Unemployment,Vacancies and Unfair Dismissals

In most West European economies the annual number of grievance procedures settling individual complaints against unfair dismissals has been increasing since the 1960s. This development has very often been attributed to the enactment of legal regulations restricting the dismissal behaviour of firms. Econometric analyses using data from Germany and Great Britain show that labour market developments, namely the flow into unemployment and the vacancy rate, have a much stronger influence on the cyclical demand for grievance procedures than changes in the “legal infrastructure” of the labour market. Without denying the importance of institutional differences it appears that the individual costs of unemployment (which, ceteris paribus, rise as the flow into unemployment increases and the vacancy rate decreases) are superior predictors of the demand for grievance procedures than institutional changes strengthening or weakening employees' rights.