…job insecurity is bad for workers’ health. Fran Baum from Flinders University followed the fate of Mitsubishi Motors workers who faced losing their jobs. Their health was clearly affected by the insecurity. These new work laws, which make it easier to sack workers, may contribute to worse health in companies that threaten to make use of the new provisions. Employees in companies with fewer than 100 employees can now be sacked for any reason, or no reason; and companies with more than 100 employees can be sacked for anything as long as it’s called an “operational reason”.So basically, she is blaming the government for job insecurity, saying its a bad thing, and that workers shold have more control over their working environment.
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The Government says its package of industrial relations changes will make workplaces more flexible. That means more flexible for employers not their staff. It means an inevitable lessening of control for most people over their working environment.
Let's get this straight. The latest industrial relations changes are about government stepping *out* of the market. By definition, they remove some of the restrictions and regulations that were in place. Those restrictions cannot be viewed as applying to only one party, but rather, to every employment transaction (thus both parties). Even if a worker was willing to accept a job for only 2 weeks per year of annual leave, such a form of employment was illegal.
So despite her claim to the contrary, less regulation means more flexibility for everyone. Typically, a regulation is imposed on the behaviour of an employer (i.e they must offer costly benefits such as super, leave, public holidays etc). Every employer has to factor the cost of these mandatory benefits into their calculations. If the marginal productivity of the worker is below the cost of the salary + benefits, then a rational employer will not offer the job in the first place.
You typically see very high unemployment associated with highly regulated labour markets throughout the world. Ultimately, the number and the diversity of jobs offered in an economy depends purely on the economic forces of supply and demand. When a person is willing to supply their labour, at a salary that is equal to or lower than the amount of additional revenue the employer will earn by hiring them, then employment takes place.
Ironically for stupid old Tanya, she uses the case of the Mitsubishi workers to justify regulation. The evidence justifies an opposing conclusion however, according to Andrew Norton.
If your employer is losing money your job is at risk regardless of your permanent status, as the Mitsibushi workers were; if your employer is doing well and you are performing OK you will be reasonably secure, even if you are a casual.It follows from this that WorkChoices in itself probably won’t add much to job insecurity, which is primarily a product of the laws of supply of demand, and not the laws of the nation.
People often demand job security when they call for more regulation. They suggest that all employers are forced to put people on full time contracts. They often don't agree with the idea of flexible "casual" jobs where employees have little certainty about the future, and they can be dismissed or their working hours changed with little or no notice.
But why would an employer do such a thing unless there were dynamic economic forces driving them to ?
Every business operates in a dynamic environment. People are naturally scared of sudden change, but no legislation can protect them from that. If you work in a take away chicken restaurant, and there is a sudden shortage of chicken meat, your employer cannot sell any food and make revenue, so rationally they would close down until they can resume. If there is a regulation saying that they *must* continue to employ you every day, even if they can't earn money, then the business will lose revenue and be forced to close. So what comfort is it to you ? Its not really job security, unless you know that you are working in a job that exists because you are providing something of value to your employer.
Mate, I'm sorry to say this but... The evidence suggests that lifting unfair dismissal laws will create very few jobs.
ReplyDeleteTHE GOVERNMENT claims repealing unfair dismissal laws for small and medium business will boost employment figures. According to Workplace Relations Minister Kevin Andrews, unfair dismissal laws had ‘acted as a brake on job creation’ and ‘fostered a culture of complaints and litigation… where firms would go to any length to avoid hiring extra staff’ (Australian, 3 November). Any policy that removes these costs should therefore be considered employment-friendly.
The government rests its case – and its notorious claim that 53,000 jobs (later, 77,000 jobs) will be created by lifting unfair dismissal laws – on the results of various opinion surveys in which business owners are asked whether they would hire staff if the laws were rescinded. Given that employers have an interest in the question asked, it is hardly surprising that many answered they would. Economists prefer to judge according to what economic agents actually do (the ‘revealed preference’ approach) rather than what they pretend they will do (and may never do).
