A back-of-the-envelope calculation on unfair dismissals

The comments thread below arising from my piece on unfair dismissals having gone badly meta[1], let me extract one useful point and do a quick calculation. Suppose we accept the estimate by commenter x-anon that employers typically choose to pay out three months’ wages when dismissing someone for cause (that is, for reasons other than redundancy), rather than face the possibility of unfair dismissal action.

I’m going to guess that an upper bound for the proportion of employees annually dismissed for cause in small businesses is 4 per cent (for large businesses it would be smaller and for the public sector smaller again). Then that implies that the effect of the 3-months payout policy is to raise the average wage bill by 1 per cent. Unless all dismissals for cause are justified, there will be an offsetting effect, since rational employees who regard unjustified dismissal as a possibility will want a higher wage to offset the implied reduction in expected payments. Assuming justified and unjustified dismissals are equally common (here it’s the viewpoint of the average employee that matter), and disregarding risk aversion, the net saving falls to 0.5 per cent. Given a typical labour demand elasticity of 0.5 the net increase in employment demand is about 0.25 per cent for small business (the relevant distinction is those with less than 100 employees). If, say, 40 per cent of workers are employed in firms affected by the changes, the net increase in employment is 10 000 jobs. This is a once-off increase, not an increase in the annual rate of job creation.

Of course, this is a rather simplistic calculation, not taking into account effects on employer confidence, worker morale and so forth, but it gives a feel for the order of magnitude involved. A policy initiative that might generate 10 000 new jobs is worth looking at, but it ought to be put in perspective. Telstra alone has cut many more jobs than that in the past decade, which suggests that a focus on making it easier to get rid of people is probably getting the wrong end of the stick.

fn1. Godwin’s law invoked after only 30 comments.

84 thoughts on “A back-of-the-envelope calculation on unfair dismissals”

1. the commenter formerly known as anon says:

I feel compelled to defend myself, even though I hate doing it through JQ’s moderation.

I never said “get rid of unions”. I said:

â€œUnions are fine when protecting the (reasonable) conditions of workers. But that battle was won a long time ago.â€?

By this I meant: the hard struggle was won a long time ago. That doesn’t mean I don’t think there’s a place for unions, or perhaps more relevantly, collective bargaining. Obviously all freedoms and protections that are hard-won require “maintenance”.

But another important freedom is the freedom for business owners to conduct their business how they wish. Forcing someone to pay \$90,000 a year salary for semi-skilled labour working 30 hour weeks is a serious violation of that freedom. Imposing restrictive work practices is another violation.

I always laugh when I see union leaders like Doug Cameron claiming how the unions have delivered massive productivity gains in some industry or another. How much of the gain is due to the unions relaxing previously untenable work practices? It always feels better when you stop banging your head against the brick wall.

2. cs says:

Forcing someone to pay \$90,000 a year salary for semi-skilled labour working 30 hour weeks is a serious violation of that freedom.

Which union is that? I want in.

3. Andrew Reynolds says:

cs,
Unions’ responsibilities are to their members. As with anything else, what is good for one may not be good for all – a waterfront where everyone is paid several million dollars a year to put two or three containers through an hour may be great for the workers on the waterfront, but would result in a terrible outcome for the rest of the workers in Australia.
This is where the market should be allowed to work – wages drop and throughput increases. When wages reach the point that there are as many workers as there are jobs then the wage rate is correct. This is very simple economics. Under this system the role of the union is to improve the information available to the workers to negotiate their pay and conditions and also to provide other services to their members.

It is not to extort artifically high pay rates for their members using the threat of collective action, boycotts, go-slows etc. that end up hurting us all.

4. the commenter formerly known as anon says:

I was checking out the MUA’s website looking for an answer to cs’s question (the \$90,000 figure is one I remember from the 1998 waterfront dispute).

Haven’t found a statement of terms and conditions prior to 1998, but I came across this pretty remarkable top “news” item:

By MUA News
Just a reminder that the reality TV show Big Brother has a token leftie who has infiltrated the household and once again he needs your support.

