ورشکستگی و مشکل اخراج کردن Bankruptcy and the difficulty of firing

1. Introduction One of the most important legal provision of the new French labor law adopted on August 9 2016 is the possibility of employees’ dismissal on the basis of firm’s economic performance. Thus, a French company faced with a decline in sales can more easily dismiss some of its employees in order to protect its own existence. Such reform made the subject of a long debate in the French society in which numerous labor unions have tried to oppose to its adoption. The main argument of French policymakers was that the new labor reform will increase the competitiveness of French companies on the European market. Nevertheless, heavier regulations of labor markets are associated with lower labor force participation and higher level of unemployment among the young population (Botero et al., 2004). Similar negative effects of such laws was also confirmed by Djankov and Ramalho (2008). Emerging economies with rigid employment laws seem to be characterized by developed grey economies and higher unemployment. A pro-worker legal orientation of the labor law has not only social benefits by diminishing the likelihood of employee’s layoff, but also financial costs. For instance, such rigid labor codes affect the input decisions of firms. According to Lafontaine and Sivadasan (2009), labor regulations that hinder firms to adjust the labor input as a response to the fluctuations of the demand can impede the growth of firms. However, such regulations increase workers’ employment tenure by protecting them against job loss when firms experience negative shocks. Not surprisingly, pro-worker governments will always encourage the adoption of amendments that strengthen the bargaining power of employees. Besley and Burgess (2004) analyzed the consequences of such pro-worker political orientation in the case of India. Their study confirms that pro-worker labor market regulations diminished the level of investment, employment and productivity of the manufacturing sector. According to Klapper et al. (2006), labor regulations that protect more the employees can impede the growth of new firms. Higher costs of compliance with labor regulations may inhibit firms’ entry. As opposed to pro-worker laws, less rigid labor regulations tend to harm less the national economy. Di Tella and MacCulloch (2005) examined the main consequences of such laws in 21 countries from 1984 to 1990. After controlling for time and country fixed effects, their study shows that a higher degree of flexibility of firms to adjust labor to economic realities significantly increases the employment rate and the labor force participation rate. Hence, a certain support in favor of less rigid labor laws seems to be justified by the labor literature. However, adopting a labor law that diminishes the difficulty of firing does not affect only the economic environment but also the amount of work of bankruptcy institutions.