if I was never laid off, I would never start writing on Substack. I was a "threshold worker" who considered my salary to be high enough that I couldn't rationally quit on any given day; however, after being laid off, I decided to do something risky that I had never tried before. Whether this was a good decision for me personally or not is beyond my ability to calculate, but it is potentially an example of how even workers can benefit from being fired, given these ambiguous thresholds of fearfulness and risk-taking behavior.
Good piece. Please square this with your claims that the smarter people are left of center.
I mean the dissident right/post liberals want unions too.
Yes. I was attracted to Right-populism because I thought the excesses of post-2008 would be best combatted by unions who worked in the interest of the employee and of the nation. Unfortunately everything I've learned since around 2018 has shown me that this was a stupid thing to want, and that laissez-faire actually just works better for the intended purpose of moving money around, and a rising tide actually does lift all boats. The only people truly destitute in the US are the massively mentally ill. Otherwise there's enough to keep even the laziest people fat, clothed, and with reactive health care.
I think that the most economically correct position, and the position that we should hope that "Left of Center" would align with is that we have free labor market and use taxation to sustain social safety nets
Or, perhaps consider incentivizing savings and investment more effectively so that people can provide their own safety net. And also consider favoring industries that train and employ people who lack the higher skill and aptitude levels that a tech/service society favors.
I favor moving away from redistributive policies to expanding employment and self sufficiency.
The last sentence here makes no sense.
There's a bell curve meme where the dumb people just want the government to leave them alone because of instinctual dislike of government, the smart people want big government as a rational allocator fixing problems, then the really really smart people know the government is actually shit at fixing stuff
This is a perfect example of why economics is a shit subject. You make a lot of assertions about ‘innovation,’ all of which are within the last ten years. When the US had much stronger labor unions between the 30’s to the 50’s we had quite a bit of innovation then, too.
Labor protection means protection PEOPLE. Germany’s strict labor laws contribute to social stability and a good quality of life for ordinary Germans, which is better for Germany. All those Silicon Valley innovations have done nothing to improve American lives and in many cases — AI data centers being the best example — have made things much, much worse for all of us.
Social stability and the prospect of a decent life for Americans is worth losing a few less iPhone updates.
Did the US have stronger labor protections from the 30s-50s than Europe did?
> All those Silicon Valley innovations have done nothing to improve American lives
False. We benefit from using those innovations!
> and in many cases — AI data centers being the best example — have made things much, much worse for all of us.
You present zero evidence for this.
> Social stability and the prospect of a decent life for Americans is worth losing a few less iPhone updates.
America has long had a net positive rate of migration with basically every country except Australia. People "vote with their feet" in favor of capitalism more than not only socialism but also social democracy.
Are those immigrants coming from social democratic nations? Yes, we HAD — note the verb tense there — positive rates of immigration, but part of that was because of factors other than the economy. The climate of Scandinavia is not exactly appealing to many people, to use just one example. Also, we didn’t have massive waves of immigration from northern Europe since before WWI. We had a sharp increase in immigration from the former Warsaw Pact because their economies reeked for reasons having exactly nothing to do with labor laws. Most of our immigration since 1965 has been from Latin America, Asia, and Africa. Those places don’t have robust legal protections for workers. Talk to me when we suddenly have millions of Germans or Swedes showing up at immigration ports.
More importantly, you might consider what other benefits the population gets from labor protections?
More immigration is from Latin America, which is both poorer than Europe and nearer to the US such that people can cross the border illegally, and once given amnesty able to take advantage of our immigration system's priority of family unification: https://www.econlib.org/archives/2016/03/the_accidental.html
I don't know what "worker protections" are in such countries (Cuba & Venezuela are one-party communist/socialist countries but I believe the government also controls the unions there), but also don't care much for the sake of this discussion since it doesn't change the comparison of the US vs Europe.
> We had a sharp increase in immigration from the former Warsaw Pact because their economies reeked for reasons having exactly nothing to do with labor laws.
Because of communism, which has its origins in the labor movement.
> More importantly, you might consider what other benefits the population gets from labor protections?
Why should I believe there are any? Do I see people "voting with their feet" for them?
The barrier to immigrating to Sweden is that you have to speak Swedish to get a real job there....unless the only language you speak is Arabic or whatever they speak in Somalia, and then you don't work at all except sell drugs to your countrymen.
Richard's point isn't that Scandinavian or German workers would rather work/live in America. I'm sure they would rather stay where they are where they have a soft life.....and get free health care too. The point is that the American economy is more dynamic because workers are coddled less. We hope German and Scandinavian and Canadian workers stay where they are. We don't want them infecting us with demands for socialism.
Americans live materially better lives because of the USA's better economic growth. They have bigger houses, are more likely to own a car, and have more money for travel, leisure, and charity. It's not just iPhone updates (is this the Euro version of "your kid only needs one doll?") - American kids get their own bedrooms far more often than European kids, for example.
So you’re fine with companies requiring, say, truck drivers, to work 100-hour weeks? No wage and hour laws, no laws requiring safe workplaces, nothing like worker’s comp or health insurance or ANYTHING but brutal feudal companies lording it over helpless peasants? Because without unions and laws, that’s exactly what you’ll get. Somalia is a libertarian paradise.
