If I had to pick the most important issue affecting productivity and employment, I wouldn’t concentrate on lowering dismissal costs (yet again), but instead think about making employment more flexible. Right now when you hire someone, you need to know exactly how many hours per week the person is going to work.
For example, in the US many small businesses have a call list of people that they can bring in to work when there is work to do. If it’s a bunch of orders at a factory or a swarm of customers at a restaurant, companies can adjust to take advantage of the situation.
If variable hour contracts were possible, and social security was more flexible and had the ability to report hours worked, I think employers would be much more willing to take the risk of hiring staff, at least initially to be able to handle higher load, but as the business expands, keep the staff on as full time.
Part of this is the psychology of hiring. It just doesn’t make sense to worry too much about dismissal costs, since the only time you really care is if the business is doing badly, in which case you are probably not hiring anyway.
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