Europe needs more room to take risks — firing costs and unicorns

I found myself agreeing vehemently with Pieter Garicano's essay "Why Europe doesn't have a Tesla". In his tweet introducing it, he put the argument bluntly:

"Why don't European companies innovate? It is common to blame expensive energy, high taxes, anti-growth politicians, interest groups, and green regulations. But California has the same problems, and has created the world's most innovative companies. Europe's problem is labor."

By labour, Pieter means the rules and costs around adapting a workforce, not the quality or willingness of European workers.

Americans are about ten times more likely to be fired than Germans, while restructuring a large company is far more expensive in Germany or France than in the US. Innovation requires experiments, and expensive failure means fewer experiments — not to mention the hidden societal costs of quiet quitting.

Before I start sounding like Ebenezer Scrooge: I am not arguing for a "you're fired" culture. It is leadership's responsibility not to overhire, and to train people and set them up to succeed. But employment has to remain a mutually beneficial relationship. When it ceases to be a fair exchange of value, incentives on both sides drift apart. The entire premise is to create more opportunity — more jobs, for founders and operators alike — and most economic data points the same way: labour-force participation is higher in countries with more flexibility. A useful analogy: when banks made withdrawals easier with ATMs, consumers became more comfortable making more deposits — the ease of exit is what creates the confidence to commit.

I wondered whether this would show up in Dealroom data. Do countries where companies can adapt more easily also produce more successful startups?

A crude metric that works surprisingly well

I used unicorns per million people. Unicorns are a crude and imperfect metric, but they remain a useful measure of whether young companies manage to scale.

Across the ten countries with comparable restructuring data, firing costs and unicorns per capita have a correlation of −0.96. That is close to the strongest possible value of −1; in cross-country economic data, relationships are rarely this tight.

Correlation is not causation. The sample is small, and restructuring costs may correlate with other factors that also matter: the prevalence of angel investors, command of English, the age of the local startup ecosystem, and so forth.

Europe often makes the competitiveness debate too complicated. We reach for a Savings and Investments Union, a Capital Markets Union, harmonisation, more funding and new institutions. These may all be needed. But they will not achieve their full effect if labour friction remains high.

Europe's opportunity is already visible

To see how things could be, we don’t need to look far. Sweden, Switzerland, Denmark and the UK average about 4.3 unicorns per million people. Germany, France, Spain and Italy produce about 0.7.

Europe today produces roughly 24% as many unicorns per capita as the US. If its large economies matched the rate of those four European leaders, the arithmetic rises to about 65%. At the upper end, the same benchmark means 126 rather than 34 decacorns — 51% rather than 14% of the US rate — and ten rather than three centicorns. Europe has already produced a centicorn in three different countries: Sweden, the UK and the Netherlands.

This is an illustration, not a forecast of what labour reform alone would achieve. Would flexible labour laws turn Italy's startup ecosystem into that of Sweden? Perhaps not, but no single intervention would on its own. My point is that several European countries are already globally competitive, so Europe is not as far behind as the aggregate numbers suggest.

A scale-up employment adaptability index

The restructuring-cost comparison covers only ten countries. To explore a wider group, I also built an experimental Scale-up Employment Adaptability Index, with help from GPT 5.6 Sol.

The index scores countries from 0 to 100, where a higher score means it is easier for a company to adapt its workforce. It combines rules around individual and collective dismissals, sickness and long-term absence, temporary contracts, restructuring costs and legal predictability.

The relationship with unicorns per capita remains positive, but it is weaker than in the first chart: r = +0.63 in the current exploratory specification.

The wider comparison also reflects a changing European map. Southern Europe was forced into substantial labour-market reforms after the euro crisis, while Germany — the country that lectured it most loudly — largely stopped reforming after Agenda 2010. The old picture of a flexible German core and an unreformed Southern periphery is increasingly outdated.

A way forward

This does not mean copying the American labour market. Worker security matters, and workers should not carry all the risk of experimentation. Europe's best-performing countries already show that worker security and company adaptability can coexist.

In a recent interview with Mathias Döpfner, Alex Karp raised the idea of a European economic zone but did not define it in detail. My version would be an opt-in regime under which startups, scaleups and their employees can choose simpler and more predictable employment rules. And Europe does not need to wait for ambitious European harmonisation projects either.

Europe’s opportunity is hiding in plain sight. It already has the talent, capital and ambition; now it must give its companies more freedom to experiment, adapt and scale.

Sources and further reading

• Why Europe doesn't have a Tesla — Pieter Garicano, Works in Progress
• Pieter Garicano's thread introducing the essay — X
• Coste and Coatanlem policy brief — Bocconi IEP
• Mathias Döpfner interviews Alex Karp — MD MEETS, Axel Springer
• EU Inc and the 28th regime — European Parliament