Thursday, December 29, 2016

With Lower Taxes And Fewer Regulations, The U. S. Does Better Than Other G-7 Nations

See Holiday Cheer From the Dismal Science by Edward P. Lazear.
"Around the time when Tocqueville was writing, England’s per-capita gross domestic product was 50% higher than that of America, according to a 2014 study by the Organization for Economic Cooperation and Development (OECD). But by the early 20th century the U.S. had caught up. Since World War II, the U.S. has maintained about a 30% advantage over the U.K. There is no other G-7 country that comes close to the U.S. Most are about 70% as rich on a per-capita basis.

A sign of economic progress is that most Americans generally do better than the previous generation, despite some earnings declines over the recent past. A 2012 Pew report based on data from the Panel Study of Income Dynamics reveals that 84% of the respondents earn more than their parents.

Admittedly, there is room for improvement, especially by addressing those in poverty whose children do not escape that condition. But most Americans have managed to earn higher incomes than their parents earned.

The same report also documents high income mobility, meaning that those who are born poor do not necessarily remain poor and those who are rich come predominantly from less wealthy families. Three-fifths of Americans who are now among the top 20% of earners grew up in families that weren’t in the top 20%. The same is true for the bottom 20% of earners, where almost three-fifths come from families that were not in the bottom 20%.

Another indicator of opportunity is the number of people who would like to move to the U.S. From 2009 through 2014, about one million people a year were successful in obtaining immigration status (green cards), but entry quotas typically left more than four million people waiting to get in each year, according to State Department data. In 2010 a survey conducted by the European Commission asked residents of the European Union in which other countries they would like to work. Despite the distance from Europe, the winner was the U.S., with 21% saying they would like to work here.

What makes the U.S. economy perform well over time and so attractive to others? First, Americans are industrious. OECD data compiled between 1991 and 2014 reveal that hours worked per working-age person is highest in America among the G-7 countries. Hours are about 45% higher in the U.S. than those in France, the lowest of the G-7 countries, but Americans exceed all other G-7 countries in work effort.

The U.S. is a mobile country, which benefits the economy because residents move to opportunity. A 2008 European Commission survey showed that at the beginning of the 21st century Americans were more mobile than residents of all major EU countries. Americans were more than twice as likely to move as those in the European Union and five times as likely as Italians, who were the least mobile population.

The American economy also reaps the benefits of a fluid labor market. The most recent Bureau of Labor Statistics report on job openings and labor turnover (Jolts) reveals that in the 12 months ending in October there were 62.6 million hires and 60.1 million separations, resulting in net job gain of just over 2.5 million. The workforce consists of about 150 million workers so these statistics imply that on average about two-fifths of the employment positions experience turnover each year. This remarkable amount of labor mobility moves workers to the jobs in which they are most productive.
Even with increased taxes under the Obama administration, the U.S. remains a low-tax country compared with other G-7 countries. The OECD reports that the ratio of total taxes to GDP is just over 25% in the U.S. Next lowest is Japan with 30%. Italy and France each have tax receipts that equal about 45% of GDP.

The U.S. is a welcoming society, which also contributes to its success. One measure of integration is the proportion of immigrants employed relative to the native-born population. Immigrants have higher unemployment rates than native-born people in all G-7 countries except the U.S., according to the OECD. For example, Germany has the most extreme unemployment ratio, with an immigrant unemployment rate of almost 8%, 75% higher than that of native Germans. In the U.S., the immigrant unemployment rate is about 10% lower than the rate of those born here."

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