Will liberalizing exemptions accelerate recovery from a pandemic recession?
- Liberalizing regulations on the termination of employment contracts could accelerate Poland's recovery from the pandemic recession by giving companies additional incentives to create new jobs. In the face of great uncertainty about the administrative closures of entire industries, reducing the restrictiveness of layoffs would reduce companies' risks in hiring new workers. The Law and Justice government for the duration of the epidemic limited the legal minimum amount of severance pay for dismissed employees to ten times the minimum wage - in our view, this solution should remain in place permanently and be combined with further liberalization steps such as removing the obligation to provide a reason for termination. The restrictiveness of the termination of employment contracts in Poland is still above the average of OECD countries, the organization which comprises mainly countries richer than Poland. Since 2015, Poland has dropped from 20th to 22nd place out of 37 countries, as some other countries liberalized regulations, while in our country they remained unchanged due to, among other things, the failure of the actions of the Labour Law Codification Commission. Paradoxically, the legal restrictions on redundancies may work to the disadvantage of all employees - discouraging employers from creating new jobs, and encouraging the abuse of temporary contracts, circumvention of labour law through civil law contracts and self-employment, and even dismissing the shortest-serving employees first due to shorter notice periods and severance pay. Unfortunately, rigid labour regulations rarely protect those they are supposed to protect, and instead excessive protection against dismissal limits the creation of new jobs and the growth of the most innovative companies - this is one of the main conclusions from the published by FOR report of the Lithuanian Free Market Institute (LFMI).
- The LFMI report comprehensively reviews research on the restrictiveness of termination as well as its comparison in the countries of our region - Bulgaria, Czech Republic, Estonia, Lithuania, Poland and Slovakia - based on data provided by FOR and other think tanks from the countries mentioned
 The LFMI report (2020) was prepared by the Lithuanian think-tank, Lithuanian Free Market Institute, in cooperation with the Civic Development Forum and other partner think-tanks from our region: Institute of Market Economics (Bulgaria), Centre for Economic and Market Analyses (Czech Republic), Centre for Free Economic Thought at the Estonian Business School (Estonia) and Institute of Economic and Social Studies (Slovakia). This is part of a 3-year study on labour regulation flexibility initiated and coordinated by LFMI.
Rafał Trzeciakowski, FOR economist
Files to download