The US & Employment Protection Legislation
In the majority of regions in the United States, employers are free to (and often chose to) use at-will employment contracts. Federal and state governments provide very little employment protection legislation (EPL) to prevent employers from firing or carrying out massive layoffs to support company interests. In contrast, most Western European countries do not utilize and forbid at-will employment and have stringent policies in place that are designed to protect employees’ jobs.
On the surface, it would appear that the labor laws developed in Western Europe and other countries would benefit their employees, for in theory, they would experience greater job security and less unemployment. However, upon further examination, it becomes apparent that EPL has various implications and may pose adverse affects on employment. This short essay attempts to demonstrate why the United States should not incorporate additional EPL. It also addresses the relevance of at-will employment and its effect on the current labor market.
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Lastly, it gives examples of how workers protections potentially have hurt European industries and the implications of increasing workers protections in American companies as it relates to their abilities to compete globally. Deregulating the labor market is a very controversial subject and is at the center of debate among employers, employees, lawyers and lawmakers. The decision on what is the best course of action to implement involves weighing the prospective benefits against the possible implications of employment protection legislation.
The benefits can be observed by viewing some of the countries in Western Europe. France, Greece, Germany and Portugal, to name a few, have very strict rules when it comes to hiring, firing, layoffs and other employment protections. Per the Organisation for Economic Co-operation and Development (OECD Policy Brief, September 2004, p. 2) a benefit of job protection legislation is that it reduces firings and increases job stability. The OECD also made the claim that strict legislation encourages employees’ willingness to be trained, which may have a positive impact on aggregate employment and economic efficiency.
To compare the benefits to the potential adverse consequences of such firm legislation, the OECD examined Portugal, a country with much stricter employment protection, to the United States, the least regulated of all countries reported. During 2004, these countries had similar unemployment rates but different levels of employment protection. Their findings revealed that Portugal had 5 times less unemployment; however, when factoring in re-employment, in excess of 1/3 of the unemployed in Portugal took longer than a year to find new jobs as opposed to 1/10 of displaced workers in the US.
This one example of many does not paint the full picture, for other variables were not considered (e. g. unemployment insurance). However, it does lend support to the concept that tighter regulation creates greater challenges for people out of work to re-enter the workforce after separation. Enacting more stringent employment protection legislation also could prompt employers to take extreme measures to keep their profits from dipping below the bottom line or break-even point. Many contest that increased regulation would lead to an influx in individual and class action employee lawsuits.
The effects could in fact be devastating and place employers in position to make decisions about massive layoffs, outsourcing labor offshore, moving operations to more cost effective areas, the list continues. Thus, the United States should not place more rigid employment protection legislation on the labor market, for it not only has the potential to negatively affect companies’ abilities to hire and terminate employees, it also can cause drastic economic consequences on society as a whole.
The employment-at-will doctrine still has relevance in the US labor market, but it is far less effective than it has been in past decades. Reason being, over the years, the US government has implemented various acts into law to help deter and prevent employers from taking advantage of employees. For example, Title VII of the 1964 Civil Rights Act prohibits job discrimination based on race, color, national origin, religion and gender. This act was also designed to erode the employment-at-will doctrine.
The Equal Pay Act outlawed gender-based wage discrimination (improved in 2009, Lilly Ledbetter Fair Pay Act). And the Age Discrimination Employment Act of 1967 made it unlawful to discriminate based on age for individuals 40 years old or older. The threat of being sued is a deterrent, but in general and in most instances, it is not in an employer’s best interest to act in bad faith when dealing with employer-employee relations. Employers should be great leaders, demonstrate outstanding moral character, act in good faith and promote a productive and harmonious work environment.
Of course this is not always the case, but ultimately, the backlash for unethical and unlawful employer acts such as wrongful termination, including massive layoffs without advanced notice (normally 60 days), sexual harassment, discrimination, retaliation and the likes can create serious financial strain in the form of exuberant legal defense fees, costly judgments, fines, lost production time etc. These are just a few of a multitude of obstacles that have the potential to negatively affect a company’s bottom line and reputation as well.
Thus, it is not worth it for an employer to treat its workers unfairly. Reaping what is sown can have enormous positive or severe negative consequences. Workers protections have hurt European industries abilities to compete globally. As stated, inflexible regulation can cause multinational companies to seek refuge in other countries that are viewed as “business safe havens”, for their employment laws are more relaxed. It is a known fact that many of the world’s largest corporations outsource operations to places such as India, Indonesia and the Philippines.
If the United States decided to mimic the employment laws of Western European countries, it too would experience increased difficulty when competing in the global marketplace. Employment is a key component in measuring a country’s Gross Domestic Product (GDP(I), income approach) and it is also a very good indicator as to how well a country is doing in the areas of economic production and growth. Mass layoffs and relocating workers overseas, as well as leasing non-citizen workers from other countries for temporary employment assignments in the US contributes to the reduction of our GDP.
In addition, it has the potential to lower the US credit rating and place doubt amongst foreign lenders that the US is able to repay its debts. Less capital for government spending leads to, less business loans, less business spending, less jobs, less consumer loans, less consumer spending, less taxes collected, more unemployment, more foreclosures and more bankruptcies. With this snowball effect, a recession is inevitable. In order to avoid that from occurring again in the near future, it is in the United States’ best interest to look for viable alternatives to employment protection legislation.