Restructuring a company costs ~31 months of salary per laid-off worker in Germany, 62 in Spain, and 7 in the US. A case that Europe’s missing Tesla is a labor-market design problem, and Denmark already has the fix.
Posted by works-in-progress
Restructuring a company costs ~31 months of salary per laid-off worker in Germany, 62 in Spain, and 7 in the US. A case that Europe’s missing Tesla is a labor-market design problem, and Denmark already has the fix.
Posted by works-in-progress
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Europe’s income gap with the US has widened from 10% in 2000 to 20% today, and an estimate cited in this Works in Progress piece puts a big part of the blame on the cost of failure. Restructuring costs roughly 31 months of salary per laid-off worker in Germany, 38 in France, 52 in Italy, and 62 in Spain, versus 7 in the US. Employment rates are nearly identical on both sides of the Atlantic, so the effect isn’t mainly unemployment. Firms avoid creating jobs in risky, experimental areas, because those are the jobs most likely to be cut. Americans are about ten times more likely to be fired in a given year than Germans, and the EV cases show the consequence: Audi’s €610M severance bill for closing its Brussels plant exceeded the cost of writing off the factory itself, and Volkswagen’s in-house software effort ended in a deal to license Rivian’s.
The piece doesn’t argue for adopting the American model wholesale. It points to Denmark, where employers can fire almost at will but workers get unemployment insurance covering up to 90% of prior income for two years, backed by about 2% of GDP in retraining and rehiring spending. It also points to Austria’s portable severance accounts and to Switzerland’s lack of mandatory severance. These are also the countries that produce Novo Nordisk, Roche, and Nestlé. For larger countries, it floats letting workers above the 90th income percentile opt out of standard employment protections.
[Source: Works in Progress](https://worksinprogress.co/issue/why-europe-doesnt-have-a-tesla/)
Classic cycle of constantly preventing layoffs just feeds future economic malaise and worse layoffs.
https://preview.redd.it/9ie43kgw1pth1.png?width=1266&format=png&auto=webp&s=1ba9fd609aeadafad56839e19f517d3eb5853f35
I just want to throw this out here if anyone else is curious
The harder it is to right-size a business, the less risk businesses will take. News at 11.
Europe has chosen to reduce market dynamism in an attempt to create the social stability through regulation that it could very easily provide though the safety net, given the high levels of taxation.
This is on some sense the worst of both worlds, since you get the economic drag associated soft higher taxation along with the reduced growth from over-regulation of the labor market.
America is to the other end of this spectrum, with relatively dynamic labor markets and relatively low taxes, but with a social safety net that’s insufficient to address the anxieties that American voters face, and which is now creating headwinds for American leadership in critical industries such as AI.