Feeling ‘Pressure All the Time’ on Europe’s Treadmill of Temporary Work
nytimes.com
nytimes.com
I've seen this sort of thing backfire a lot in Europe where well intended regulation causes far more harm (both to individuals and the economy of the country) than good.
Was in a meeting not too long back where major investments were being discussed and the places to invest where on the table (with jobs at stake). Long story short some regulatory monkey was saying "this ref prevents this, you'd have to do that" and such for a location in Europe at which point the execs in the room basically just said "fine, we just won't invest there... if they want to have silly practices we'll just put the jobs elsewhere." And they did.
I'm no Republican but the concept of regulations killing jobs and hurting the people they intended to help is a very real thing.
Are we supposed to have no regulation and no taxation on businesses because otherwise some other state/country can offer them a better deal? Or do we need to have stronger regulation across country borders/policy that prohibits these loopholes. Maybe we should tax a US company more if they choose to produce products in another country to get around regulations that we have in the US.
Clearly there are more to countries than tax rates and regulations. However, the parent poster relates an anecdote where one country with less restrictive regulation is chosen over another, all other things being equal.
So to answer your question, if a country has a superior market or the right labor pool, then it will succeed despite higher tax rates or restrictive regulations, to a point.
Despite a zero corporate tax rate and few regulations, Somalia still hasn't posed a threat to Europe and the U.S. as a corporate headquarters. The "race to the bottom" is bounded by other factors besides tax rates and regulation. Rule of law, enforceability of contracts, access to a skilled labor pool, access to markets, etc. are more important.
Interestingly enough, these factors are a correlated to sufficient government revenue and regulation to uphold contracts and satisfy labor.
Here is why: as a business owner I face a 40% tax rate at the corporate level and then 35% on personal income. I am thus highly incentivized to keep profit in the business and reinvest it or look for growth opportunities rather than distribute it to myself and our other shareholders.
Now imagine you are Sam Walton of Walmart. You stumbled upon a fantastic business model that prints money (or your Apple sitting on $250bn in cash). On the margin you will always opt to reinvest the money in the company or at least let it sit there unspent (i.e. Apple/Google/Msft) if the alternative means paying an incremental tax on it. So what do you do? Grow grow grow.
Anyway just wanted to share my thoughts. I am not trying to be controversial... I believe that long term sustainable health of an economy is predicated on the health of small businesses. I genuinely believe double taxation may have a potentially perverse incentive and negative outcome on a society simply by the way it alters my own decision making and incentives.
I would like to see a similar model explaining what labor law accomplishes and how you know when the laws are being too strict. The problem is that the obvious answer ("so workers don't get exploited") isn't very satisfying: there's sort of an inherent barrier to not paying enough, which is competition for workers[2]. You would need to explain labor law as filling some role that isn't a simple matter of competitive compensation.
[1] My post on the importance of having a model that identifies both a Scylla and a Charybdis: http://blog.tyrannyofthemouse.com/2015/12/the-scylla-charybd...
[2] The typical argument is like, "look at [obviously poorer time]. They paid [obviously bad wage]. Now [after years of accumulation of capital] we mandate they don't do that, and stars above! They get good wages now." I don't find that satisfying.
Collusion among employers to keep wages down still happens. The combination of minimum standards plus anti-collusion laws function as a belt-and-suspenders approach to the problem (labor law has other purposes, too; so does anti-collusion law.)
A) That would justify anti-conspiracy countermeasures, not general "you have to pay them more" laws.
B) It would rather dubiously require a conspiracy along the rather huge number of low-skill employers. I can accept a conspiracy between McDonald's and BK, but across numbers indistries and localities?
I believe in the principle that the unintended consequences of any policy usually wind up outweighing the intended ones.
I love the story:
> The term cobra effect stems from an anecdote set at the time of British rule of colonial India. The British government was concerned about the number of venomous cobra snakes in Delhi.[3] The government therefore offered a bounty for every dead cobra. Initially this was a successful strategy as large numbers of snakes were killed for the reward. Eventually, however, enterprising people began to breed cobras for the income. When the government became aware of this, the reward program was scrapped, causing the cobra breeders to set the now-worthless snakes free. As a result, the wild cobra population further increased. The apparent solution for the problem made the situation even worse.
