American employers rely heavily on layoffs to reduce the size of their work force during downturns.
While layoffs are unavoidable in any competitive economy, they are far more common in the United States than in other industrialized countries. Katherine Abraham and Susan Houseman address this question by comparing labor adjustment practices in the U.S., where existing policies arguably encourage layoffs, with those in Germany, a country with much stronger job protection for workers. Based on statistical analysis of the two countries' manufacturing sectors, they conclude that German policies generally have been successful in providing workers with more stable employment without inhibiting labor adjustment. In their assessment of the German experience, Abraham and Houseman emphasize the interaction of various labor market policies. Stronger job security in Germany has been accomplished by an unemployment insurance system that deters layoffs.