I've read somewhere that in Denmark it's very easy to hire and fire someone. When they are fired, there is a big safety net covered for by the state. This way they make it so that it's easy for companies to hire and fire, and still providing security for citizens.
Brian, you neglected to mention that the USA slows down it's labor market via experience rating and should switch to Europe's superior flat payroll system. We should have the dynamic system that doesn't punish variance! That's who America is!
I don’t think all of Europe has a single labor-law under which you literally cannot fire someone for reasons of performance of the worker or firm, under any circumstances, until they retire. It would be valuable to have a more comparative perspective in which alternatives are explored beyond “all hire, no fire” and American-style at-will disemployment.
Here's another aspect. Basic optimization for expansion.
My model has always been that you have, let's say, five bottlenecks. You don't want to be limited to expanding only one of them at a time because then the whole thing will be extremely slow. The theory of fixing the multiple bottlenecks is that you're trying to create extra capacity for each bottleneck so that when you solve the next bottleneck, you utilize the extra capacity immediately. This only works if the risk from expanding the bottlenecks is not too high. This is just another aspect where the rigidity of the job market, that you cannot fire people, stops business improvement.
This misses a very important distinction, that firing isn't the only way that european companies wind down. Wage cuts are a method more frequently used in EU like germany
> In the 2008-9 recession, in response to falling orders, German firms reduced labour utilisation by cutting back work hours rather than by laying off workers. In fact, a whopping 90% of the drop in total labour inputs in the German economy in the Great Recession is to be explained by reduction of hours per worker ! This kind of “labour hoarding” does not normally happen during recessions in other countries, but did happen in Germany this time. This mini-miracle now has people on the centre-left all over the world seeking ways to replicate it in other countries, and has spawned a substantial literature.
I also like Pieter’s piece and think it makes a lot of sense. Nice analysis here, too, I like the housing analogy.
I've read somewhere that in Denmark it's very easy to hire and fire someone. When they are fired, there is a big safety net covered for by the state. This way they make it so that it's easy for companies to hire and fire, and still providing security for citizens.
Superb post. Labour market liberalisation would improve Europe’s economic fortunes hugely.
Brian, you neglected to mention that the USA slows down it's labor market via experience rating and should switch to Europe's superior flat payroll system. We should have the dynamic system that doesn't punish variance! That's who America is!
Great post! This seems to echo a lot of what I'm seeing (in the UK). Also love the 'everything is housing' analogy.
Certainly true if gdp is the measure of a successful economic policy.
I don’t think all of Europe has a single labor-law under which you literally cannot fire someone for reasons of performance of the worker or firm, under any circumstances, until they retire. It would be valuable to have a more comparative perspective in which alternatives are explored beyond “all hire, no fire” and American-style at-will disemployment.
Here's another aspect. Basic optimization for expansion.
My model has always been that you have, let's say, five bottlenecks. You don't want to be limited to expanding only one of them at a time because then the whole thing will be extremely slow. The theory of fixing the multiple bottlenecks is that you're trying to create extra capacity for each bottleneck so that when you solve the next bottleneck, you utilize the extra capacity immediately. This only works if the risk from expanding the bottlenecks is not too high. This is just another aspect where the rigidity of the job market, that you cannot fire people, stops business improvement.
This misses a very important distinction, that firing isn't the only way that european companies wind down. Wage cuts are a method more frequently used in EU like germany
Pseudorasmus wrote a great blog 10 years ago on this - https://pseudoerasmus.com/2014/08/01/anthropology-of-financial-crises/
and worth checking how countries with less flexible labour markets can function especially during recessions and crisis
> In the 2008-9 recession, in response to falling orders, German firms reduced labour utilisation by cutting back work hours rather than by laying off workers. In fact, a whopping 90% of the drop in total labour inputs in the German economy in the Great Recession is to be explained by reduction of hours per worker ! This kind of “labour hoarding” does not normally happen during recessions in other countries, but did happen in Germany this time. This mini-miracle now has people on the centre-left all over the world seeking ways to replicate it in other countries, and has spawned a substantial literature.