Final answer:
Allowing more flexibility in firing practices can lead to increased hire-and-fire cycles that may benefit businesses in terms of labor cost management, but it can also result in a higher natural rate of unemployment. The effects of such policies vary with the reaction of businesses and the labor law context in each country.
Step-by-step explanation:
A student has asked whether employees should be permitted to fire employees and how such a change might benefit employees. Permissive policies for laying off workers can have diverse effects on the labor market. If government legislation makes it difficult to lay off workers, companies may hire fewer employees to minimize potential costs associated with layoffs. This caution in hiring can contribute to a higher natural rate of unemployment. For instance, in France, labor laws requiring added responsibilities for companies with 50 or more employees lead to many businesses limiting their workforce to 49 to avoid these obligations. Indeed, such laws increase the cost of letting go of employees, thereby raising the natural rate of unemployment.
Firms might prefer layoffs or firings over wage reductions because wage cuts could potentially lead to an "adverse selection" problem, where the most qualified employees leave for better opportunities. Instead, labor regulations and practices like profit-sharing could provide job security, but with the potential trade-off of limiting overall hiring. The labor market's complexity means any change in firing practices can have both positive and negative effects, depending primarily on how businesses and workers respond to these rules.