Dismissal Costs and their Impact on Employment: Evidence from Australian Small and Medium Enterprises

The influence of labor market regulation on employment and other macroeconomic variables is intensely debated across the OECD. In Australia the focus is currently on the employment impact of proposed changes to unfair dismissal provisions. There is surprisingly little research on the magnitude and structure of dismissal costs and this paper presents new data from a major survey of small- and medium-sized Australian enterprises. Dismissal costs are compared for different types of separations, including redundancy, uncontested fires and complex fires. Using the data and a simple labour demand model we estimate the employment impact of the proposed unfair dismissal changes, which we find likely to be modest