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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Q. How to Grow the Number of Self-Employed



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A. Make it really, really hard to hire and fire people.

Because Paul Krugman is one of our most admired public intellectuals, you’ll forgive me for dwelling on his work. After noting that the small business sector represents a smaller share of the American workforce than in other advanced market democracies, Krugman offers two explanations:

A couple of possible explanations. One is our lack of national health insurance; I personally know a number of people who gave up jobs at small firms in order to get health coverage. Another possibility, more favorable to the United States, is that in some European countries (Italy comes to mind) firms stay small to escape onerous regulations.

Note that the House Democrats have proposed an employer mandate that exempts small businesses, i.e., businesses with a payroll of $250,000 or less. This might “help” matters by moving the U.S. economy toward Italian levels of dysfunction. Italy does, however, have the world’s second best health care system according to the United Nations, behind France and ahead of tiny San Marino. I have to say, I’d rather have a job than a marginal improvement in my healthcare, but that may be an eccentric view. And in fairness, the real economic benefit comes in the form of the reduced cost of health care.

The report Krugman cites, from the Center for Economic Policy Research, cites very high rates of self-employment in continental Europe.

The United States has the second lowest share of self-employed workers (7.2 percent) – only Luxembourg has a lower share (6.1 percent). France (9.0 percent), Sweden (10.6 percent), Germany (12.0 percent) the United Kingdom (13.8 percent), Italy (26.4 percent) and 14 other rich countries all have higher proportions of self-employment.

Let’s think about this for a moment. If full-time employees receive generous — and expensive — social protections, wouldn’t it make sense to hire more contract laborers, i.e., self-employed independent contractors? It’s certainly true that some benefits are disconnected from one’s employer (e.g., healthcare coverage), yet a variety of other regulations make it exceedingly difficult to hire and fire employers, hence the advent of “Génération Précaire.”

In tart fashion, Krugman ends his post with a classic attack on what he sees as American myth-making and self-regard:

Either way, though, one more American myth bites the dust. We’re not independent free spirits; on the contrary, we’re more likely than Europeans to be cubicle rats working for big employers.

Ah yes, cubicle rats. You have to wonder: what if the high self-employment numbers are just an example of regulatory arbitrage?

I have to say, I find Krugman’s Europhilia … interesting. But I worry that we’re seeing myth-making of another variety.

Krugman has also been strikingly ungenerous to economist Casey Mulligan, who fires back convincingly in this post.



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