Basic income does the same thing for the distortionary minimum wage.
It's not as if the permatemp phenomenon isn't a problem right here in the United States, where it's generally pretty easy to fire people.
Sharks are welcome to have an opinion on the food chain, just be aware of their position when evaluating it.
There's good evidence that minimum wages can be used to nudge up bottom tier salaries without very much impact on employment rates. For use-cases that tend to suffer most (eg youth employment), most EU countries have exemptions.
Labour laws which try to force longevity come with some costs that aren't very easily mitigated. "At-will" employment sounds very aggressive but forced employment sounds bad too.
I think compensation packages (based on years in employment) should replace no-firing laws. This will keep a softer incentive in place, but avoid making hiring people so risky.
> Under European labor laws, permanent workers are usually more difficult to lay off and require more costly benefit packages, making temporary contracts appealing for all manner of industries, from low-wage warehouse workers to professional white-collar jobs.
Make it extremely costly for an employer to exit a permanent contract and employers are less willing to enter those contracts. Shouldn't be terribly surprising.
As a result, many (most?) well-meaning market restrictions end up hurting more than they help, often in indirect and difficult to quantify ways spread out over thousands of different interactions. This (friction introduced by the inability to fire people who should be fired) is actually one of the easier examples to point to.
Get a bonus for most bugs fixed? Lots of bugs produced, logged and fixed.
Get a bonus for bug free code? Very little code produced.
I do think for economics a more detailed simulation is needed in which we can try different laws before they passed.
If you program a simulation with the same type of thinking used to draft the law, assuming that people will employ and comply with the law "as intended", you're liable to fall prey to an exploit that you weren't creative enough to think about, else you'd have (possibly) addressed it in the law.
As for flexibility of hours on interim contracts, it's nonexistent, because employers don't want to give that. They'll hire whoever just complies with their hours and usually not even allow for swaps.
I've even been on the other side of this. Allowing hour swaps leads to first the impression of preferential treatment, then actual preferential treatment (because "he's doing it"), then fights, then a total disaster.
The fundamental problem is that employment law tries to treat the employer as a nasty exploiter, not as a provider of something good to those to whom it pays salary. The law often starts from confrontation and zero-sum game, not from having shared goals and interests.
So you wind up getting laws designed so that employers need to be fair when firing, allowing folks time off after pregnancy (including men), allowing folks to stay home when they are sick, and making sure folks can try to correct their ways before getting fired.
And contrary to your belief, enforcement of laws seems to happen here (norway). Temp agencies seem to be much more used than they were in the US.. and weirdly less predatory to the worker. It still sucks only having a temp job, but that's how a lot of folks get started working here.
However, treating all employers as nasty exploiters then means that more of them will have to act such. A better recourse would be to ensure the labour market works, so that the nasty exploiters lose employees and have to start behave themselves.
There aren't remedies for these folks in the states Now. If all people had that power, they'd be more likely to use it. Unfortunately, you have to have a bit of privilege to pull it off when there aren't laws to protect you (and sometimes when there are).
And while I realize that this is controversial, but in order for this to work 2 other conditions are necessary:
1) limit immigration
2) throw the book at any employer caught employing illegal immigrants (because they're not doing it to help the illegal immigrants)
Sans the (many) inefficiencies, the government is basically an expression of the collective will.
> The fundamental problem is that employment law tries to treat the employer as a nasty exploiter
Because they are, almost inevitably, if left unchecked.
Is slightly more convenience for the rich (if you use uber and deliveroo, that means you) worth allowing exploitation of the poor ? If so, how much ?
Do only "the rich" use taxicabs? Uber is generally cheaper than a cab, so if middle class uses cabs (and overwhelmingly has smart phones), why wouldn't they also use Uber?
Also, poor people generally would rather be "exploited" and employed than on the dole.
Thus I would go with something like make it extremely easy for the employer to get employees without any kind of obligation and the employer will be less willing to choose any type of contract that respects the employee. As we so often hear, the responsibility of the CEO is to the shareholders (thus not to the employees).
The order in which or degree to which the CEO considers each constituency when making decisions might vary by the decision, but I generally favor them in the order listed above (even as I am an employee). If you don't serve your customers well, nothing else matters...
