Free Labor Markets: Why Immigrant Riots Aren’t in America’s Future

Sweden’s recent immigrant riots demonstrate America’s large advantage over Europe in assimilating immigrants.

On paper, Sweden is one of the world’s most immigrant friendly countries. But its protectionist labor laws cause unemployment among immigrants and young people, creating considerable social unrest. With much freer labor laws, the United States will continue to avoid such problems, even if the Senate immigration bill results in much higher levels of immigration.

Welcoming in Theory, Closed in Practice

In theory, immigrants should be happy in Sweden. The majority of Swedes support the country’s welcoming policies, and Sweden offers lavish social services to immigrants. The country even has the lowest poverty rate in Europe. But all this failed to prevent massive riots from tearing through the immigrant community of Husby in Sweden.

The main problem is that newcomers find economic success difficult in Sweden.  “Sweden retains the No. 1 spot in at least one OECD ranking—the largest employment gap between natives and foreign-born residents,” Fredrik Segerfeldt, a Swedish writer and co-founder of the pro-immigration think-tank Migro, explained in The Wall Street Journal last month:

“By sector-wide union agreements, the country has higher de-facto minimum wages than most of its peers, and so boasts fewer low-wage entry-level jobs than any other EU member.”

Last week, Swedish economist Johan Norberg expounded on Segerfeldt’s point in The Spectator:

“By law, the last person to be hired must be the first person to be sacked,” Norberg noted. “And if you employ someone longer than six months, the contract is automatically made permanent. A system intended to protect the workers has condemned the young to a succession of short-term contracts…. If you never get your first job, you never get the skills and experiences that would give you the second and third job.”

Unable to find employment, Swedish immigrants turn toward the welfare state for support. As Björn Gustafsson of the University of Gothenburg found in a 2011 study, the “elevated probabilities of social assistance receipt among [Swedish] immigrants from not rich countries are mainly due to failures of integrating into the labor market.” Dependence on welfare only further economically and socially marginalizes immigrants, elevating barriers to assimilation.

America: Still the Land of Opportunity

Fortunately, America is not yet Sweden. America’s private-sector unions have significantly less power than those in Europe, resulting in lower minimum wage requirements and freer labor laws. Almost 70 percent of Swedes belong to a union compared to just 11 percent of U.S. workers, so American unions have significantly less power to create wage or labor barriers that exclude immigrants.

America’s more liberal (i.e. freer) labor laws and smaller welfare state, which is restricted to immigrants, help explain why its foreign-born population has such high rates of employment (80 percent and 94 percent for legal and illegal immigrant men respectively compared to 70 percent for U.S. citizen men). “Because immigrants have to work [and can find work easily], the United States does not have ghettos full of permanently jobless and alienated young immigrants, as does France, for example,” explained Robert Guest, a journalist for The Economist, in his 2011 book Borderless Economics. “This is perhaps why… immigrants [in the U.S.] rarely riot. They are too busy earning a living. America has not in recent years seen anything like the immigrant riots that torched the Paris suburbs in 2005.”

America’s welcoming economic environment also empowers foreign entrepreneurs to integrate into the community by starting new businesses. According to the Kauffman Foundation, immigrants are twice as likely to start new firms as native born Americans. In New York City, for instance, foreign-born entrepreneurs comprise 60 percent or more of small businesses owners in dry cleaning and laundry services, taxi companies, grocery stores, day cares, beauty salons, restaurants, truck transportation, clothing stores, and construction, according to a 2011 Fiscal Policy Institute report.

America permits such high levels of entrepreneurship among immigrants because U.S. regulations make starting and growing businesses easier than in Europe. For example, Americans founded nearly 4 times as many large firms over the past 60 years than Europeans:

“The European market remains much more fragmented than the American one: entrepreneurs [in Europe] have to grapple with a patchwork of legal codes and an expensive and time-consuming patent system,” explain the editors of The Economist. “In many countries the tax system and the labour laws discourage companies from growing above a certain size.”

Fear Labor Restrictions, Not Immigration

Flexible labor markets also benefit Americans by allowing them to adjust quickly to immigrant inflows, which insulates them to some extent from wage impacts. Two economists—Francesco D’Amuri of the Italian Central Bank and Giovanni Peri of the University of California, Davis—tested this assertion in 14 different countries in 2010. They found that native workers tended to relocate to more complex jobs that earned them higher wages. D’Amuri and Peri conclude that “occupation reallocation of natives was significantly larger in countries with more flexible labor laws.” In other words, both immigrants and natives stand to gain from freer labor laws.

What the Swedish riots highlight is the inherent contradiction between open borders and protectionist labor regulations. Free markets are the greatest force for assimilation the world has ever seen. And though it is important to pursue entitlement reforms here in the U.S. for a variety of reasons, as long as the country remains the land of economic opportunity, Americans should not fear immigration.