Friday, June 24, 2005
Why Unfair dismissal laws increase unemployment
I have been asked "How in God's green Earth would removing the protection against unfair dismissals possibly reduce unemployment?", by left leaning family members. What counts, to me is not the logic, but that it is statistically verifiable, which it is. The logic is that employers, not having perfect information, don't know exactly the level of employees they should have to make the most money. If they 1) underestimate, they may lose significant opportunities due to lack of staff. If they 2) overestimate, they will lose money due to having redundant employees on their payroll. Given that they are very unlikely to actually make a loss choosing 1), and that terminations are quite expensive anyway, the added fear of an unfair dismissal lawsuit is the clinching factor making employers invest in capital over investing in extra staff. A followup question is "Why are employers afraid?" implying that it is only "unfair" dismissals which warrant payouts and that employers are allowed to dismiss where it is fair to do so. The real problem is that the burden of proof is entirely on the employer: legal precedents usually favour the employee, and particular test cases scare the death out of even me. However, as an employer, therefore, it is an advantage for our business for there to be unfair dismissal protections. This is because all our competitors are disproportionately conservative, giving us real opportunities for growth. There are also a reasonable number of qualified unemployed, with other employers being this cautious. However, as a citizen of this country, it is a disadvantage to have such protections. Having overly cautious employers puts our whole country at a competitive disadvantage, and increases unemployment.