90-DAY LAW DOES NOT FAVOUR EMPLOYERS

On 5 April employment lawyer Peter Cullen had an article in the Dominion Post on the employment law changes that came into effect on 1 April.

These included the extension of the 90-day trial period for new employees to all firms.

The article concluded: “The changes generally represent a shift of power to employers.”

In fact they represent no such thing.  The comment reflects the old ‘imbalance in bargaining power’ idea with its Marxist origins.

It’s not hard to see the fallacy.

Start with a world without any statutory provisions about so-called ‘unfair’ dismissals.  Then bring in such a rule.  What will happen?

Clearly something will change, because employers now face the risks and costs of being found to have unjustifiably dismissed an employee.  In the first instance the costs will fall on them.  But clearly they will have to shift them – in competitive markets they have no alternative if they are to maintain normal profits.  The costs will be shifted primarily to employees (or possibly consumers through higher prices).  In other words, employees will largely bear the ultimate costs of the provision through wages (or other benefits) that will be lower than otherwise, or unemployment will rise if the costs are not passed on.

This is just basic economics.  It is explained more fully in this study by US labour academic Charles Baird, ‘The Employment Contracts Act and Unjustifiable Dismissal: The economics of an unjust employment tax’, published by the Business Roundtable.

Baird estimates that, extrapolating from US data, the imposition of unjustifiable dismissal restrictions (which did not apply to around half the workforce prior to the ECA) worsened income inequality, lowered real wages by over 7 percent, and reduced employment by 1.5-3%.

Given these results, it is no surprise that where employees have the option of bargaining voluntarily for unfair dismissal procedures in contracts, few opt to take it up.

As in other markets, bargaining power varies at times in the labour market depending on whether labour is in short or plentiful supply.  That helps labour markets to clear.  But employers have no systematic bargaining power, and recent law changes have done nothing to increase it.

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3 thoughts on “90-DAY LAW DOES NOT FAVOUR EMPLOYERS

  1. Please. The pluralist “imbalance” argument owes as much to the Webbs and the Kerr-Dunlop-Harbison and Myers tradition as anything to do with Marxism, which argues something quite different about appropriation of surplus value.

    And your argumnet is really about some employers being able to shift the costs of their own poor behaviour on to the consumer.

  2. The chattering masses will always seek to pass the burden of responsibility on to others. The political class knows all to well how to manipulate the chattering masses and in a democracy (where majority rule applies) we have a situation ripe for the political class to rule roughshod over common sense where it is in favour of the masses.

    As you quite correctly state the ultimate bearer of these ridiculous and counterproductive measures will be the chattering masses.

  3. What about the little matter of the employees job belonging to the employer and as its his property after all he can damm well set any conditions on it he likes…with the employee having the most powerful and telling defence against abuse…the right to leave and seek employment elsewhere…

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