Surveying the ‘revealed preference’ literature on this issue yields no compelling evidence that the existing laws have had a negative impact on employment. In theory, firing costs (such as those generated by unfair dismissal protection) have two effects on employment: they deter hiring (the government’s claim) but they also deter firing (especially when the case against the employee is weak). Removing employment protection thus leads to offsetting effects. Which of the two effects prevails is unclear as no robust research has been conducted in this field in Australia. The wider empirical and international literature is also inconclusive. The two most recent literature surveys on this issue make contradicting claims on the relevance of employment protection in the employment debate. If there is any consensus it is that the net impact on employment must depend on time and country-specific parameters such as the number of voluntary separations, economic uncertainty, discounting, the probability of facing these costs, and the relative magnitudes of hiring and firing costs.
It should also be stressed that international organisations and academic research consistently rank Australia as a country with low firing costs. Unfair dismissal laws do not apply to temporary and casual workers – or, in most states, to staff earning more than in the range $75,000 to $90,000. Unfair dismissal compensation is capped at six months’ wages, a third of the cap in many ‘eurosclerotic’ countries. State and federal IR court decisions are not on average friendlier towards employees than to employers (as opposed to those in many continental European countries). Intuitively, removing firing costs in a country in which those costs are already low appears unlikely to yield considerable results.
In a recent study funded by the Australian Research Council (PDF file) the magnitude of the costs of firing in Australia was estimated with direct quantitative methods and used to calibrate the ‘hiring deterrent’ effect of unfair dismissal laws. Other observed parameters such as the probability of incurring these costs, the average tenure at time of dismissal and long-term labor demand elasticity were obtained from the Industrial Relations Commission, the Australian Bureau of Statistics and the Treasury respectively. The employment impact was found to be relatively mild: at best 6000 jobs would be created by removing the laws. But this ignores the ‘labor retention’ effect, which would also be removed by the policy, adversely affecting employment. Hence, removing unfair dismissal protection may have no impact whatsoever on employment or could even have a negative impact if it triggers a wave of long withheld fires.
There are other much more convincing arguments for removing unfair dismissal laws than their uncertain and probably weak effect on job creation. One is that these laws currently discriminate between employees that are protected by these laws (permanent employees) and those that aren’t. A policy aiming at removing the laws for everyone (or alternatively extending the laws to cover every employee) can only be fairer than the status quo.
From an economic perspective, another argument is that dismissals for reason specific to the worker are either fair or unlawful but never unfair. One way or the other, drinking at work, absenteeism, refusing to work, rebellious behavior and poor performance always come down to a problem of mismatch between wage and productivity. Perhaps such behaviour also decreases the productivity of other staff or imposes an external cost on the employer. The economic case is clear: dismissal for such reasons is always fair because it is efficient. The possible harshness of the decision and the social reasons behind the employee’s behaviour constitute a grey zone that does not fit anywhere in economic reasoning.
On the other hand it should be clear that employers dismissing fully productive staff for individual reasons (resisting employer bullying on out-of-contract or illegal work, pregnancy, personal dislike, age or race, etc) have a poor case for fair dismissal. Unlawful termination laws that protect staff against such contingencies are not targeted by the government’s IR reforms. A dismissed but productive employee can then contest the dismissal on these grounds even if the employer claims to have acted fairly and lawfully.
If the economic case for removing unfair dismissal laws is so straightforward, then why is the current debate focused on so weak, inconclusive and poorly documented an argument as to whether the costs reduce employment? Perhaps job creation rhetoric derives from political economy considerations and in particular the popularity of the measures, but this skirts the important question: what is the rationale for having (or not having) unfair dismissal protection? A proper debate on this question matters more than obscure and blunt job creation arguments.
By the way, that .pdf file, go to: http://www.unsw.adfa.edu.au/sbus/pdfs/Dismissal_Costs.pdf
ReplyDeleteMate, the evidence doesn't support this simple equation.
ReplyDeleteTHE creation of the Fair Pay Commission as part of the government’s WorkChoices legislation has led to a debate about the role of minimum wages for Australian workers. Whereas the Industrial Relations Commission set award wages for most workers, the Fair Pay Commission focuses exclusively on minimum wages and conditions.
The first element of the debate is the relationship between minimum wages and employment. Most attention has focused on the question of whether higher minimum wages will lead employers to reduce the number of workers they hire. The general view of economists has been that an increase in minimum wages will have a negative effect on employment, but that this effect will be relatively modest. Typical estimates are that a 10 per cent increase in minimum wages will reduce employment by between 3 and 5 per cent.
