The termination of employment relationships: the need for legal reform, and compensation possibilities

Abstract

"Since as early as the beginning of the 1980s German labour law - especially the regulations related to protection against dismissal and fixed-term employment - has come under criticism as a possible cause of a lack of labour market flexibility. From an economic point of view mandatory labour law regulations provide for a redistribution of rights of disposal. They improve the legal position of one group of people at the expense of another. This is why compensation issues are relevant in the case of changes of law (e.g. in the form of a deregulation of labour law). Taking as an example the regulations affecting job security, the paper first discusses whether and to what extent there is a cause for revisions in labour law. For this, results of theoretical analyses and empirical findings are collated. Starting out from the fact that in every legal system there must be assumed to be a permanent need for reform not least due to changes in basic conditions, there then follows a discussion as to what adjustment alternatives for companies would also be available (at least potentially ) without substantial legal changes and what forms of public compensation could be considered in the case of substantial deregulation. Legal-economics analyses on a theoretical and empirical basis show that structural effects of job security (distribution of employment opportunities and unemployment risks) seem to be considerably more important than effects on the level of employment and unemployment. According to the international findings job security de jure correlates negatively with the mobility of labour. However, fluctuation at industry level and national level is associated for all those concerned with cost (e.g. frictions as a result of search and familiarisation) and return (e.g. new ideas and better allocation). More mobility as a result of reforms of job security in labour law would not only open up more entry possibilities to outsiders (unemployed and peripheral workers), but would also direct public interest away from maintaining existing employment and towards the creation of new employment. More freedom in terminating employment relationships would be realisable if, like with the Flexicurity concepts in Denmark and the Netherlands, there were acceptable exchange deals that guarantee a sufficient degree of social protection for the workers. It would nonetheless be possible to retain a certain level of job security de jure and the positive effects accompanying this (in particular on labour productivity), if the available scope for flexibility as regards wages and working time - in the end extended even further via opening clauses - were made use of more fully and - where this is insufficient - extended. A higher level of internal flexibility could then reduce the pressure towards more flexibility which is being increased by economic trends." (Author's abstract, IAB-Doku) ((en))

Cite article

Walwei, U. (2000): Die Beendigung von Arbeitsverhältnissen. Rechtlicher Reformbedarf und Kompensationsmöglichkeiten. In: Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Vol. 33, No. 1, p. 101-111.