Dismissal on a whim - why not?

[Dave A]

#1: Will allowing employers to dismiss on a whim lead to more jobs and economic growth?

The intuitive answer is "of course". But actual research is less clear. Consider, for example, this presentation at the Annual Labour Law Conference held in Johannesburg last year.

You can also read this Unions vs. the Right to Work.

Although the USA is not particularly regarded as a country with progressive labour legislation, the state-by-state nature of the country does produce some interesting diversity when it comes to labour legislation - and a study where the same article had this to say on the matter:

There is evidence that right-to-work laws—or, more broadly, the pro-business policies offered by right-to-work states—matter for economic growth. In research published in 2000, economist Thomas Holmes of the University of Minnesota compared counties close to the border between states with and without right-to-work laws (thereby holding constant an array of factors related to geography and climate). He found that the cumulative growth of employment in manufacturing (the traditional area of union strength prior to the rise of public-employee unions) in the right-to-work states was 26 percentage points greater than that in the non-right-to-work states.

That's a pretty significant difference when you're trying to reduce unemployment.

[Greig Whitton]

Thanks for the reference, Dave.

It's clear that there are conflicting studies regarding the impact of employment regulation on economic growth, particularly when comparing developed and developing countries. My gut feel is that regulatory reform is not enough and that it could actually backfire if done in isolation.

Why?

Because simplifying labour laws wouldn't provide a direct incentive to employ - it would simply ease the direct disincentive to employ. I feel that what we really need is a combination of the two: more incentives to employ (e.g. company and/or shareholder tax breaks for exceeding a minimum employee:turnover ratio), and fewer disincentives (e.g. allowing employers to dismiss for any reason so long as it is not automatically unfair as set out in the Labour Relations Act).

My concern with the reform-only approach is that it might lead to massive job losses in the current economic environment (i.e. companies that are struggling would immediately use the opportunity to dismiss employees with greater ease as a convenient cost cutting solution).

[Justloadit]

My concern with the reform-only approach is that it might lead to massive job losses in the current economic environment (i.e. companies that are struggling would immediately use the opportunity to dismiss employees with greater ease as a convenient cost cutting solution).

and continuing to maintain employment would maintain the economic situation, or will it lead to the retrenchment and final closure of the struggling enterprise.

I ask this as it was precisely what I had to do in 2001. Closed down and had the complete workforce unemployed, and was out of pocket with capital to create a new business, to be able to re-employ the majority of the good employees, where if I had the opportunity to get rid of some of the troubling employees the business probably would have survived, and be running today, and employing the majority of the staff, and maintaining the support business who supplied the raw materials in the manufacturing process.

[Dave A]

I'm inclined to think the only chance of seeing any relaxation on the labour front is as part of an integrated package anyway - and I'm sure we both agree the whole issue of stimulating economic growth needs a holistic approach. So no argument with you on not doing this in isolation

Just a thought to consider on this point of yours -

My concern with the reform-only approach is that it might lead to massive job losses in the current economic environment (i.e. companies that are struggling would immediately use the opportunity to dismiss employees with greater ease as a convenient cost cutting solution).

Quite possibly. Even likely, but that would put those businesses on a path to recovery and future growth a lot faster than just hobbling them...

When it comes to bounce-back, I like to compare the '97 crash vs the 2008/9 crash and the way it affected the property market here in SA. When you look at price and volume trends through and after in each, it provides some interesting insights.

[Greig Whitton]

Quite possibly. Even likely, but that would put those businesses on a path to recovery and future growth a lot faster than just hobbling them...

I agree. But the problem we face today is that employment and job creation have become so much more politicised. If the ANC gives employers the freedom to hire and fire as they please, the trade unions would be up in arms about it. I'm sure many of us would love it if the ANC gave the unions the middle finger, but that would leave the door gaping wide open for the EFF and other radicals. Would the long term political risks offset the short term economic gains?

I'm not saying that we don't need reform, and I'm definitely not saying that political posturing is an acceptable excuse for holding back on reforms. I just don't think this is a challenge that can be solved in isolation of a bigger socio-political picture.

[Dave A]

...hence it needs to be part of a package.

And it seems we've gone a long way to identifying one part of that package that definitely needs to be included.

Or am I being a bit hasty in saying that

[Greig Whitton]

And it seems we've gone a long way to identifying one part of that package that definitely needs to be included.

Or am I being a bit hasty in saying that

I'm still not sold on "dismissal on a whim", but I'll happily buy the rest of the package The real challenge, I feel, is getting trade union buy in.

[wynn]

In a previous life when I worked for bosses I never had the idea of job security, there was always the threat of dismissal for a number of reasons but you would have received notice or pay in lieu of notice and that was as much security as there was, only once did I work for a firm that went 'BANG' and I received zip, nothing, nada and I am sure that DaveA means that if you dismiss a worker for whatever reason there will be at least the minimum compensation.

That is what we should strive for, the right to dismiss an employee, for whatever reason, with the minimum legal compensation.

[Justloadit]

It may sound that I am a bastard, but I want to state that "they made me like this!".

Greig, I am not sure if you if you had the pleasure of having many employees under your supervision, I had 65 at one stage, and I have promised myself that I do not want to be in this position again.
I used to be Mr nice guy, and got screwed every time by employees.

You are making the employees problem to be my problem.
In business as a manufacturer there is no guarantee that you are going to get orders from customers, especially in this volatile market and with competition from the East.

If I now employ someone, I must guarantee that they will be looked after for the rest of their natural life
I want to employ a person, I do not want to be compulsory responsible for that person and his whole family including the cat and dog.
There is already sufficient incentives for employees, some 12 or 13 public holidays per year, 21 days of leave per year for employees with more than 5 years service, compulsory 13th cheque in my industry, and approximately 10 days sick leave per year, which does get used by all employees. Effectively as an employer I am paying an extra 43 days per year with no production for these days. Also do not forget that I participate in 50% of provident fund, and contribute 50% to the sick fund, and have to contribute towards the bargaining council fund.

[Greig Whitton]

That is what we should strive for, the right to dismiss an employee, for whatever reason, with the minimum legal compensation.

Something like this was originally included in the amendments to the Labour Relations Act (I've got some details on my blog if you are interested). Unfortunately, it never made it through to the final draft for obvious reasons (*cough* unions *cough*).

If I now employ someone, I must guarantee that they will be looked after for the rest of their natural life.

Nope, just for as long as:

* It is operationally feasible to employ them;
* They perform according to the standards that they were employed for;
* Their conduct is acceptable; and/or
* The specific project or period that you employed them for is in effect.

There is already sufficient incentives for employees

Which is why we need more incentives for employers.