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.

4 comments:

Dr. Clam said...

I can't imagine how any half-rational human being over the age of say, eight, who wasn't completely brainwashed, could fail to see the connection between unfair dismissal laws and unemployment. I guess these are comparatively rare among 'left-leaning' persons!

The two arguments I regard as convincing basically boil down to, 'It's statistically verifiable' and 'God says so,' and I guess in the nightmare post-modernist world of the left-leaning, where science and religion are distant memories, those don't cut much ice...

Dr. Clam said...

On the truly left, of course, I am sure there are many people with sound intellectual and moral credentials- such as the Guatemalan union organiser I have mentioned a couple of times- who are fully aware that unfair dismissal laws increase unemployment, but would argue that they are justified on the grounds of the international solidarity of the workers: i.e., increasing the costs of labour in developed countries will hasten the outflow of capital to low-wage countries where a job really is the difference between life and death. To which I say: amen, comrade!

Dr. Clam said...

To go off at a tangent, here is a link to a reposted article in the Spectator which I read on paper at lunchtime today.

Anonymous said...

When CHEAP OIL is over, Forecast to start in 2008, we will see a world wide depression, see http://www.lifeaftertheoilcrash.net/
When this occurs the FULL force of the Laws will occur.
Unfortunetly, I do believe the Labour Party will gain control of both Houses of the Federal Parliment in the next election. If they do, that will be excellent. If they don't, we will have the Laws for a LONG time. So, we MUST find new innovative ways to make the IR Laws in operative. Can anyone make a CONSTRUCIVE suggestion.