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January/February 2011, 
Vol. 93, No. 1
Posted 2011-01-03

Economic Freedom and Employment Growth in U.S. States

by Thomas A. Garrett and Russell M. Rhine

The authors extend earlier models of economic growth and development by exploring the effect of economic freedom on U.S. state employment growth. They find that states with greater economic freedom—defined as the protection of private property and private markets operating with minimal government interference—experienced greater rates of employment growth. In addition, they find that less-restrictive state and national government labor market policies have the greatest impact on employment growth in U.S. states. Beyond labor market policies, state employment growth is influenced by state and local government policies, but not the policies of all levels of government, including the national government. Their results suggest that policymakers concerned with employment should seriously consider the degree to which their own labor market policies and those of the national government may be limiting economic growth and development in their respective states.