Narrowing the Gap Without Removing Flexibility
Recent employment protection reforms are easier to understand when they are read as attempts to change two different margins at once. The first margin concerns how predictable and even-handed dismissal of open-ended workers is. The second concerns how easily firms can use temporary contracts as a continuing source of adjustment. This chapter compares those reform mechanisms, then extends the test to agency and platform work and to the income, training, and representation policies that determine whether flexibility becomes safer mobility or simply moves risk to another label.
The distinction matters because “more protection” and “less protection” are too blunt to describe the current policy direction. A government can make dismissal more predictable without eliminating the ability to dismiss. It can limit repeated fixed-term contracts without banning every temporary job. It can require equal treatment for agency workers without making every agency arrangement identical to direct employment. The effect of each change depends on the problem it addresses and on what firms and workers can do next.
Two levers, not one
The OECD’s update through 2025 describes a break with the decade following the global financial crisis. Between 2019 and 2025, many countries strengthened regulation of temporary contracts, while virtually no country significantly reduced protection for workers on open-ended contracts. The reform direction was therefore not a simple return to deregulation or a general tightening of every rule. It combined efforts to harmonise dismissal protection with efforts to make temporary work harder to overuse.
The first effort addresses uncertainty and unequal treatment within open-ended employment. A dismissal rule can protect a worker yet leave both sides unsure about the procedure, the remedy, or the point at which a dispute ends. Excessive judicial discretion can make the cost of hiring appear unpredictable to a firm and the remedy for an unfair dismissal uncertain to a worker. A reform that clarifies the available remedy or simplifies the notification process changes that uncertainty without necessarily making the underlying protection stronger in every respect.
Greece illustrates the distinction. In June 2021, it introduced a compensation scale for unfair dismissal. At the request of either the employer or the employee, a court could award compensation ranging from three monthly wages to twice the severance payment instead of reinstatement and back pay. The OECD reports that this change substantially reduced its indicator of protection for regular workers. That indicator movement should not be read as proof that workers lost all protection. It records a shift in the remedy and the discretion available to the court.
Sweden offers a different procedural example. Since October 2022, when an employee files an unfair-dismissal complaint before the dismissal date, the court can no longer issue a provisional ruling that delays the employer’s action. The notification procedure became simpler, but the change also increased the risk of a later complaint. The OECD describes two moderate, offsetting movements in the indicator rather than a one-directional transformation. The lesson is that predictability can be improved on one procedural margin while risk changes on another.
New Zealand demonstrates the opposite choice on remedy. Since May 2019, reinstatement must be offered after an unfair dismissal where it is possible and reasonable, including for a worker on a permanent contract or before the end of a fixed-term contract. Previously, an authority could order reinstatement but was not required to do so. The OECD reports a substantial increase in the regular-worker protection indicator after the reform. Greece, Sweden, and New Zealand are not competing templates with one universally correct answer. They show that compensation, procedure, and reinstatement address different problems.