Why Small Business Is Not Hiring: Regulatory Impediments to Small Business Growth - The Centre for Independent Studies
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Why Small Business Is Not Hiring: Regulatory Impediments to Small Business Growth

Small business makes an important contribution to the Australian economy, accounting for 42 percent of employment in 1997-98. Many small firms are labour intensive, employing more workers per dollar of value added than large firms. The concerns voiced by small businesses about barriers to employing workers therefore need to be addressed.

The financial risks imposed upon small firms by unfair dismissal legislation are high because of strict procedural requirements and the amount of discretion given to tribunals and courts. Their findings have condoned excessive absenteeism and use of sick leave, shirking incompetence and even theft, on the grounds that the letter of the law was not implemented in dismissals. Though there is a cap on the compensation and penalties that can be ordered against employers who breach these laws, most cases are settled out of court to avoid the high costs of litigation.

Unfair dismissal and anti-discrimination legislation must be reconsidered because it discourages employment. Small firms see the prospect of litigations arising from dismissal laws as a major risk and opt not to employ extra staff. Proposed Federal regulation to exempt businesses with 15 or fewer employees from unfair dismissal laws is a step in the right direction. A Senate inquiry into unfair dismissal legislations will produce a report by mid-February.

Helen Hughes is Professor Emeritus and Visiting Fellow in the Department of Economics, Research School of Pacific and Asian Studies, Australian National University, and Senior Fellow, Centre for Independent Studies. She was a senior manager at the World Bank from 1967 to 1983, gave the Boyer Lectures in 1985, and has published widely on the Australian economy, development, and international trade and capital flows.