The seniority system works, as long as you are within an airline that is established, financially secure and not expanding too fast. However, in Europe at least, the lack of ability to take your labour elsewhere is tantamount to restricting the right to freedom of employment.
The advantages of the seniority system are stability (bordering on rigidity), it's easily understood, and no-one is seriously at risk of losing their job unless they screw up catastrophically. It also allows the employer to only worry about making his company attractive to the most junior pilots - the only ones who work in a free labour market. His senior guys won't - can't - move out, so why should the employer give a damn what he pays them? He can keep the salary just above the level that would provoke serious industrial action (because that is the ONLY sanction available to the pilot workforce), and know that everything is hunky-dory. For him.
The disadvantages of the seniority system are that it stifles ambition, prevents free movement of labour and can legitimise some pretty unfair practices of benefit distribution.
Ideally, there should be no barriers to an individual taking his qualifications and having them fully recognised by any other potential employer. That wouldn't necessarily affect anything else, from leave to flight safety. However, the changeover from the current system is likely to be so disruptive that I just can't see it happening without international (say, EU) legislation. That may come if the current system actually breaches any labour movement laws, which it may well do (although I believe there are some exemptions for aviation).
I, for one, would appreciate the opportunity to have my considerable experience recognised by, and saleable to, the market, just as do the managers, accountants and lawyers who love the current, restrictive, system. I just don't think that anyone cares enough to change things.