Tim Brunero, a young journo who works for UnionsNSW launched himself in the House saying that he ‘really didn’t like that John Howard.’
Sadly his nemisis, alpha male Dean, is out to get him.
This week both are up for eviction. So you know who you should be voting out – SMS dean 191010!
Tim is officially supported by Unions NSW
On May 12, a resolution at the weekly council meeting called on delegates to support Tim as part of the campaign to protect the industrial relations systems. It’s good having a young worker so openly supporting the trade union movement inside the house and Council urged all delegates to spread the word among their members friends and family to ensure that Comrade Brunero stays on Big Brother by evicting any of the other housemates.
So vote early and vote often and keep Tim in the House.

“Comrade” Brunero? Are we living in the 1950’s?

If Big Brother is a lynchpin in the union campaign I don’t think we have a lot to worry about 🙂

5. cs says:

The example is surely absurd, and if we are really talking about the waterfront (as I suspect x-anon is), last time I looked the wage rate was \$32,000 pa for a 35 hour week (the higher incomes, which rarely rise above \$60,000, are all due to overtime and shift work). I know these rates have gone up a little as a consequence of the ’98 stoush (who won again?), but they are not and never have been in the realm you guys fantasise about.

6. GoTF says:

X-Anon writes, “But another important freedom is the freedom for business owners to conduct their business how they wish.”

By all means. However, some restrictions are reasonable and legitimate. If I set up a business that belches toxic fumes into the atmosphere I should either be compelled to repair the damage or my business should be shut down. If I exploit workers and subject them to dangerous or harmful working conditions I should be liable to compensate them or should be shut down. Clearly, few freedoms are absolute. It is irrational to ignore the complex interdependencies of modern society.

As to your specific example, no one is compelled to pay exhorbitant rates. Businesses are free to choose not to. They might end up with no employees, but the alternative is to force people to work for less than they are willing to.

By the way X-Anon, I’m curious where you stand on employer unions such as the BCA and ACCI.

7. the commenter formerly known as anon says:

I can’t find a confirmation. Best so far is the Democratic Socialists, well known bastion of objectivity and accurate reporting [irony alert]: http://www.dsp.org.au/dsp/mua/mua-ju24.html

As well, Patrick wharfies will move to a 40-hour week, based on 35 hours plus five hours of overtime, with the highest rate set at around \$62,000-65,000 a year. This is up to 30% less than existing pay.

\$65,000 / 0.7 = \$92,857

8. the commenter formerly known as anon says:

GOTF,

“no one is compelled to pay exhorbitant rates”

If the alternative is shutting down the business, then of course they are compelled. At least on any reasonable definition of “compel”.

“the alternative is to force people to work for less than they are willing to”

No, the alternative is to offer wages at market rates, not at the extortionist rate set by the union on pain of business disruption or closure.

9. the commenter formerly known as anon says:

The BCA or ACCI have never compelled me to do anything.

10. cs says:

A poor source x-anon, given it was hostile to the settlement. As it happens, I have the Feb 98 award in front of me, and the 35 hour week ordinary rates ranged from \$460 (Grade 1) to 772.50 (Grade 7). If I get time this evening, I might look up the current rates.

11. the commenter formerly known as anon says:

cs, do you know what were the overtime rates, the amount of overtime, and the idle time? As I recall, they were the major sources of dispute with the union – the union wanted to retain overtime, resisted reductions in idle time, and resisted employing casuals to take up the slack.

Given that, I suspect the fundamental issue was staffing levels and flexibility. People “working” 80 hour weeks and getting large overtime rates as a result, but in reality not putting in anywhere that number of hours on the ground.

12. stoptherubbish says:

CS
I suggest you try their collective agreement to get the current ‘market’ rate’. If memory serves me correctly, you will need to add approximately \$100 to the 1998 award rates to get the current minimum rate. BTW, to all those gnashing neo liberals, if they insist on the market free-for-all for the labour market, then paying around \$100,000 pa for skills in short supply is one of the ways that they say all employees will benefit from the market based nature of the changes proposed. On the other hand the same market will be allowed to decree that \$10,000 pa is about the going rate for skills which are in abundance. Spot the probelm here amigos? But we all know the dirty little secret at the heart of the ACCI/BCA proposals don’t we? There will be a flourishing market in skilled migration-skills like train driving, truck driving, brick laying and the like, and in addition, for those impecunious enough not to be able to survive on low wages from work (married women don’t need a living wage, becaue their income is a contribution to the household, not a reward for skill), there will be the taxpayer, gallantly asssitng the BCA/ACCI in meeting the burden of paying a living wage, by way of transfer payments, aka welfare.