As for the law being worked arond, that was bound to happen; I think anytime you unduly restrict one side, that side will seek loopholes or exploits or withdraw from engaging. In this case, hiring temporary workers, engaging other companies under contract, automating the function (entirely or partially), moving that function to another geography, or doing without happens.
I'm in the process of opening another software development location in Europe. In studying where to locate, it was surprising to me how varied labor law was across various locales, and while any such decision is obviously multi-dimensional, labor law was a significant driver in the final location selected. (Several finalist locations were all workable; one of the locations had a much more balanced set of labor laws and local practices.) To inhabitants and prospective employees in the locations not selected, that looks identical to jobs moving away from their locale to another, more balanced, locale in large part due to local labor law.
If workers want security in employment, they're going to have to create it themselves - through worker-owned companies.
Meanwhile, according to the article (which quotes a report based on numbers 5 years old, so who knows how things are now), 50% of new jobs in the EU are still permanent. And 20% of the temp contracts turn into permanent positions.
Not that permanent is actually permanent, employers in the EU fire permanent employees all the time (either for cause, or because there is no viable business alternative; permanent positions also come with a 3-6 month "at-will" probationary period).
Laws that are different for "temporary workers" normally require those workers to genuinely be temporary. That means you get laid off when your time is up regardless of whether you are doing a good job or whether the company wants to keep you: unless you are spectacular, your contract ends and it's someone elses turn.
In an environment with very liberal labor laws, there is no government enforced "time up". If you're doing good work and the company still needs you, then you still have a job.
And as you point out, "permanent" jobs aren't permanent anyway. I can't really see good reasons to have such tight labor laws.
I suspected that there was some hyperbole in that claim, but perhaps a HN reader knows just how costly it is to fire an employee in France, for example.
Basic Income won't solve this mess unless you are willing to give up a lot to get it. As in it won't be free, some benefits will go by the wayside as BI will need to cover all your needs. I figure education will hit the block first, get a job while on BI to prove you can hold one then you can get schooling or more advanced trade skill training.
the problems with BI are many. politicians and such would have a difficult time establishing how much is enough because even those who wholly exist on a BI system would demand access or the ability to obtain certain items and goods. the danger is establishing by government edict a permanent underclass, appeased just enough to keep them from challenging the system.
likely to be better to incentivize hiring people by providing discounts/paybacks/guarantees to employers to get the people in place
Not sure what's going on with more liberalised countries like the Netherlands, but consider the massive influxes of people from continental Europe to the UK, which has relatively relaxed labor laws, and that may have something to do with it.
Also, note that most of the people the article covers don't have any skills worth talking about. They studied art history, social analysis, hotel management and things like that. Such people would find it hard to find a committed employer even in better times. The first example is a doctor, but she suffers from a double whammy of regulation: not only labor laws but also licensing that makes it hard for her to even relocate to a better run country.
Edit: I would also like to add that I don't support mandating unions to represent all employees. Just like an employee should be under no obligation to join/pay dues to a union, a union should have no obligation to represent all employees. It should be a voluntary association.
It is hard. There are incentives for employers to only hire full time (more people = more administrative work and less favorable numbers when computing taxes, etc). There are incentives for unemployed people to seek full time jobs and not part time jobs: You lose unemployment benefits when you do any type of job. The so called welfare cliff.
So you can extrapolate from that exactly how employers use part-time.
Also, letting people make the best decision for them isn't the same thing as the best rule for everyone to follow. Tragedy of the Commons is the best example for this - if everyone makes their best choice for how many fish to catch, the lake gets emptied.
I really ought to turn the above two points into a detailed blog post aimed at libertarians. (Libertarians make good points, too - generally they have better policies than the ones they critique. These processes are some of the biggest things that libertarians categorically ignore, though.)
Is there any reason to believe this is not a random, unsubstantiated fear?
Perhaps a better example is the secret ballot.
What really happened in an economy with 23% unemployment? Now anyone can hire you legally for as little as 100 euro per month and, since there are a million people out there looking for a job, can demand from you to work 12 hours per day for 5 or 6 days a week. Slavery does give a competitive edge to a business.
How is that "part time"?
The real problem with part time jobs is that they usually don't include health insurance benefits. It is cheaper for an employer to give one full time worker health insurance benefits instead of giving two part time workers health insurance benefits.
