Joblessness is a major cause of poverty. Poverty will be alleviated significantly by engaging the poor in gainful employment. Yet persistent unemployment, especially persistent long-term unemployment, suggests that there may be too few jobs to pursue such a policy option. Despite strong economic growth over the past near-decade, Australia’s unemployment rate remains high at over 6% while the long-term unemployment rate was a staggering 34.2% (as of April 2002).

A possible explanation for Australia’s unemployment problem is the overregulation of the labour market. This includes the unfair dismissal laws in the Commonwealth Workplace Relations Act 1996. The unfair dismissal laws are a potential deterrent both to firing and to hiring. An unfair dismissal claim can cause employers considerable financial and mental distress. Sometimes it is easier for employers not to sack anybody in the first place. Employers may also be reluctant to take on additional staff. If a new recruit turns out to be unsatisfactory, it might already be too late for employers to fire him or her without paying dearly for such action. In other words, the unfair dismissal laws to a certain extent favour the ‘insiders’ (those already with jobs) over the ‘outsiders’ (those without jobs).

The Workplace Relations Amendment (Fair Dismissal) Bill 2002, introduced on 13 February this year, is intended to exclude small businesses from the unfair dismissal laws and thereby to encourage job creation. Such an exemption is sensible because the unfair dismissal laws have a particularly adverse effect on small businesses without enough resources to cope with unfair dismissal allegations. Survey results indicate that small business employment would have been higher had it not been for the unfair dismissal laws.

To boost the number of available jobs, and thus to combat long-term unemployment, the unfair dismissal laws need to be amended in such a way that small businesses will feel more confident about taking on new staff. Improving small business employment, although not a panacea, is nevertheless one step towards the broader goal of job creation.

Dr Kayoko Tsumori is a Policy Analyst at The Centre for Independent Studies.