Employment Law + Economic Flexibility

I’m in Aveiro, Portugal at the moment, headed by train to Porto this morning, so why not write about the world of work in Europe.

Here’s an uncomfortable truth: worker protections, like the ones in Europe, and like the ones migrating to some states in the US, might hurt workers in the long run. The key word there is “might”—I’m not an economist or historian, but we do work with firms in nearly fifty countries and have witnessed firsthand, many times, how work environments impact economic growth. It’s something that Managing Directors talk to us about a lot, privately.

The single refrain I hear over and over again from our UK and greater European clients is this: restrictive labor laws hinder growth. On that theme, here’s an excerpt from an article written anonymously last year in the Economist:

There are two ways for Western companies to sack lots of people. The American one involves the boss inviting hundreds of unsuspecting employees on a Zoom call, offering them a few months’ wages as severance, and insincerely wishing them luck in their future endeavors (oh, and to have their desk cleared by lunchtime). The European method is more circuitous. Companies wanting to enact mass layoffs typically start with consultations with unions, representatives of which sit on companies’ boards in Germany. A social plan is drafted. Strikes inevitably ensue. Politicians get involved, and badger the employer into firing fewer people than it had originally planned, or to pay for its soon-to-be-ex-staff to be retrained. The full cost of downsizing is only known once labor courts are called to rule on the matter, years later. Meanwhile, the company in question often cannot hire more employees lest it be made to hire those who were just let go.

Now it’s not really that heartless in America (close, though), and we only work with small- to mid-sized privately held firms anywhere, so it’s not quite that difficult, but also close.

Why is it easier to start and grow a business in the US? Because you can fire people. In other words, you can shape your team size to the opportunity, matching the contours of the marketplace. That’s not good for the dismissed employee in the short-term, but it’s good for the dismissed employee in the long-term…because some enterprising business owner isn’t afraid to hire that talented person…because they can always be fired if things don’t go as planned.

Profits vs. People

There’s a lot of whining these days, and a lot of it centers around how heartless big business is, valuing profits over people. Some of you entrepreneurial types are even joining that chorus, and this is what I’d suggest to you: if you really value (the employment of) people, you’ll run a strong firm with solid financials, a safe client mix, and a good new business pipeline. That way, those “people” won’t have to pay for bad business decisions. But I digress.

Besides, profits or people is a sad little false choice. Neither happens without the other, and any slogan that can fit on a bumper sticker is not as nuanced as it should be.

Yes, the government did step in and mandate the 40-hour work week in the US (with a few exceptions), but that wasn’t where it started. That limited work week (5 days, 40 hours)  had been around for a bit, and was most famously enshrined at Ford Motor Company. Business often thinks long-term, figuring out what’s best for everyone, and then the legislation catches on. Is that true for publicly traded companies? Not usually.

As we talked about in a recent 2 Bobs episode, entrepreneurship is the fire, and the steel box that contains that fire is the sum of the applicable laws that make the fire useful and safe. Sometimes the box smothers the fire.

The Right Balance

I don’t know if 40 hours or 5 days is right. That wasn’t on the tablets that Moses brought down the mountain. What I do know is that many of the shifts from “profit” to “people” are going to make your job harder. After all, there are a lot more “people” voting than “profit-generating” folks like you. The clock is ticking.

I love traveling to Europe and have visited nearly 70 countries around the world now, but I’d rather not be an employer in more restrictive markets. An employee, either, because I’m not as likely to get hired, and the overall economy will probably stagnate. It’s not that we don’t have our problems in the US, because we certainly do, but there’s a reason that 20 of the top 25 companies by market capitalization are based in the US.

That’s when you’ll just have to grit your teeth, when employment laws change, like this dear fellow who finished the same article like this:

In Europe, if you hire someone, you are responsible for that person for their entire life. It’s easier to put a kid up for adoption than it is to get rid of a junior marketing analyst in Italy. A lot of this thinking is so sweet, in a way.

Let freedom reign and let’s do “people and profits” instead. If you want to know what it’s going to be like to run a business in the US in 30 years, look at what it’s like in some parts of Europe, now.

Stay nimble, too. Don’t make big employee promises that depend on a certain future. Our world is changing fast and the ultimate goal is business survival. Pack light, keep your eyes up, and don’t be afraid to have an opinion.¹

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¹This may surprise some of you, but I have belonged to three unions. Not by choice, but because I was hired by three companies that all had unionized workforces. I worked some really odd jobs in grad school: Purolator Armored, Northern Indiana Public Service Commission, and Dalton Foundries. In two of those jobs, I was called aside by the union rep and chastised. For working too hard, but that’s another story. All that to say that this is not an anti-union screed. I’m very much pro-worker, but there are no workers without owners, and that’s what I wanted to talk about: the Europeanization of North America. My US friends have no idea how easy they have it.