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3 April 2006 Unjustified Dismissal Laws
are Unjust Recently there has been an interesting
coincidence of developments on so-called 'employment protection'
legislation. In France, the government has passed
a law making it easier to hire and fire new workers. The 'first
job contract' law makes it more attractive to hire people under
age 26 by giving employers the freedom to dismiss them within two
years if things don't work out. Last week new legislation in Australia
dropped unfair dismissal provisions for most workplaces. For firms
with over 100 workers they are scrapped for the first six months
of employment. And in New Zealand a much more
limited proposal in a member's bill introduced by National MP Wayne
Mapp would establish a 90-day 'probation' period in which personal
grievance dismissal rules would not apply. The French government's move is
aimed at reducing France's appalling youth unemployment rate. It
stands at 23% on average, and around 50% in France's poor minority
suburbs which were the subject of prolonged rioting last year. Predictably, the new law has been
furiously opposed by France's privileged classes. As a Wall Street
Journal editorial put it, "The student protesters, in league
with the labour unions, say [the] reform chips away at France's
hallowed social model that protects people in jobs at the expense
of those without. Naturally, the young people who are able to find
jobs include graduates of elite institutions such as the Sorbonne.
Their idea of 'revolution' these days is protecting a status quo
that favours them over their less-well-educated poorer peers." A paper recently published by the
German Liberal Institute made similar points. It noted that any
softening of anti-dismissal legislation is attacked by combative
union officials as 'social devastation' and the destruction of the
'right to work'. In countries with little anti-dismissal protection,
such as the United States or Switzerland, people find new jobs much
faster than in Germany. And there are many fewer long-term unemployed.
In America, it is no personal failing to lose one's job and it is
much easier to find a new one. "The theory is that rigid
dismissal laws protect powerless workers against the arbitrary might
of brutal bosses", the study said. "The reality is that
lethargic workers are protected from the competition of competent
job seekers. Who in all of this is the weak and who wields the power?" A 1996 study by US academic Charles
Baird published by the Business Roundtable explained that mandatory
unjustifiable dismissal laws are a tax on employment, resulting
in some combination of fewer jobs and lower wages, with negative
impacts on income inequality and the low-skilled. It was interesting to note the
support of three Maori Party members for Wayne Mapp's bill on its
first reading. I made the point in a paper to
the Hui Taumata last year that the most disadvantaged Maori (or
non-Maori) should be able to say to an employer: "Give me a
chance. I realise I have a bad employment record, I've been on drugs
and in prison, but I'm now determined to get my life back together.
I know I can do the job you're offering and I'll work hard at it.
I don't even care if you won't pay me much for a while as my family
will support me, and if things don't work out you're free to dismiss
me, no questions asked. But I'm confident I'll make the grade and
that you'll be happy to give me a permanent job and good wages down
the track." Sadly, the freedom to make that
sort of contract does not exist in New Zealand today. There is no
systematic imbalance of bargaining power in the labour market that
justifies such a loss of freedom. The proposed 90-day probation period
is a small step, both by the proper standard of free contracting
and the provisions in Australia and many other countries. Nevertheless, it's pleasing to
see the National Party acknowledging that it was wrong in 1991 to
extend mandatory rules governing dismissals (a mea culpa would be
in order). Few argued that the contractual freedoms that applied
to most workers (those who were not union members) were being abused. It is also no use National arguing that it wants to see New Zealand matching Australian wage levels while only advocating timid policies. It has to make the hard arguments for sound policies, as the Howard government has done on dismissals - although it still has much work to do to improve Australia's labour market regime. Roger Kerr is the executive director of the New Zealand Business Roundtable. |