Be assurred, the pennies are starting to drop in places where Howard supporters fancy the culture wars are the key to neo liberal ascendancy. Big, big mistake to meddle with the foundations of the part of the Australian settlement that allowed poeple to dream that they didn’t really have to kiss butt to make it.

13. cs says:

I suspect the fundamental issue was staffing levels

Of course it was, from Corrigan’s perspective, and the whole fight could be interpreted as an employer stunt to screw a soft-loan out of the Howardians to pay for his redundancies.

On the other hand, to suggest that the MUA was somehow responsible cos it wouldn’t negotiate redundancie would be absurd, given that it had guarded the exit of 4500 of its members as recently as 98-92 (and over 20,000 since the 50s).

14. the commenter formerly known as anon says:

STR, even a monumental cut in the minimum wage won’t put us at \$10,000 pa. Do the math.

Unions overplayed their hand over many many years, pure and simple. Their ability to do so in future is going to be severely curtailed, which can only be a good thing. They will be forced to stick to their original knitting – ensuring reasonable conditions for their members – not blackmailing businesses.

Of course, the union leaders and labor party apparatchiks who have built their careers on the backs of their members rather than actual work or real wealth creation will fight tooth and nail to retain their illegitimate power.

15. the commenter formerly known as anon says:

cs, the original question was my \$90,000 figure for 30 hours work. Since you have the award, do you have the overtime and idle figures so we can verify it?

16. cs says:

It’s a myth.

17. lurch says:

x-anon
1) First-hand experience tells me the idle time argument is a myth.
2) If you believe that – a labour breakdown of approx* 30% (rotating) rostered permanents, 15% unrostered permanents, and 55% unrostered casuals, where all unrostered workers are required to phone each day to find out the next days hours, appalling safety (we still cant find semi-affordable income protection insurance and Life insurance is obtained through the members-owned super scheme), and a truly fair and balanced piece of legislation (Workplace Relations Act) governs the workplace- then I will agree with you that unions did overplay their hand years ago and that this is a good thing. If the above seem to you to be “reasonable conditions” then its no wonder that you seem to have some misguided ideas about life on the waterfront. In response to your claims about the employers wanting to reduce the level of overtime it is always worth remembering who proposed the idea of extra overtime shifts and fought long and hard to have them included in the award – thats right the EMPLOYER!.

18. the commenter formerly known as anon says:

Overtime rates are a myth, CS? Surely they are in the award. I guess your reluctance to quote them means they do not support your case. Your honesty is overwhelming.

19. the commenter formerly known as anon says:

lurch, idle time may be a myth now, but I don’t believe it was a myth before 1998.

On the question of over/idle time, this from a parliamentary report written at the time: http://www.aph.gov.au/library/pubs/cib/1997-98/98cib15.htm

Negotiations between the MUA and Patrick for new industrial agreements had been underway for much of 1997, but its employees generally resisted attempts to improve the cost effectiveness of Patrick, particularly by insisting on retaining arrangements which generated large amounts of overtime (work beyond the daily shift or roster). This work practice is being given more investigation.(21) A solution being sought by the employers has been described by one industrial relations newsletter in the following terms:
What the stevedoring companies are looking for in general, is to create a situation where annualised salaries are introduced, but with no overtime component. The companies want excess work to be done by casual employees who have been trained up to do the supplementary work. Additionally, companies also want to ensure that there is no idle time.(22)

20. lurch says:

overtime rates for stevedoring industry as follows –
x-anon
Evening shift – 1.5 times ordinary rate
Midnight shift – 2 times
Saturday – 2 times
Sunday – 2.5 times
Idle figures wont feature in award(s) as they are a reflection of the time workers are not employed in stevordoring operations ie: no ship alongside, no container/freight recievial/delivery, no machinery maintenance, no facility maintenence

21. cs says:

x-anon, the myth I was referring to is your idea that wharfies earn \$90,000 for a 30 hour week. Of course workers get overtime and shift rates, but I am imagining you can tie your own shoelaces and are right for socks and undies, or are you under some apprehension that I’m your research slave?

