During the past decade, the labor market in France has not been operating according to free market principles, but instead stifling functioning through its various government regulations restricting the hiring and firing of workers.

a) principles, but instead stifling functioning through its various government regulations restricting the hiring and firing of workers

Meaning issue here. "its" is a possessive pronoun, implying that the government regulations are possessed by the labor market, which makes no sense. Also, the parallel would be the labor market "has not been operating" but "has been XXXXX". We don't get that here.

b) principles, instead it has been functioning in a stifled manner as a result of various government regulations that restrict the hiring and firing of workers.

Concision issue here: "Functioning in a stifled manner" is awkward and unclear. Most importantly, "instead" is not a conjunction, so can't be used to connect two independent clauses. This is a run-on.

c) principles, rather functioning despite being stifled as a result of government regulations that variously restrict worker hiring and firing

Parallel issue from (A). "As a result" is wordy and unclear (why not "by government regulations"?). "Variously" muddies the issue here, adding nothing.

d) principles; the hiring and firing of workers is restricted there by various government regulations, its functioning being stilted

First off, the "there" is unclear. We know it must be France, but given that we've already been talking about France, the semicolon already would have implied we're in the same place. The "its" is suddenly very unclear, because it's so far from the antecedent. "Being" is wrong 99% of the time on the GMAT, because it's a hideous way to construct a sentence.

e) principles; instead, its functioning has been stifled by various government regulations restricting the hiring and firing of workers

Perfecto!

-t