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The 90-day trial period for workers appears to have had a small but positive impact on job numbers for small and medium-sized employers, research released yesterday says.
The New Zealand Institute of Economic Research, which has released a substantial amount of reports and research recently, said the benefits had come during a time when the labour market overall was shedding workers because of the recession.
The unemployment data for the December quarter and the year ended December is due out from Statistics New Zealand this morning. Economists are picking unemployment to drop slightly to 6.2% in the year ended December.
NZIER principal economist Bill Kaye-Blake said the Government had recently announced it would be extending the policy on 90-day trials for new workers to all employers, not just those with fewer than 20 employees.
NZIER's preliminary analysis suggested the extension was likely to have a positive impact on employment.
In its first six months in 2009, the trial-period policy appeared to improve labour market flexibility, increase hiring activity and lift total job numbers.
"The idea behind the trial period is simple: if it is easier to dismiss employees who don't work out, employers are more likely to give people a chance.
"Employers don't really know how good employees are until they actually start working. If someone doesn't cut the mustard, the process of dismissing them takes time and energy and money."
Employers knew about the risk of non-performance and the cost of dismissal when they considered hiring staff, Dr Kaye-Blake said.
The risk and cost reduced the likelihood employers would hire new people. By reducing the cost of dismissal, the trial period should increase hiring.
However, not everyone agreed with the policy, he said.
The Public Service Association argued a trial period made employees less willing to change jobs. Taking a new job would mean giving up the rights they had regarding dismissal in their existing jobs.
Another argument against the policy was that bad employers could misuse it by hiring a series of short-term employees or dismissing and rehiring the same person.
Provisions in the policy, such as allowing an employer to hire an employee for only one trial period, and the powers of the Employment Court seemed to be guarding against such abuses, Dr Kaye-Blake said.
"The evidence suggests the policy has been successful so far."
Labour Minister Kate Wilkinson said trial periods were a policy of opportunity and early data showing small businesses had utilised them effectively was pleasing to see.
Unemployment peaked in 2009, the year the policy was introduced.
Considering the economic conditions small businesses were operating under, the indication that hiring was almost 6% higher than expected was extremely good.
"It certainly puts into perspective the shameful opposition of Labour and the unions to these jobs being available to workers.
"With the extension of the trial period due to take effect on April 1, I would expect to see increased hiring through larger employers also," Ms Wilkinson said.
Council of Trade Unions president Helen Kelly said nothing in the NZIER research contradicted the point that the law stripped employees of the right to a fair hearing and allowed bosses to sack people for nothing, which the CTU had proved was happening.
"The claim that hiring has declined less in small firms than in bigger ones is hardly a ringing endorsement."