Basically, yes, we are fine with all that.
Is that what I said? As for 100 hour-a-week truck drivers, as long as the trucks are driven by AI, sure...and please, spare me your Somalia comparisons. Somalia is a beautiful country with many wonderful people, albeit a terribly dysfunctional (not libertarian) government. Somaliland is living proof that what matters is institutions, not people.
I know some Somalis; they’re quite wonderful! Somalia’s problems stem from it having almost nothing in the way of natural resources and desperate poverty, not because the people are terrible. A decent government could develop some amazing tourism, especially related to Somalia’s many ancient sites. We can both hope that happens.
As for AI truck drivers, no thanks.
As I suspected, "protect workers" really means "let people die in fiery crashes so we don't have to lay off anyone"
Huh?
Oh you are a vile vile vil human, disrespecting the pursuit of economic development for your saccharine concerns for social safety. The people in the sectors that is at the forefront of technological development and that are benefitting the most from a very free labor market in San Francisco also have the highest salaries and would stand to benefit more from advancing in their carers by drawing benefit from their bargaining power in a more competitive labor market. They are also young, and young people today need to be engaging in more high competitive environments that encourage them to develop their strengths, than to have their vitality suffocated in the name of "Safety"
And yet somehow you are able to express this thought, in real time, at no cost to you. Must be magic. Or because some politician issued an edict to “make it so”. (No government, or even corporate monopoly) wants you to have this power, no matter what they say.)
You say "social stability and a good quality of life for ordinary Germans" but that's the tradeoff: security vs. consumption. You say things are much worse for all of us but would you really trade 1/3 of your living space for a job you couldn't be laid off from?
Even if you don't like AI, phones, etc., the US' business environment is clearly conducive to human flourishing. The majority of the world's medical advances come from the US, from a combination of public universities and - in first place - pharmaceutical and med equipment conglomerates.
Age-adjusted cancer death rate is down over 30% over the last 30 years, which is incredible when you think about obesity in that time. (Obviously lung cancer is down as smoking decreases but it's still very good.) 5-year survival rate in general is up to almost 80% now, which was unthinkable just a few decades ago.
We also are far better stewards of the environment than we used to be. The country was completely filthy from the 50s through to the 80s, now it's not.
And how does abandoning labor protections affect any of those things? Medical advances and environmental protection are actually ALL the result of government grants or government regulations. If the government doesn’t force industry to be decent, industry will destroy the world.
Surely this must have something to do with the low wages for similar work in Europe. Good software engineers make terrible pay in the EU versus the US, and I've always wondered why. This article makes me think it's partly because their pay has to get amortized out over all the people who should've been fired!
Regarding cultural differences: I've always been amazed Europeans work so hard for what they are paid (i.e. not very much). A software engineer with several years of experience could easily be making only $70k (USD) per year in Europe, and in terms of purchasing power that's probably only $55-60k/yr because of higher taxes. That basically means crappy car, no house, very slow savings rate. The same SWE in Texas could drive a Tesla and buy a 5-bedroom house!
30 years ago the pay disparity between the US and Europe was minimal. Now it's vast.
Many Europeans say it's balanced out by more vacation days and free (and sometimes better, they say) healthcare. As a Euro-born, I disagree with them. I think it's mostly chauvinism and cope. Their standard of living has dropped off dramatically compared to their caste in the US. They watch videos of US dysfunction, urban and rural, and don't seem to understand that that's not how they would live in the US, any more than they'd live in banlieue in Europe.
"In many European countries, companies with more than a certain number of workers – 50 in the Netherlands, 5 in Germany – are obliged to create a works council" - That's not correct; in Germany, a works council may be created in companies with more than 5 employees but only if the workers want to. Works councils are a thing mostly in large companies, while they're basically absent in small firms; around a third of the total workforce is covered by work councils.
Maybe a distinction without a difference. If the company's employees *may* create a works council, presumably they will, and then effectively every company with over 5 workers must have one, because the workers demand one.
It might involve a lot of work to maintain a workers council according to laws and regulations.
California has one labor protection that helped it become the heart of the tech industry - non-compete clauses are not legal. So in California you can quit a job and start a competing startup the next day. I had a colleague from Missouri who forced to stay off the job market in his industry for two years after losing a job.
Since I'm in high-tech in metro Boston, I want to second this. It's generally admitted that while advanced electronics was invented in Boston, California took over high-tech precisely because non-competes are drastically restricted in California.
Many economists question your fundamental premise that the United States is much wealthier than the EU. As researchers at Bruegel put it, "measured in terms of purchasing power parity, which is the right metric for international output comparisons, total EU output is just slightly falling behind US output. But in terms of per-capita income, the EU has narrowed the gap with the US over the past two decades. EU convergence with the US has been even faster in terms of output per hours worked. Some western and northern EU countries are at least as productive as the US in terms of output per hours worked, but Europeans seem to prefer leisure time to income. Thus, the narrative about the EU significantly falling behind the US in terms of output is wrong. The crucial question is why the EU economy performs so well despite its many well-known weaknesses." https://www.bruegel.org/analysis/european-unions-remarkable-growth-performance-relative-united-states. See also "Europe's Productivity Keeps Outpacing the US," at https://sethackerman.substack.com/p/europes-productivity-keeps-outpacing.
