this post was submitted on 18 Jan 2024
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I’d agree, but outsized severance packages are one of the reasons Europe snaps out of recession slower than the US. It especially affects entry level jobs, contributing to Europe’s higher rate of youth unemployment.
Companies are afraid to go on a hiring spree when the economy picks up because they’d be assuming liability for severance if the new business venture doesn’t work out.
Best of both worlds is to make it easy to hire and fire, but ensure there’s a strong social safety net for workers caught out by a recession.
I'm going to digress from the economics a tad and focus on the ethics of this. I feel like companies should be on the hook for this. You should invest in capital (including human labor) based on your confidence in its expected return. Companies should not be able to hire a myriad of workers for funzies and not have to meaningfully consider if that person will be necessary in 6 months. If it is a legitimate business venture, then the cost of potential severance for new hires should be folded into the economics of the decision to pursue that venture. Larger severance pay/worker protections encourage employers to not utilize exploitative hiring practices.
For example, a company in such an environment could have a plan for a four month bit of work. They could employ people on an appropriate short term contract.
Can't tell if we're agreeing or disagreeing. Companies should totally be able to hire on short-term contracts. But it should be clear that it is a temporary contract from the start, not a bait-and-switch from long-term employment to hire-and-fire.
Some people want a short term contract. If too few people want such, the company will have to pay a premium to hire people short term.
There of course must also be penalties for companies that hire ongoing, but end it before retirement