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cutting-jobs-regulation-will-boost-employment

Today the government has announced reform of the employment law that will make it easier for firms to fire their employees without being sued. This is a big step towards reducing unemployment, especially among the unqualified and inexperienced. It might be counterintuitive at first, but the fact is that a lot more people can be hired if it’s easy to fire them too.

Think about if you had to commit to seeing a particular film at the weekend – once you were in the cinema theatre, you’d have to pay the price of entry again just to walk out. Understandably, you’d spend a lot of time choosing what to go and see, and would be a lot more likely to go with the safe option – say, a new film from the bland-but-reliable Tom Cruise – rather than the risk – a well-reviewed but four-hour long Swedish horror movie – even though the potential gain from the risk is much greater. Or you might just decide that it isn’t worth going to the cinema at all, given the added costs of leaving.

Employment tribunals are a little bit like this for businesses. Going to an employment tribunal is incredibly costly for firms, especially small-sized ones. By raising the cost of firing employees, it’s much harder to take a chance on an employee who could be great or could be awful. Like choosing a film, every employee a firm takes on is a bet, so we want to make these bets as cheap and easy as possible to maximise the chances that the best people will make it to the jobs that are best for them.

In our film analogy, we want to be able to make it as easy as possible for people to leave the four-hour Swedish epic if it turns out to be awful, because it increases the chances that one day you’ll end up going to something excellent. If you have to stick with safe but dull films, in the long run you’ll be losing out. And, of course, if the business takes the safest option – not hiring an employee at all – that’s one more person in the dole queue. The employment reforms today will make it easier to take a chance on employees and reduce the overall cost of employing extra staff. It’s a welcome move in reducing the crippling burden of regulation that is keeping many out of work.