Recent research in the United States has suggested that the effect of minimum wages, if any, may be even smaller than this. Studies of employment by fast food chains, undertaken by David Card and Alan Krueger, found that employment grew just as fast in states that increased minimum wages as in those that did not – in fact, if anything, employment responded positively to higher minimum wages. Not surprisingly, this finding produced a stream of rebuttals and rejoinders, but the general view of the economics profession is now that, under the conditions prevailing in the United States, the adverse employment effects of minimum wages are probably quite small.
Cnditions in Australia are not the same as those in the United States, however. In particular, minimum wages are higher, both in absolute terms and relative to average or median wages. Some economists, most notably Phil Lewis of the University of Canberra, have argued that in Australia the adverse employment effect of minimum wages is substantial. Lewis derives estimates of the effect by observing that minimum wages have risen more slowly than the general wage level in recent years, while employment in minimum wage jobs has grown more rapidly than general employment. By comparing these differences, Lewis concludes that a 10 per cent increase in minimum wages will reduce employment of minimum wage workers by between 5.5 and 7.3 per cent.
But this estimate takes no account of the fact that reducing minimum wages gives employers an incentive to substitute minimum wage workers for more highly skilled and highly paid workers, perhaps by changing the organisation of employment or simply by accepting lower quality work for less money. The failure to take account of this effect means that Lewis’s estimates overstate the total employment effects of changes in minimum wages.
In thinking about minimum wages, it is also necessary to look at interactions with the social welfare system. For those with dependent children, minimum wages in Australia are only marginally higher, after tax, than the social welfare benefits paid to unemployed or disabled workers. Hence, a reduction in the minimum wage could create or intensify “poverty traps.” Advocates of substantial reductions in minimum wages have generally favored “reform” (usually unspecified) of the social welfare system.
There are potential reforms of the tax-welfare system and of labour market policy that could improve the employment prospects of workers seeking jobs in the low-wage sector. These include an earned income tax credit, wage subsidies, payroll tax concessions, and direct job creation. Some of these policies, such as wage subsidies and direct job creation, would achieve many of the beneficial employment effects claimed for reductions in minimum wages. Others, such as an earned income tax credit might offset, at least in part, the increase in poverty that would otherwise result from lower minimum wages.
The relationship between minimum wages, poverty and inequality has been debated at length. Supporters of a cut in minimum wages have argued that many minimum-wage workers are members of middle-income or high-income households –teenagers undertaking part-time work, for example.
On this issue, however, the international evidence is unambiguous. In countries where minimum wages have been cut in real terms, including the United States, the United Kingdom and New Zealand, inequality has increased drastically. In particular, wage inequality has increased and the proportion of households with relatively low incomes has risen. In the United States, there has even been an increase in absolute poverty, measured by the proportion of households unable to afford a poverty-level expenditure budget estimated in the early 1960s.
On the other hand, and despite claims to the contrary, there is no evident correlation between labour market regulation and the success of the economy in generating jobs, as measured by the ratio of employment to population. Countries like the United States have low measured rates of unemployment, but this conceals a dramatic increase in the number of workers (particularly prime-aged and older men) drawing disability benefits.
Moreover, the development of a large class of “working poor” has been accompanied by a reduction in economic and social mobility in the United States. Whereas descriptions of the United States as a “land of opportunity” were once justified by the evidence, they now reflect an aspiration, contradicted by statistical evidence and by the emergence of increasing class barriers in access to higher education, jobs with career paths and other traditional routes out of the low wage sector. Increasing the United States resembles a dual economy, delivering huge benefits to the top 20 per cent of the population, moderate growth for the middle class and very little for those at the bottom.
The absence of any strong case for cutting minimum wages appears to have been recognised. All of the submissions to the Fair Pay Commission from government, business groups and unions call for some increase in minimum wages, though not, in all cases, an increase in real terms.
It is important to remember that minimum wages represent only a small part of a coherent labour market policy. The primary focus must be on managing the tax–welfare system to achieve a more equitable distribution of income while generating incentives to work. Minimum wages should be set with the same goal in mind.