Do European Labor Laws Lead to Terrorism?

Alex Tabarrok

In Belgium, high unemployment and crime-ridden Muslim ghettos have fomented radicalism, but as Jeff Jacoby writes:

Muslims in the United States ... have had no problem acclimating to mainstream norms. In a detailed 2011 survey, the Pew Research Center found that Muslim Americans are “highly assimilated into American society and ... largely content with their lives.”

More than 80 percent of US Muslims expressed satisfaction with life in America, and 63 percent said they felt no conflict “between being a devout Muslim and living in a modern society.”

The rates at which they participate in various everyday American activities — from following local sports teams to watching entertainment TV — are similar to those of the American public generally. Half of all Muslim immigrants display the US flag at home, in the office, or on their car.

Jacoby, however, doesn’t explain why these differences exist. One reason is the greater flexibility of American labor markets compared to those in Europe.

Institutions that make it more difficult to hire and fire workers or adjust wages can increase unemployment and reduce employment, especially among immigrant youth. Firms will be less willing to hire if it is very costly to fire. As Tyler and I put it in Modern Principles, how many people will want to go on a date if every date requires a marriage?

The hiring hurdle is especially burdensome for immigrants given the additional real or perceived uncertainty from hiring immigrants. One of the few ways that immigrants can compete in these situations is by offering to work for lower wages. But if that route is blocked by minimum wages, or requirements that every worker receive significant non-wage benefits, unemployment and non-employment among immigrants will be high — generating disaffection, especially among the young.

Huber, for example, (see also Angrist and Kuglerfinds:

Countries with more centralized wage bargaining, stricter product market regulation and countries with a higher union density, have worse labour market outcomes for their immigrants relative to natives even after controlling for compositional effects.

The problem of labor market rigidity is especially acute in Belgium, where the differences between native and immigrant unemployment, employment and wages are among the highest in the OECD. Language difficulties and skills are one reason, but labor market rigidity is another, as this OECD report makes clear:

Belgian labour market settings are generally unfavourable to the employment outcomes of low-skilled workers. Reduced employment rates stem from high labour costs, which deter demand for low-productivity workers…

Furthermore, labour market segmentation and rigidity weigh on the wages and progression prospects of outsiders. With immigrants over-represented among low-wage, vulnerable workers, labour market settings likely hurt the foreign-born disproportionately. ...

Minimum wages can create a barrier to employment of low-skilled immigrants, especially for youth. As a proportion of the median wage, the Belgian statutory minimum wage is on the high side in international comparison and sectoral agreements generally provide for even higher minima. This helps to prevent in-work poverty … but risks pricing low-skilled workers out of the labour market (Neumark and Wascher, 2006).

Groups with further real or perceived productivity handicaps, such as youth or immigrants, will be among the most affected.

In 2012, the overall unemployment rate in Belgium was 7.6% (15-64 age group), rising to 19.8% for those in the labour force aged under 25, and, among these, reaching 29.3% and 27.9% for immigrants and their native-born offspring, respectively.

Immigration can benefit both immigrants and natives but achieving those benefits requires the appropriate institutions especially open and flexible labor markets.

This post first appeared at Marginal Revolution.