Here’s one simple way Trump’s meddling with business might be super costly in the long run

1. James Pethokoukis @JimPethokoukis

 
James Pethokoukis is a columnist and blogger at the American Enterprise Institute. Previously, he was the Washington columnist for Reuters Breakingviews, the opinion and commentary wing of Thomson Reuters.

Mr. Trump’s strategy to protect his daughter’s business seems to mirror his strategy to protect American jobs. Just as he has made it more expensive for potential partners to sever business relationships with his daughter, the C.E.O.s of Carrier, General Motors and Toyota can attest that he has made it more expensive for them to sever their relationships with American workers. And when you make it more expensive to exit a relationship, you make it more expensive to enter it.

That extra cost can create a greater harm. It’s a lesson that many European governments have learned the hard way. Research shows that efforts to boost employment by making it difficult or costly to fire workers have backfired. The prospect of a costly and lengthy legal battle for laid-off employees makes it less appealing to hire new workers. The result has been that higher firing costs have led to to weaker productivity, sclerotic labor markets and higher unemployment.
Even France’s Socialist party saw the relationship of easier exits to increased entrances. Facing very high unemployment and a weak economy, some of its party leaders last year tried to make it easier for companies to fire people. But for months, protesters took to the streets to block any legislation.
The prospect of a costly Trump tantrum could give factory bosses reason to think twice before setting up shop in the United States. In the short run, perhaps Mr. Trump’s threats can slow a painful decline. But in the longer run, defending the status quo may do more harm than good.

And a bit from the OECD research that Wolfers cites:

As with most labour market regulations, employment protection legislation (EPL) was first introduced with the aim of enhancing workers’ welfare and improving employment conditions. However, the same provisions that protect employees translate into a cost for employers and thus could have a negative impact on hiring. The literature on EPL highlights positive and negative effects on labour market performance. Among the former, it highlights the benefits of long-term employee-employer contracts including greater willingness to invest in on-the-job training. Among the latter, is the concern that workers hired on regular contracts may enjoy a high degree of employment security to the detriment of other workers hired on temporary contracts. In addition, employment protection may diminish firms’ ability to cope with a rapidly changing environment driven by globalisation, technological change and the derived organisational innovation.