(cheers lurch, btw)

22. the commenter formerly known as anon says:

Well, I tried to cut the thread off, but since you are being so rude cs: you quoted from the 1991 award, which “as it happened” you had in front of you. All I was asking you to do was to quote a few more figures from the same document, which appears not to be anywhere online.

More interesting quotes, these from an interview conducted after the 2001 agreement:

CHRIS CORRIGAN: We haven’t had a single employee resign in the last three years. That’s how good it is. Nobody resigns here. So they should, they do acknowledge it is a good industry to work in and they’re very happy.

I mean, employees are far more happy today when they’ve got real jobs to do than they were three years ago when they were carrying away in the mess room or whatever, trying to avoid being seen, having no work to do.

PADDY CRUMLIN: Productivity has been delivered because basically the workers understand that the world is changing and as long as it is done safely and they are involved in it and it is done in a constructive fashion, then we’ll meet whatever requirements are required.

So we haven’t changed. I think the difference is this time around that John Howard and Peter Reith haven’t got their big melons in.

Pre-1998 sounds just like my first summer job. So somehow I doubt my figures are a myth. Interesting to note that Crumlin (MUA president) does not dispute Corrigan in this exchange.

23. Gomez says:

Lurch, stop debating and get back to work

24. cs says:

Actually, I quoted the rates of the ’98 safety net review of the ’91 award. I’m still not your research assistant, no matter how wrong you are and what you can’t find online. In the interests of education and civility, if you can find what you think are the correct answers for yourself, I’ll continue to check them for you, as I’ve been doing. I’m sure you can do better, with application.

As for the quote, reads to me as if Corrigan still feels bound to run a self-justifying line, while the MUA is free to rise above and deflect onto the government, in the interests of good industrial relations. An impressive union, most especially for its discipline under provocation.

25. the commenter formerly known as anon says:

whatever CS. over and out.

26. Stoptherubbish, how patronising is this:

“…married women donâ€™t need a living wage, becaue their income is a contribution to the household, not a reward for skill.”

I earn more than my partner and so do a few of my women friends. Why in this day and age do people always assume the reverse?

Would you be as quick to say my husband’s income is not a reward for skill? how insulting.

Stop yer own rubbish!

27. SJ says:

Helen, I believe that was sarcasm on stoptherubbish’s part.

28. stoptherubbish says:

SJ,
You are right. it was sarcasm. I was directly quoting a well known front person for Aust Inc, from the CIS, who repsonded to a point being made about the drop in pay equity that occurred when state AWAs were introduced into WA, who breezily assurred every-one that it was household income that counted, not the income of each discrete wage earner, since ‘many women choose to work in order to contribute to the household income’ and since women in general have made lower investments in ‘personal capital’ (that’s skills folks), then we can expect that they will earn less than men, and in addition, it doesn’t matterif there is wage discrimination becasue overall,their income simply ‘contributes’! I promise, you I have not made this up. These guys are the most reactionary palukas I have ever heard. I just wish they were game enough to come out and argue their garbage in front of the people they say their prescriptions are designed to assist. I would just love it.

But in the interests of my health, I am not going to hold my breath. BTW, if you want to have a good laugh, read the last but one editionof the IPA jounrnal, where a brave little battler writes about the brave new world of independent contracting, and how he just loves the smell of personal risk each morning as he gets up to do battle in that crazy old market place of labour. It is absolutley pukemaking!

29. McD says:

X-Anon: “The BCA or ACCI have never compelled me to do anything.”

What about, ohh, the Pharmacy Guild. Sure they don’t compel you (I guess) or I to do anything, but talk about a protected species that the govt. is unwilling or unable to take on. Real efficiency gains available too, unlike in the ideologically driven IR ‘reforms’.

30. the commenter formally known as anon says:

You won’t find me defending the pharmacy guild.

I believe the govt _is_ taking them on. Doesn’t Woolworths now have permission to do a trial of pharmacies in supermarkets? And Abott has been actively softening them up for the latest round of PBS negotiations. I’d lay good odds that we’ll have a far less controlled pharmacy industry within 5 years.

