Edited by Jürgen G. Backhaus
Chapter 20: Employment Security through Dismissal Protection: Market versus Policy Failures
Christoph F. Buechtemann and Ulrich Walwei1 Introduction Employment security and the impacts of legal restrictions on employment terminations by ﬁrms have been a regularly recurring theme and controversial issue in the labour market policy debates of most Western industrialized countries. Whereas the proponents of employment security regulations have upheld the view that restraints on employers’ dismissal behaviour are necessary for establishing parity and fairness between the labour market parties and for stabilizing employment over the business cycle, the critics have blamed employment security regulations for slowing down necessary workforce adjustments, increasing ﬁxed labour costs, reducing the allocative efﬁciency of labour markets and thus, at least in part, accounting for sluggish employment growth and persisting high levels of long-term unemployment in Europe as compared to the United States. In the 1980s, such criticism, though frequently rooted in abstract notions rather than ﬁrm empirical evidence about the functioning of labour markets, spurred several European governments to introduce new legislation selectively relaxing legal dismissal and lay-off restraints and/or widening legal ‘loopholes’ allowing a circumvention of statutory dismissal protection, for instance, through facilitating the use of temporary workers or encouraging early retirement of older workers. Despite these changes, which have left the basic systems of statutory dismissal protection largely intact, the debate about the allegedly adverse employment and labour market impacts of employment security regulation has continued with undiminished intensity, receiving additional fuel from the substantial labour shedding during the latest recession of the early 1990s. This is witnessed by the fact that...
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