The visible hand in economics

Question: How is probation period policy different to current policy?

Posted on: December 10, 2008

Please, explain to me how the current probation policy is different from the one National is going to introduce!

I know about economics, but these subjective terms like “natural justice” do not have a clear meaning to me😦 .

I was all ready to rail against the scheme this morning because I thought they were making probation period compulsory – however, now that I can see that isn’t the case I need to find out more about it before I say what I think.

Tane at the Standard states that:

All National’s proposed legislation would do is remove the right to fair process and natural justice

So how exactly does this impact on policy. What are the definitions of “fair process” and “natural justice”. Once I have an idea I’ll talk about the policy, and I’ll compare it and the current scheme to the extremes of “compulsory” and “no probation” – using economics to frame the issue.

Update: I have been informed that the main differences are:

The 90-day provision will apply to any workers employed by businesses with fewer than 20 staff. Workers who are sacked by their employer in their first 90 days on the job will be unable to challenge their dismissal or take a personal grievance case.

Is there anything else?

Kiwiblog has a good run down here.

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12 Responses to "Question: How is probation period policy different to current policy?"

Come on, you’re smarter than this. If the current law is what National is proposing why would they need to pass a new law?

Because it’s radically different.

Having no right to challenge any dismissal for which the reason given is ‘performance’ (whether or not that reason is valid) means a worker can be fired for any reason (which may be illegal, unjust, or immoral) and there is nothing the worker can do about it.

“Come on, you’re smarter than this.”

Appears not🙂

“If the current law is what National is proposing why would they need to pass a new law?”

I completely agree – if it is no different, then passing such a law would be a waste of space and time.

“Having no right to challenge any dismissal for which the reason given is ‘performance’ (whether or not that reason is valid) means a worker can be fired for any reason (which may be illegal, unjust, or immoral) and there is nothing the worker can do about it.”

That is cool – I did not realise that this existed until “after” the update, when someone told me about it.

I have actually had trouble finding details on the policy, which is concerning in of itself, and I didn’t want to write anything without knowing anything – which is why I asked.

Sounds like a relatively more mobile labour force to me.🙂

“Sounds like a relatively more mobile labour force to me.”

Indeed, more flexible but also more volatile.

Ultimately I do have something to write on this – but it will be more of a discussion than a prescription methinks.

It’s defintely a tough issue.

The benefit I can see is that because firing someone is a less costly process now, ex ante employers will be more willing to hire people since there is less of a risk that you will hire a “lemon” and then be stuck with it.

I’m yet to think through the costs.

One thing I want to think through is in what situations you would fire someone now that you wouldn’t have previously.

I think of the issue a little differently.

When people make a contract they are agreeing setting down things that they are willing to accept given bargaining power etc – but ultimately they will only accept a contract when it makes them better off.

Now if the employer really values the probation period and the employee doesn’t care it should be allowed to happen – and it can in current law. If the employer doesn’t care and the employee does, the employee will take a lower wage to avoid it – all good, and as long as the firm is over the size of 20 employees the new law is cool with that.

However, there is a signaling issue because of a market imperfection – asymmetric information. In this case, the existence of a pure probation option leads to “too many” people getting stuck in these types of contracts, compared to the socially optimal level.

As a result, legislation to decrease the usefulness of probation periods could be socially optimal – however, the magnitude of these costs is the debatable issue.

The National policy reduces these costs – so we have to make some value judgments here to figure out if it is good or not.

Would you now hire someone that you previously wouldn’t have, either? If you have a vacancy that you need to fill then surely you’ll take the best applicant either way. Does this actually create employment?

I suppose we also need to think about our normative ideas about how much bargaining power firms have relative to individuals. If this is going to put downward pressure on wages then are we giving too much bargaining power to the employer?

Well it reduces the cost of removing an employee in the face a bad realisation.

As a result, firms are likely to have a lower “trigger level” for the expected return of an employee when they initially hire someone.

The choice of employment is now more “reversible”, I think that is the key for the statement “it will increase hiring”

I should have known I was thinking of the issue using a real options framework, thanks for it explaining it better than me matt:)

I was just trying to explain to myself and everyone else what is probably blindingly obvious to you agnitio😉

[…] the comments on this post I stated: When people make a contract they are agreeing (to set) down things that they […]

[…] If the first scenario the cost to businesses is higher, and as a result unemployment will be higher. Furthermore, if workers are more expensive to “try out” then firms will be less likely to hire workers because of “asymmetric information” – leading to a further pull back in employment (same argument that agnitio uses for the 90 day firing bill). […]

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