I think if the US had free national health insurance it would really change the landscape of part time jobs as more people would be open to it.
That phenomenon is called "welfare cliff", and it should be addressed if politicians wants to make part time jobs easier for both employers and employees.
http://finance.yahoo.com/news/elon-musk-doubles-down-univers...
Do we really need to make employment as unpleasant and stressful as it can possibly become before we accept the fact that some kind of basic safety net is needed?
That's a large oversimplification. Employment is stressful because the business world is stressful.
By entering into a contract with an employer, the employer is not only giving you a salary, but some sort of assurance that you'll be buffered from the market because the employer has larger cash reserves to ride out market fluctuations.
Nobody can stop you from freelancing, which gives you ultimate freedom, but also doesn't insulate you from market conditions. By making it more difficult to fire you, the employer has to reduce compensation, benefits, and protections because the overall value proposition has shifted, since the employer now is far less flexible in dealing with market situations.
The business world has always been stressful; my point is that current and upcoming market forces (i.e. automation) are adding onto that stress more and more.
Without figuring out some plan, people are in for a lot of misery as jobs are replaced with automation. It'll be a mistake to suggest we constantly reduce the requirements on employers to provide for fair compensation for work.
If today we are saying labour laws should be relaxed to allow employers to employ people full time with reduced compensation and benefits (which seems to be the response to the article), what is the next axe to fall? Lowering of minimum wage?
My point is that the business world is becoming more and more stressful for businesses also, something you're not taking into account.
Automation and the elimination of certain markets affect businesses just as much as employees. When times become harder, the solution is not to increase worker rights, as that's what's happening in Europe.
If you're in a highly uncertain business environment as a business, AND it's incredibly difficult to adapt by letting employees, you start hiring temporary employees, and full time employees become a thing of the past.
And yes, lowering the minimum wage might be something you have to think about. There really isn't anything left to do when your labor is worth less than the minimum wage.
We don't need to and we should not make employment unpleasant and stressful. The point of this article was that the current system is increasingly making employment unpleasant and stressful, and this is largely due to the dichotomy of having either strongly protected, "permanent" jobs, or non-protected temp jobs. The more protected these permanent jobs become, the scarcer they get. Added regulation does not really help, it will just make even those temp jobs more scarce as companies (and even government organisations) get more and more careful about hiring because of the high stakes and big commitment you make with the hiring decision.
Years ago, when I was freshly married and we had our first children, I was on a string of temp jobs - all with the same employer. The company lost significant markets, there were layoffs; the local union guy publicly said "we should throw out those temp guys to protect the permanent jobs".
I did not like that, and I have somewhat distrusted the unions (including mine, of senior salaried employees) ever since (even if I'm a member). One of the things that makes life so stressful is that employment becomes a game, something where you think you should manipulate other people and some artificial criteria, and build relations and scheme, to keep your job.
It would be less stressful just to have what you call "race to the bottom" and actually have a system where you try to do your job well and if there's need for that job, then do it.
You'd be surprised. Many of the southern countries have rigid labor laws and strong family ties instead of government safety nets .
However, there the labour laws are in fact more rigid than in the "socialist" North European welfare states which have, in many ways, more of a market economy. For instance, the policymakers in Mediterranean countries have wanted to discourage laying off employees by increasing the burden to employers about laid-off staff: you have to pay a year's salary or more to a permanent employee who is laid off.
And, in the end not very surprisingly, particularly the youth unemployment is exceptionally high in Greece, Spain, Italy and Portugal.
What is stupid that in North Europe, the unions, such as Finland's SAK, want to have the same as in Italy. I guess there is no other plausible explanation than populism and short-term power grab by politicians who don't really care what their policies actually mean with all their side effects.
This would be more effective if done in an organized fashion.
If we ever do UBI, I predict there will be massive problems that no one was able to predict that will arise as soon as the system is in place and we'll be no better than when we started.
Quite incredible how much rage is evoked by even mentioning it, though.
I will say that the concepts of year contracts are totally alien to me as an American. But I think Europe still works on the old-school postwar model, where you're horribly underpaid at the start of your career and the company makes a bunch of money off of that, but over time you make more and more until it morphs until a well paid sinecure. So they're just stuck at that horrible entry phase forever and never move to the good part.