31. Stop the rubbish
I apologise most grovellingly. I must not be such a smartarse and read too fast.
Keep the rubbish happenin’.

32. if you want to have a good laugh, read the last but one editionof the IPA jounrnal, where a brave little battler writes about the brave new world of independent contracting, and how he just loves the smell of personal risk each morning as he gets up to do battle in that crazy old market place of labour. It is absolutley pukemaking!

Actually I don’t need to do that, I had exactly the same thing put to me in conversation with a poor wretch at a barbecue. (The barbecue, for the record, failed to stop.)

He didn’t seem comfortable in his own skin as he described it, either. And he mentioned he had recently married and was about to start a family – so he was still pre-kids… Hmmm, it’s going to hit him, but good, once those kids come.

33. Stoptherubbish — what was your problem with the CIS quote you mentioned?

Do you think “many women choose to work in order to contribute to the household income” is wrong?

It seems that the original speaker was making the simple point that women may have lower incomes due to choice, and that income inequality should be considered at a family-unit level if you want to understand real disadvantage. Fair and fair.

As for idea that discrimination doesn’t matter because overall women’s income contributes to family income… I think the point was that it doesn’t necessarily impact on the debate about income inequality. I doubt the author thinks sexist discrimination is a good thing.

The CIS is game enough to argue their points clearly and publicly all the time. They are not reactionary in any meaningful sense of the word. But I suggest you continue to misrepresent the CIS… because I doubt you’d have a chance in an honest argument.

34. stoptherubbish says:

In general John I think the concept of ‘choosing’ to work, is a tad under theorised if I may say so. Women, and men work for a variety of reasons, the most basic one being the pressing necessity to put food on the table, a roof over one’s head and to have some means of being able to get from A to B, among other things. The extent and level of women’s participation in the labour market is a complex subject, and simply cannot be reduced to a simple proposition like ‘choosing’ to contribute to the household income, as anyone who has the faintest understanding of the different rates of participation in different eras and different polities knows..

I happen to be in favour of women’s rights to participate as fully and equally in the labour market as men are able to. However I know enough to know that the terms on which people come into that marvellous market are not equal, that the sources of inequality are not simply differences in ‘personal capital investment’, and that women and men are not simply individual economic actors, but have many other identities and claims on their time and skills than simply working to put to food on the table, and a roof over their heads etc. I am a little tired of the constant bullying undertaken by interest groups in the service of the powerful and wealthy, who are constantly patrolling the media in order to convince every-one, but mainly of course those that make laws, that the soical and economic outcomes of which they approve, are the results of ‘individual choice’.

If the economic and social outcomes of which they approve are the results of ‘choice’ of course, then any attempt to ameliorate or change people’s cirumstances or the arrangments that underpin the reproduciton of a given set of circumstamnces are interferences in people’s ‘choices’ and thus are either doomed because they are an affront to the natural order of things, or else an afffront to the ‘liberty’ of people to be as they are at the moment. It is the circular nature of the arguments of groups like the CIS which so irritates, as well as the shoddiness of much of their arguments.

Let’s be clear here, the CIS doesn’t give a rats about discrimination against women or anyone else in the labour market for that matter. It makes a formal obeisence to the right of people to be treated on ‘their merits’ but makes no examination, nor has anything to say about what or more importantly, who gets to decide what constitutes merit or value, and how it is to be measured, other than by market outcomes, ie; Those who have the most must be the most meritorious.

The CIS does indeed ‘engage’ in the market place of ideas, but in reality it is nothing more than a megaphone for the already powerful and priveleged. The little ‘battler’ in the ideas marketplace pose of the CIS doesn’t fool anyone, least of all anyone who has the faintest understanding of the issues that the current state of women’s labour market participation raises. The CIS is reactionary in my view, if ‘reactionary’ means a set of ideas or orientation to the past as a way of turning back the clock. The CIS seeks to take this society back to some mad combination of 19th century economic and social arrangements, with 21st century technological and financial innovations. I think the CIS has every right to peddle its views. I also have a right to say clearly and forthrightly that I think it is more than a simple think tank, and is less than honest in its overall intentions.