After World War II, many left-wing European governments wanted to do something about unemployment. As I discuss extensively in my book, unemployment is about the worst thing that can happen to you in a modern democracy, short of death or dismemberment. So they passed laws making it very, very difficult to fire workers. In Italy, for example, a judge could reverse a layoff decision, not because you’d fired the worker unjustly, but because the judge didn’t think you needed to cut staff. Hurrah! Finally, workers were protected from the dark specter of unemployment!
Well, not quite. Workers were thrilled; employers were terrified. Now hiring a worker meant you were stuck with them unless they committed some absolutely flagrant offense — like, say, emptying the till and running out the door.
That’s a hell of a commitment to make to someone you barely know. So employers didn’t want to hire scary strangers; they wanted to hire close friends and family. Or, better yet, no one at all. Youth unemployment in many of these nations was staggering. The insiders had a great deal, but people without jobs found themselves consigned to a series of temporary, not-very-well-paid contracts. Or the dole.
The lesson is that when you make it harder to exit, you also make people reluctant to enter.
Megan McArdle, “Can Limiting Divorce Make Marriage Stronger?”, Bloomberg View, 2014-04-16
November 13, 2014
QotD: Unintended consequences
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