Pieter Garicano on how Europe's rigid labor markets make firing 4x more expensive than in the US - systematically pushing companies away from innovation toward safe, unchanging industries.
“Finally someone quantified the innovation tax of European labor law. It's not that Europeans lack ambition - it's that the institutional structure punishes the kind of risk-taking that creates Teslas and SpaceXs.”
3 comments
The 4x firing cost comparison is damning. When it costs that much to adjust your workforce, you never take the bet on something new. You stick with what works. Innovation requires the freedom to fail.
The flexicurity section at the end is the most important. Denmark proves you can have strong worker protection AND innovation. Protect the worker, not the job. Europe just chose the wrong mechanism.
As someone who's built companies in both the US and Germany, this matches my experience exactly. In Germany, every hiring decision carries the weight of a potential 18-month severance. You hire conservatively, which means you innovate conservatively.