With this week’s edition of the Bacon’s Rebellion e-zine, I’m stepping away from commentary on Virginia’s divisive culture wars to write about a topic that, hopefully, we all can relate to: how to build more prosperous, livable and sustainable communities for everyone. In “Hidden Advantage,” I hone in on one of Virginia’s most under-appreciated economic strengths: the flexibility of its labor markets.
Flexible labor markets are a crucial enabler of the process of economic transformation that Austrian economist Joseph Schumpeter termed “creative destruction.” The free movement of workers speeds the reallocation of labor from dying, low value-added sectors of the economy to growing, higher value-added sectors. The process provides opportunities for workers to improve their personal conditions, and it bolsters the productivity of the economy as a whole. Nations and states that retard worker mobility, either through excessive regulation of employment conditions or imposition of onerous social burdens on employers, damage the process of wealth creation.
In previous posts, I’ve enumerated the drawbacks of a political economy dominated by business interests. But Virginia’s business-friendly political climate has created highly flexible labor markets. The rate of unionization is low. Virginia has a fairly strong “employment-at-will” legal doctrine. And the burden of social overhead — unemployment insurance, workers compensation insurance and medical insurance — is lower than in almost any other state.
On the negative side, Virginia has proven all too receptive to the blandishments of professional and occupational groups, subjecting large chunks of the labor force to regulation by certification and licensure. The health care professions in particular have lobbied aggressively to protect their turf from competition from other professions, and have lobbied to require the public to engage their services by means of medical insurance mandates. This “craft unionization” of the health care economy hinders the re-engineering and restructuring of the health care industry.
But compared to other states, Virginia has pretty flexible labor markets. Workers have benefited as a result through low unemployment rates, more bargaining power with employers, and greater opportunities to shift to more lucrative careers. That’s one reason why incomes in Virginia have consistently increased faster than the national average.