The left wing analyst is trying to claim a win for the European system by including the rise of Eastern Europe after it adopted capitalism from starting from a low level of wealth. This is sophistry. As is the hours worked thing, where the point is Europe disincentivizes work so should be penalized for that. I’ve addressed this before https://www.richardhanania.com/p/the-neoliberal-era-was-not-pro-market
We actually do waste gobs of money to keep people in the same homes. We call it "affordable housing", "social housing", or worst of all - rent control. In Central London, there are tens of thousands of unemployed/retired/minimum wage workers squatting on subsidised rents while professionals lose over an hour a day commuting. Thankfully, we don't have rent control, but unfortunately its ugly head is rising up the political agenda.
There are well-supported alternative explanations for the EU–US gap that your post doesn't consider. IMF work attributes most of the EU-US GDP-per-capita gap to slower European productivity growth, with mechanisms like internal-market fragmentation and weaker capital markets/VC for scale-up. Labor mobility fricitons are also a factor, but not the deciding one.
Demographics are a plausible contributor as well. The US is materially younger (US median age ca. 39, German median age ca. 47) and has had stronger population growth via immigration.
None of this says employment protection has zero costs, but you haven’t shown it’s the “best explanation”.
The difference between US v European labor law has been a fact of life for decades (over a century) so it hardly explains a divergence that began 20-30 years ago.
Canada is also falling behind USA, but doesn’t have Euro style labour laws.
Europe has VW, BMW, Audi, Porsche, and so on. To compare these giants with Tesla was a shame to be frank (speaking as an automotive engineer). Tesla simply got the first-mover advantage; almost all OEMs have caught up, offering all sorts of variants.
Aren't you ignoring the history of unions? Unions came about in the early years of the 19th century in response to appalling working conditions. Many of the rights we take for granted today were hard won by people who were willing to strike, fight back and risk their livelihoods, often facing down police and strike-breakers.
I believe this is a myth, and I remember seeing polls of economic historians echo my skepticism.
The explanation for higher wages, greater benefits, better and safer working conditions, etc is primarily due to supply and demand. As we became more productive, employers needed to pay employees more to attract talent from competitors, employees demanded not just higher wages but also better benefits and conditions. Companies responded as needed.
This is every bit as true in non-union fields, nations and industries as union dominated ones, probably even more so. The company I worked most of my life for never had unions, yet they prided themselves in being esteemed as a great company to work for. My wages and vacation schedule didn’t improve over time due to collective bargaining, but because the company knew they needed to attract talent (and of course to compensate for my changing skills).
I think viewing Tesla as a win for free market innovation is a mistake, but idk if this is fatal to the overall argument. Tesla makes fewer cars than BMW with worse profit margins for instance. I’m fairly convinced that Tesla gained its market cap mostly due to a misallocation of capital driven by ESG funds; funds with ESG criteria grew by $1T in 2019 alone, and Tesla was one of the few supposedly pro-climate companies of meaningful size.
OK but ... my understanding is that ESG is a lot less fashionable now, and yet Tesla is *still* worth more than the next 10 companies. Though I wouldn't be surprised if there is still misallocation of capital in that Telsa is one of the few auto manufacturers you can hope has a dramatic upside so dreamers invest in it.
Also imagine you own 20% of a company and realize sometimes buying 1% of stock raises the price by >1%. You borrow against half the value of your shares, buy more stock, and now your original shares are worth ~10% more than if you hadn’t traded… Imagine you get paid in more stock if the stock price goes up, which you can then borrow against to make it go up more/stop it from going down too much. You make it painful for people who think the company is worth less to stay short. And if you tell the SEC you’re going to buy beforehand you can’t be charged with market manipulation (safe harbor laws)…
Passive US index funds have maybe $20T in assets. Tesla went up, then got added to major indices (S&P, Nasdaq), and as its market cap increased, it became a larger percentage of the index. Now every $100 into index funds (e.g. from 401k elections each paycheck) means $2.50 of Tesla buying (they need to own ~$500bn worth of the stock). And that’s just the passive community; not including active money managers or WSB types (or dreamers as you called them).
Canada is falling behind the US just as much as Europe, but does not have the same restrictive labour laws.
The European system more or less prevents the "stack ranking" system which is present in essentially all large US tech companies. Basically, every six months or so you rank all your employees and fire the worst x%. (Companies will claim they don't do stack ranking because the term became unpopular but they all basically do the same thing and call it something else.)
If you don't stack rank, then your employees get worse and worse over time. The worst employees will stick around because they can't find another job. But your best employees will sometimes leave. I think this is especially true for faster-moving fields like software because there are always new opportunities to tempt away your best employees. Maybe in some fields you can hang on to your best employees forever, but not in software.
Fantastic article, but where did you get the indefinite part here “Paying employees indefinitely to leave is the optimistic scenario when they are no longer needed”? Am I wrong in reading the 15-days severance as a 1-time thing?