[swingbridge]

Mostly a result of regulations that make it difficult for companies to get rid of people (either because they're not good or the company needs to shed staff).

I've seen this sort of thing backfire a lot in Europe where well intended regulation causes far more harm (both to individuals and the economy of the country) than good.

Was in a meeting not too long back where major investments were being discussed and the places to invest where on the table (with jobs at stake). Long story short some regulatory monkey was saying "this ref prevents this, you'd have to do that" and such for a location in Europe at which point the execs in the room basically just said "fine, we just won't invest there... if they want to have silly practices we'll just put the jobs elsewhere." And they did.

I'm no Republican but the concept of regulations killing jobs and hurting the people they intended to help is a very real thing.

[dikdik]

The same argument can be made about taxes. Based on your reasoning, it's a race to the bottom for all countries in order to attract businesses.

Are we supposed to have no regulation and no taxation on businesses because otherwise some other state/country can offer them a better deal? Or do we need to have stronger regulation across country borders/policy that prohibits these loopholes. Maybe we should tax a US company more if they choose to produce products in another country to get around regulations that we have in the US.

[linkregister]

I don't think the parent poster suggested there be no regulation or taxes.

Clearly there are more to countries than tax rates and regulations. However, the parent poster relates an anecdote where one country with less restrictive regulation is chosen over another, all other things being equal.

So to answer your question, if a country has a superior market or the right labor pool, then it will succeed despite higher tax rates or restrictive regulations, to a point.

Despite a zero corporate tax rate and few regulations, Somalia still hasn't posed a threat to Europe and the U.S. as a corporate headquarters. The "race to the bottom" is bounded by other factors besides tax rates and regulation. Rule of law, enforceability of contracts, access to a skilled labor pool, access to markets, etc. are more important.

Interestingly enough, these factors are a correlated to sufficient government revenue and regulation to uphold contracts and satisfy labor.

[lefstathiou]

Thought experiment here but I think there may be an argument for no taxes on a business by flowing the taxes through to personal income. Double taxation creates incentives that I don't think are good for small businesses on a systemic level.

Here is why: as a business owner I face a 40% tax rate at the corporate level and then 35% on personal income. I am thus highly incentivized to keep profit in the business and reinvest it or look for growth opportunities rather than distribute it to myself and our other shareholders.

Now imagine you are Sam Walton of Walmart. You stumbled upon a fantastic business model that prints money (or your Apple sitting on $250bn in cash). On the margin you will always opt to reinvest the money in the company or at least let it sit there unspent (i.e. Apple/Google/Msft) if the alternative means paying an incremental tax on it. So what do you do? Grow grow grow.

Anyway just wanted to share my thoughts. I am not trying to be controversial... I believe that long term sustainable health of an economy is predicated on the health of small businesses. I genuinely believe double taxation may have a potentially perverse incentive and negative outcome on a society simply by the way it alters my own decision making and incentives.

[cylinder]

If in the US and a small business owner you should use S-corp taxation to avoid that. But yes small business has too many challenges in the US, it's the land of megacorp dominance.

[SilasX]

Well, for taxes, there's an obvious Scylla and Charybdis[1]: too high, and economic activity is scared away or pushed underground. Too low, and you can't afford public goods that make the place pleasant to live and facilitate economic activity.

I would like to see a similar model explaining what labor law accomplishes and how you know when the laws are being too strict. The problem is that the obvious answer ("so workers don't get exploited") isn't very satisfying: there's sort of an inherent barrier to not paying enough, which is competition for workers[2]. You would need to explain labor law as filling some role that isn't a simple matter of competitive compensation.

[1] My post on the importance of having a model that identifies both a Scylla and a Charybdis: http://blog.tyrannyofthemouse.com/2015/12/the-scylla-charybd...

[2] The typical argument is like, "look at [obviously poorer time]. They paid [obviously bad wage]. Now [after years of accumulation of capital] we mandate they don't do that, and stars above! They get good wages now." I don't find that satisfying.

[dragonwriter]

> The problem is that the obvious answer ("so workers don't get exploited") isn't very satisfying: there's sort of an inherent barrier to not paying enough, which is competition for workers.

Collusion among employers to keep wages down still happens. The combination of minimum standards plus anti-collusion laws function as a belt-and-suspenders approach to the problem (labor law has other purposes, too; so does anti-collusion law.)

[SilasX]

Sure. I can understand how it happens. But unless you want to list some of those other purposes:

A) That would justify anti-conspiracy countermeasures, not general "you have to pay them more" laws.

B) It would rather dubiously require a conspiracy along the rather huge number of low-skill employers. I can accept a conspiracy between McDonald's and BK, but across numbers indistries and localities?

[jeffdavis]

The article is about temp work never turning into full-time. That's a different symptom of the same problem you replied to, and it's not solved by regulating across borders.

[tcbawo]

There has to be a happy medium. Selling yourself short to appease a large corporation which may turn around and leave at a moment's notice is a race to the bottom. Having home grown small businesses and entrepreneurs is the best path towards a prosperous society. Regulations need to be practical and enforceable, otherwise you risk choking off the little guys.

[gydfi]

I think the point is not that it's driving off huge corporations but that it makes life difficult for every business. It doesn't seem to make life easier for workers either.

I believe in the principle that the unintended consequences of any policy usually wind up outweighing the intended ones.

[brokenmachine]

This is the "cobra effect"

I love the story:

> The term cobra effect stems from an anecdote set at the time of British rule of colonial India. The British government was concerned about the number of venomous cobra snakes in Delhi.[3] The government therefore offered a bounty for every dead cobra. Initially this was a successful strategy as large numbers of snakes were killed for the reward. Eventually, however, enterprising people began to breed cobras for the income. When the government became aware of this, the reward program was scrapped, causing the cobra breeders to set the now-worthless snakes free. As a result, the wild cobra population further increased. The apparent solution for the problem made the situation even worse.

https://en.wikipedia.org/wiki/Cobra_effect

[cylinder]

I believe the Danish have replaced most laws that make dismissal difficult / risky and instead developed a strong unemployment insurance / welfare system. Companies need to be able to adjust their workforce quickly. And it's a lot easier for an employee to say "go screw yourself" to an abusive employer if they know they won't be out on the street if they lose their job.

[acchow]

I also support a stronger social net funded by taxes instead of distortionary forces like "strong employment laws".

Basic income does the same thing for the distortionary minimum wage.

[justin66]

> Mostly a result of regulations that make it difficult for companies to get rid of people (either because they're not good or the company needs to shed staff).

It's not as if the permatemp phenomenon isn't a problem right here in the United States, where it's generally pretty easy to fire people.

[vacri]

It's worth noting that the execs are speaking purely for their own benefit, and not thinking about the greater effects across society as a whole.

Sharks are welcome to have an opinion on the food chain, just be aware of their position when evaluating it.

[dalbasal]

I would really like to see a middle ground here.

There's good evidence that minimum wages can be used to nudge up bottom tier salaries without very much impact on employment rates. For use-cases that tend to suffer most (eg youth employment), most EU countries have exemptions.

Labour laws which try to force longevity come with some costs that aren't very easily mitigated. "At-will" employment sounds very aggressive but forced employment sounds bad too.

I think compensation packages (based on years in employment) should replace no-firing laws. This will keep a softer incentive in place, but avoid making hiring people so risky.

[maverick_iceman]

Absolutely. These do-gooders never consider the unintended side effects of their policies and end up hurting their own constituency. (Though the cynic in me thinks that they understand it perfectly well. They enact these policies just to score cheap brownie points.)