Friday, 6 April 2007

Where I support (gasp) John Howard

I'm no fan of John Howard, but I do support his controversial WorkChoices plan which tries to reform Industrial Relations.

I'm an employee, not an employer. I want a system that makes it easier for employers to fire employees. That's not a typo. I'll repeat it: I want a system that makes it easier for employers to fire employees.

Wait, come back! I'll explain why this actually makes better sense for employees.

Most people tend to think too literally about economic systems, because we're conditioned by the physical world and the pervasive laws of Physics. In Physics, if we want a body to move in the positive x direction, we simply apply a force in the positive x direction, and presto! The body moves as expected.

But Economics works very differently to Physics. If we want a "body" to move in the positive x direction, we must often make it easy for that body to move in the negative x direction! Then the body will move in the positive x direction, of its own accord. Any attempt to apply a force in the positive x direction will in fact cause the body to move in the negative x direction!

Let's say a country needs hard currency (e.g., US dollars). If it passes a law preventing US dollars from being taken out of the country, will that achieve the intended result? More likely, the flow of US dollars into the country will abruptly stop, because there is no way to take the money out again. Plus, the US dollars already in the country will probably get smuggled out. The net result is that the country will end up with even less hard currency than before.

But if the country instead relaxed all constraints on the outward movement of US dollars, that could paradoxically encourage its inflow, because investors would be confident of being able to repatriate their profits back out whenever they wanted.

So when dealing with economic systems, it's better to allow bodies to move in the direction we don't want them to go, so that they move of their own accord in the direction we do want them to go.

That explanation probably makes my support of a hire-and-fire labour market seem less like lunacy. If employers know they can freely fire workers when they don't need them anymore, they'll be more willing to hire in response to short-term demand. Aggregated across the economy, all this additional hiring and firing (which wasn't there before) will contribute to a more liquid labour market (and by now, if you've been reading my blog diligently, you should know my weakness for liquid markets).

So as an employee, I want to see a hire-and-fire regime, because that increases the number of opportunities available to nimble and agile people who keep their skills up to date. The perceived increase in uncertainty doesn't scare me -- I'm a migrant :-). Hire-and-fire gives me a greater chance to up my remuneration.

WorkChoices is not hire-and-fire. It's a compromise, but it narrows the criteria applicable for unfair dismissal and makes it harder to get a tribunal to overturn one. It's a step in the direction of a liquid labour market, and I hope it leads to bolder legislation dismantling the remaining labour market controls that continue to constrain the economy.
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