The Conservative minister aired his views at a news conference in London to mark a call for a reduction in EU red tape. He spoke alongside Paul Walsh, the ex-head of drinks giant Diageo, who is advising the UK Government on reducing bureaucracy and has suggested small firms employing fewer than 10 people should be exempt from all business regulations.
"This is what they did in the US so successfully in the 1980s; exempt small businesses," Mr Fallon said.
He went on: "We have six million young people in Europe who have no job at all. Their best chance of getting into work is getting into a business that's growing."
His remarks underline a key difference within the Coalition as Vince Cable, the Liberal Democrat Business Secretary, is strongly opposed to a US-style "hire and fire" regime.
In response, Shadow Trade and Investment Minister Ian Murray said: "They show just how out of touch the Tory-led government are. When families are facing a cost of living crisis, the last thing they need is yet more insecurity at work."
He added: "David Cameron's Government is only interested in standing up for a privileged few."