In the unskilled labor market, workers are often young and inexperienced. With little past performance to judge potential employees on, many firms...

Stringent
protection measures will likely lower the demand for unskilled labor. Assume that the law
requires you to compensate an unskilled worker if you fire them indefinitely. To avoid such
costs, you'd rather let the unskilled personnel work for a longer period. If the worker doesn't
make any improvements in the long-run, the company may suffer from reduced
productivity.

Therefore, the company would rather hire a skilled worker with
some level of experience because they will be less costly in the long-run. Furthermore, skilled
workers are more efficient and productive. They may be costly, but they are worth it. Unlike an
unskilled worker, skilled employees have options. They can quit if they feel that the job is not
paying them well. Even though companies hate to lose good employees, sometimes quitting can help
the firm lower labor costs.

However, there are scenarios whereby regulations
are likely to increase the demand for unskilled workers. Suppose the economy is expanding and
the unemployment levels are low, companies will favor unskilled workers over skilled ones.
During this period, most skilled employees may decide to go back to school to gain more skills.
Since the training usually takes a long time, companies cannot wait and would rather employ
young and inexperienced workers on contract. Contractual agreements are favored because they can
help the company "bypass" the stringent protection laws.