Part I of this video series gave a brief summary of how Javier Milei’s free market policies have rejuvenated Argentina’s economy.
But more reform is needed and this second video makes the case for labor market deregulation.
Politicians impose so-called employment protection laws because of “public choice.” To be more specific, they understand that the beneficiaries of such laws (certain incumbent workers, often unionized) will give them votes and campaign contributions in exchange for laws that allow them to exploit employers.
But I explained three years ago, when writing about Spanish policy, that such laws reduce overall job creation and depress wages for others.
- Making it more expensive to hire workers means fewer workers will be hired.
- Making it more expensive to fire workers means fewer workers will be hired.
- Making it more expensive to employ workers means fewer workers will be hired.
To understand why Argentina needs labor market liberalization, here are the nation’s scores from Economic Freedom of the World (on a 0-10 ranking) as of 2022.
Other than regulations on the number of hours worked, Argentina gets failing grades.
The same is true when looking at the Heritage Foundation’s Index of Economic Freedom.
As you can see, Milei inherited a “Mostly Unfree” system of labor regulation.
Not as bad as the “Unfree” monetary policy he inherited, to be sure, but 55.2 (on a 0-100 scale) is a failing grade.
To conclude, Milei has an amazing list of accomplishments, but there’s a limit to how much he can liberalize using the powers of the presidency.
To promote job creation and higher wages, the legislature will need to repeal the nation’s horribly misnamed employment protection laws.
And since the Peronists still control the legislature, that presumably will depend on what happens later this year when Argentina has mid-term elections (based on my Fourth Theorem of Government, I’m cautiously optimistic).
P.S. Copying Denmark’s approach would be a good outcome for Argentina.
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Image credit: World Economic Forum | CC BY-NC-SA 2.0.
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Author: Dan Mitchell
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