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Unjustified Dismissal Laws are Unjust

Unjustified Dismissal Laws are Unjust

By Roger Kerr

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


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