With this question from Prof. Frank Gunter, we tested your business knowledge in our inaugural issue of Lehigh Business.
After World War II, many European nations suffered from high levels of unemployment. Research showed that a large percentage of the unemployed had been employed previously but their employer had let them go—fired them—for one reason or another. To reduce unemployment, these nations passed laws making it more difficult for firms to fire an employee. In some cases, employers had to show cause before a judge before they could fire someone. As a result, unemployment increased! Why?
European employers immediately realized that if they hired someone and then realized a month or so later that hiring them was a mistake then they were stuck; they couldn't easily fire them. In other words, the law increased the long-term cost of hiring a new worker since the firm had to continue to pay a new worker even during a business downturn. As a result, European firms hesitated to hire and the unemployment rate went up.
Our random winner of Lehigh swag is Lew Chasalow ’78, ‘79G, ‘82G. Congratulations!