University of Lüneburg working paper series in economics 40
In Germany, many labour laws and regulations apply only in establishments above a critical size, and usually these thresholds are defined by the number of employees. The existing 160 thresholds are complex and defined inconsistently, making it difficult for firms to obey the law. Moreover, exceeding a threshold may result in costs for the firm such as establishing a works council or paying a penalty for not employing disabled persons. Although the empirical evidence is mixed, some studies suggest that employment growth is dampened by firms avoiding to exceed thresholds. In order to minimize these transaction costs and side effects, we make several suggestions to simplify and unify the threshold regulations.