The Impact of Labor Market Regulations (I)

In many European countries, particularly France, Germany, and Italy, firing a poorly performing worker is extremely difficult, and in some cases impossible. The amount of paperwork and legal proceedings that an employer has to undertake to get rid of a worker is sometimes beyond belief—at least for Americans.
There is even a special judicial system in France for people who are fired. Employers lose the legal battles more than 75 percent of the time. How do employers react to such an environment? Some, particularly smaller businesses, seek out workers who agree to cash payments and no employment contracts. Thus, workers may face the option of accepting a cash-only job with no job security instead of becoming or remaining unemployed.
Moreover, in all countries in which unemployment benefits last for many months or even many years, the unemployed are more willing to participate in the underground economy because they if they work “off the books” for cash, they can continue to receive unemployment benefits. In 2010 the U.S.

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