KEY POINTS:
National's intention to introduce, if elected, a 90-day probationary employment period, possibly in the small business sector, should concern everyone who supports the building of a high-value, high-productivity economy.
High standards in the labour market are synonymous with high performance. Equally, low standards promote the opposite - high
labour use, longer working hours, poor investment in training, lower capital intensity, lower wages and, eventually, reduced competitiveness.
Removing employment protection from new employees is a fundamental weakening of those high labour standards. Removal erodes an important building block of a high-performing economy.
The Council of Trade Unions has raised an obvious point: probationary circumstances are common in New Zealand; new employees are likely to be subject to more critical observation and assessment.
Of course, employers cannot arbitrarily dismiss someone. A process is required that respects both parties' interests. This is simply a matter of balance and fairness.
What are the arguments for the 90-day probationary period? Do businesses, especially small businesses, suffer from unnecessary costs which would be eased by this proposal?
The answer seems to be no. International measures, such as the World Bank's "Ease of Doing Business" index, suggest that New Zealand is one of the easiest countries in the world in which to do business. The employment-related measure in the index ranks New Zealand fourth of 155 countries for flexibility in hiring and firing.
Overall, the World Bank says, all economies have different regulatory mixes and, looking at the different mixes, New Zealand's is about as good as you get in international terms. There is not much evidence in support of the proposed 90-day measure here.
KPMG and Business New Zealand step in with a different measure, suggesting tax and employment compliance issues are the most challenging for business. A careful reading of the KPMG/BNZ data provides a more nuanced interpretation, especially when coupled with the World Bank analysis. In this, New Zealand is a low-compliance economy in which employment compliance costs for smaller businesses have been generally steady or have fallen over the 2005 to 2007 period and in which employment compliance costs are significantly less unimportant in comparison with, for example, tax issues.
Of course, underlying the compliance cost discussion is an obvious point. If you ask a business how it feels about compliance requirements, it is unlikely to respond positively. What is not clear is the objective and comparative impact of, for example, annual employment compliance costs of around $400 per full-time employee in firms with up to 19 staff (a maximum of 0.23 per cent of turnover).
The argument might well be turned round to ask if this isn't a cheap price to pay for reasonable employment standards and a workforce prepared for a high-performance economy. Why is it that, in New Zealand, standards are rarely seen as an investment in improved performance? What about the argument that allowing both employer and employee to "test" each other for 90 days will allow either to decide freely and without obligation whether things are working out?
It takes a market fundamentalist to believe that employer and employee have equal power in the employment relationship. Inherent inequality in that relationship is the reason every advanced country has protections designed to balance the relationship.
The 90-day measure is designed precisely to tilt the balance in favour of the employer. It would be, despite National's explicit statement to the contrary, the arbitrary removal of employment rights and protections from layers of employees.
So, compliance cost arguments are less than convincing and we're concerned about the creation of new layers of vulnerable workers deprived of reasonable protections at work. What about our competitors? They offer probationary options, so why shouldn't we?
This is a fair point. Particularly since the 1980s and the zenith of market fundamentalism, protection for new employees was reduced in many countries as a gesture toward labour market flexibility.
Three things need to be said. First, there is no obvious correlation between such flexibility and improved economic performance. If there were, the years of the ECA would, presumably, have been bonanza years for the economy.
Second, such measures are often less comprehensive than current National thinking. Third, many of these countries have a substantially stronger employment and social protections and stronger active labour markets.
The $64,000 question is: What would the 90-day proposal contribute to improved productivity and economic performance? The answer is: Not much.
The economy is marked by high labour utilisation, an underspend on capital, a relatively poor productivity performance, low wages, a training system in recuperation after the depredations of the 1990s, and a need to rethink dramatically how we organise our workplaces.
The 90-day proposal will not address productivity challenges facing our economy and may, if implemented, promote the short-term, "flexible" use of labour by businesses wedded to the low-wage, low-tech approach.
For two decades, this has been the default position for many businesses. Why would New Zealand introduce a measure likely to confirm such practices?
* Nigel Haworth is professor of human resource development at the University of Auckland Business School's department of management and international business.
