Studies7 show that innovative European firms are having a considerably tougher time recruiting the staff they need than their US counterparts. As a result, allocative efficiency and, ultimately, productivity are reduced. It would appear that the reason for this is the “lock-in” effect produced by overly strict employment protection, meaning that it is not so easy for employees to change employers.
That which creates security also creates inertia. But can you have one without wanting the other? I think so. However, the answer cannot simply be to drastically cut employment protection. The advice of labour market economist and Nobel Prize winner Chris Pissarides could serve as a guideline here: “protect workers, not jobs”.