My nephew just lost his job, working for a large national retailer. He was employed sometime in November, and let go in early January. I don't know all the details, but the circumstances did get me thinking. So, I'm going to put my nephew's case aside, and write about a more general situation in relation to employee trial periods, that occurred to me when thinking about his case.
Small retailers (19 or fewer employees) in New Zealand can use 90-day trials, as long as this is specified in the written employment agreement (larger employers can't use these trials). Retailers face a couple of problems in terms of staffing. First, they can't easily tell from among the many applicants for jobs, who will be the most productive employees and who will fit into the workplace culture. This is classic asymmetric information - job applicants know if they are hard workers, but potential employers do not. The job interview process is a way of screening applicants, but it is imperfect. So, the 90-day trial gives employers a second chance to observe their new hires at work and see how productive they are. Second, retailers require additional staff over the busy holiday period, stocking shelves and attending to customers, etc.
It seems to me that the 90-day trial gives small employers an incentive to use the rules to solve both problems. Let's say the employer needs three extra staff over the holidays, but they also know that they need one permanent employee. They hire four applicants. However, before they hire them, the employer has no idea which one of the four will be the most productive, or the best fit for the workplace (or whatever other criteria they may have). So, instead of deciding on one of the new hires to put on a permanent contract, they put them all on permanent contracts. Then, at the end of the trial period, they let three of them go (and they don't have to give reasons), keeping the 'best' one of the four. This is what economists refer to as a tournament. Now, here's the important bit: the employer doesn't tell the four new hires that they are competing for one job.
How does this solve the two problems, and are their better alternatives? It solves the second problem obviously, because there are four workers for the busy holiday period. It solves the first problem, because the four workers will reveal their productivity during the trial period, since they know they are on trial and they want to keep the job when the trial period ends. Since they don't know they are competing with the others for a single job, they have less incentive to work in competitive ways that are unhelpful (such as sabotaging the other new hires' work), than they would if they knew they were in a tournament.
What about a simpler alternative? What if they employer put all of the workers on fixed term contracts for the holiday period, and then told them that there is a chance to be hired permanently at the end? The new hires would still work hard, but the tournament might become more obvious to them, and as above that might result in unhelpful competition. Also, there might be an end-of-game problem. If the new hires know that their fixed term is about to expire, and they suspect that their prospects of getting the permanent job are low, then they have less incentive to work hard. If they are on a trial period and don't know about the tournament, then there is less likely to be an end-of-game problem.
Anyway, I thought this was interesting, and probably wasn't an anticipated effect of the 90-day trials. It would only work for retail, or for other jobs where there is a short-term (certainly, less than 90 days) period of high demand for labour, followed by a lower base level of demand through the rest of the year. Hospitality jobs in some tourist areas that have a single high season (or two) might also qualify. I don't think this is necessarily a negative impact of the law (for example, I wouldn't label it an 'unintended consequence', as I have for policies that have unintended negative effects such as this one). After all, it helps the employer to better identify the 'best' employee for the available permanent vacancy, and that's what the law was designed to do. It's just that retailers can be much more efficient in using the law than most employers, who could only hire a single applicant at a time and try them out.
You also have to pay people more to go on a 90 day trial. There is plenty of evidence of that from different probationary periods in teachers collective agreements across the USA.
ReplyDeleteThat makes sense. An employer would have to compensate the employee for the negative amenity associated with being on a trial period.
DeleteIncidentally, there was lots of talk before the 90-day trial came in of it making the recruitment of foreign academics more difficult. I haven't seen any subsequent evidence of that though, other than the occasional anecdote.