European Employment Regulation Hits the Most Vulnerable

A new study suggests the young, those nearing retirement age and the unemployed are most likely to be harmed by employment regulation

The young, those nearing retirement age and the unemployed suffer from the strict labour market regulation that exists in most of the European Union according to a new study published today.

The study, published in Economic Affairs*, and edited by Len Shackleton, Dean of Westminster Business School, examines different forms of labour market regulation, such as statutory unemployment pay, notice periods and minimum wages and contains a strong message for politicians about the future design of labour market policies. It found that young people with little employment experience, older people nearing retirement age and the already unemployed become “outsiders” to the labour market who suffer whilst “insiders”, those with secure jobs, gain.

The major continental EU countries Spain, France, Italy and Germany have amongst the most heavily regulated labour markets in the OECD. The US, the UK and Ireland are amongst the least regulated. Regulation causes immense damage to employment prospects. In Germany, Italy and Spain, for example, between 40% and 60% of people who are unemployed have been out of work for more than a year – comparable figures for the UK and US are 23% and 12% respectively. In France, only a third of young people aged between 20 and 24 are in work, compared with over two thirds in the UK. By analysing research that compares workers at a company-by-company level, the study shows even more clearly how young workers are shut out of the labour market. In otherwise identical firms in retailing 50% of UK workers were under 25 compared with only 35.5% of workers in France. In both motor vehicles and retailing in France, the proportion of workers who have less than one year’s experience was negligible. In heavily regulated labour markets it is very difficult to get on the first rung of the job ladder.

Overall unemployment is roughly double the UK level in each of Germany, France and Spain but, more worryingly, the effect is concentrated on particular groups. Insofar as labour market regulation helps to