You're evicted, eliminated, fired!

With decreased hiring, those without work are likely to remain jobless for longer. Indeed, cross-country evidence shows a robust relationship between employment protection and higher long-term unemployment. Making hiring and firing easier will help spread the burden of unemployment across the workforce.

Since we know that the worst results of unemployment come from the de-skilling and depressing effect of prolonged joblessness, this provides a powerful equity argument for reform. Moreover, this also yields an important efficiency argument: if adverse macroeconomic shocks cause long-term unemployment to rise, it can take decades for the economy to recover.

Indeed, it took a decade for Australia’s unemployment rate to return to its level before the Reserve Bank-induced recession in 1990-91.

Research by Olivier Blanchard and Justin Wolfers finds that countries with less strict firing laws recover more robustly following adverse economic shocks. Those who benefit most from a rapid recovery are the most disadvantaged in Australian society.

The equity and efficiency arguments in favour of relaxing Australia’s unfair dismissals regime have received little play in the mainstream press. Perhaps this is because both are more nuanced than the simplistic mantra that making dismissals easier will create or destroy jobs.

But we also think there is another reason why these two arguments have not been made: the long-term unemployed are not represented in the political debate. This is a pity. Unfair dismissals reforms probably won’t bring down the jobless rate, but they may make being unemployed a whole lot less painful.