In today’s SMH two economists present some evidence
about the likely effect of reform of the unfair dismissal law and argue that “while the unfair dismissals reforms probably
won’t affect the overall unemployment rate, they are likely to have two positive
effects. Oddly, both have been ignored in the Australian debate.”

“First, less employment protection will mean more
hiring and more firing and, hence, more job churning. For those with jobs, this may not sound like a
particularly enticing prospect. But for the unemployed, it matters a lot. The
flip side of greater certainty that those with jobs will remain employed is
greater certainty that the unemployed will remain unemployed.”

Furthermore “evidence shows a
robust relationship between employment protection and higher long-term
unemployment. Making hiring and firing easier will help spread the burden of
unemployment across the workforce.”

“Since we know that the worst results of
unemployment come from the de-skilling and depressing effect of prolonged
joblessness, this provides a powerful equity argument for reform. Moreover, this
also yields an important efficiency argument: if adverse macroeconomic shocks
cause long-term unemployment to rise, it can take decades for the economy to

Actual unemployment is far higher than
the official estimate of 5.1%, so this is an important issue.

Read more on the Henry Thornton website here.