If you’re poor and reside where there’s little economic freedom, then you have fewer opportunities to improve your livelihood compared with those living in more economically free places. The freedom to have the flexibility to control your future and leave a legacy to future generations with little influence by government supports human flourishing.
This too-often overlooked fact is supported by the just-released study, “Economic Freedom Promotes Upward Income Mobility,” published by Canada’s Fraser Institute and prepared by Justin Callais, Texas Tech University, and Vincent Geloso, George Mason University.
Income inequality continues to be a divisive economic issue, with opponents of freedom blaming free markets for it. Yet, income inequality is no more prevalent in economically free nations than nations dominated by government intervention.
But there is a crucial difference that separates economically free nations from others—one at the heart of fairness and equity. And that is opportunity. The Institute’s new research shows income and social mobility are significantly stronger in free than in unfree places.
The study looks at 82 nations, utilizing mobility data from the World Bank and World Economic Forum, and freedom data from the Institute’s “Economic Freedom of the World Index.” The conclusions match other data noting that prosperity is much higher and poverty much lower in economically free nations.
The average per-person output in a top-quarter economically free nation is more than $50,000 (purchasing power adjusted) compared to under $6,000 in the quarter of least-free nations. The average income of the poorest 10% in the freest nations is over $14,000, compared to the same numbers in the least free nations reported to be just 11% of the freest nations at under $1,600.
While the study examines income mobility internationally, economic freedom spurs greater income mobility among the U.S. states. The higher level of in-migration to economically free states is best explained by people moving to seek greater opportunity.
The Fraser index includes several factors necessary for economic freedom, but the two most important for income mobility are the rule of law and reasonable regulation. Since the rule of law is relatively—if not completely—uniform across U.S. states, regulatory burdens help tell the story of migration flows.
The U.S. ranks 6th most economically free among 162 jurisdictions considered worldwide. Rankings among the largest states in terms of population and economic output (California, Texas, Florida, and New York) reveal a stark difference.
Both Texas and Florida, with their approaches of more limited government, rank in the top four among U.S. states in terms of economic freedom, whereas California and New York, which choose a heavy-handed governing philosophy, fall in the bottom 4 states.
Narrowing down the broader ranking to just the regulatory burden, which the study finds influences income mobility, the rankings are similar for these states. Ranking near the top are Texas at second best and Florida at 10th while California is at 35th and New York ranks 44th. Government spending per person is also much lower in these red states.
Taking these factors along with better fiscal policy into consideration, and no wonder people are moving in droves for improved opportunities from these dark blue states to these dark red states. This has also meant increases in state income and wealth from migration. Interestingly, despite what’s commonly suggested, polling data show that this migration isn’t soon to flip Texas blue soon.
Regulations too often exclude people from work and opportunity. They may require workers to purchase occupational licenses or train to acquire credentials before they can work. This takes time and money, which lower-income earners may not possess, creating a barrier that prevents them from fully participating and advancing in the labor market.
Such regulations slow wage growth for lower-income workers. And particularly, occupational licensing tends to hurt income growth among the poor more than those with higher incomes. Onerous business and hiring regulations can also slam the door shut on poor entrepreneurs who simply do not have the resources to satisfy government’s many hurdles.
Yet, many seem to believe free markets victimize people. But that’s simply false. Free market capitalism best lets people prosper.
Just look around the world. Where would a person rather live, even if they were poor? In economically free places like the U.S., Canada, Denmark, Texas, or Florida or unfree places like Russia, Egypt, California, or New York, or socialist basket-cases, Venezuela and Cuba?
Free markets continue to face many challenges following the 2009 recession, the COVID-19 pandemic, expansion of government overreach, and the evidence-free imaginings of free-market critics. Hopefully, the facts like those in this report will win out—people are more prosperous, less poor, and blessed with opportunity where economic freedom prevails.