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What is a Job Worth? Legal and Welfare Issues for Policy Makers

Created: 12 Aug 2013

Abstract

This seminar draws on joint work with Benoit Freyens from the University of Canberra.

Determining remedies for workers found to have been dismissed unfairly is a difficult problem, common to all countries which have some form of legislated dismissal protection. Typically judges face a choice between reinstating a dismissed worker or awarding compensation to the worker for the lost job. Judges awarding compensation are implicitly valuing jobs, yet there does not appear to be well-grounded economic guidance for judges in making this valuation.

Besides being part of the legal process, valuing lost jobs is necessary to assess the welfare effects of wrongful dismissal, to make public policy judgments about the form and strength of dismissal regulation, and the resources which society should devote to supporting the unemployed.

The first objective of this seminar is to identify the implicit economic basis of judicial awards of compensation for unfair dismissal under Australia's Fair Work system. Then compare the economic basis of the actual awards with the valuations of jobs suggested by economic theory and available empirical evidence, in order to assess the appropriateness judicial awards.

Job value is defined as the expected lifetime stream of income V=formula where T is the expected duration of the job until terminated by redundancy, lawful firing, quit or retirement, Wt is the wage and other returns (including reputation and psychological health) from continued employment and Rt is the value of the best alternative forgone at any point in time, which will depend on labour market conditions. A crucial issue is the extent of labour market rents, created for instance by firm-specific training or the exercise of market power through collective bargaining. In an extreme case where there are no rents (Wt = Rt) and labour market conditions are such that dismissed employees immediately find another job, the value of their job will be zero. Such a case seems inconsistent with worker behaviour and judicial awards, and one of our tasks is therefore to quantify the value of lost jobs as a function of acquired rents and outside options.

The seminar draws on a database of unfair dismissal cases over a period of 10 years arbitrated by Fair Work Australia and its predecessor body the Australian Industrial Relations Commission. The case reports are a rich source of economically relevant information about workers and their jobs.

Utilizing this simple model, the database of cases and other publicly available data we can work backwards from the judicial award amounts to determine wage, outside option and the rent parameters implicit in the awards made by Fair Work Australia. The award amounts can then be compared with estimates of the value of a job using information from our database.

The seminar plans also to explore the idea that dismissed employees with bad jobs (that may include a technically 'good' job turned bad as a consequence of working conditions or working relations) will not contest their dismissal but will instead seek to obtain compensation from industrial tribunals, whereas employees with good jobs may seek reinstatement instead. Job quality could then be valued as the difference between the two types of outcomes.

Presenter

Paul is Professor of Economics and Dean of Business, Alphacrucis College, Sydney. This is a temporary appointment to assist the College in developing a new degree program in economics/business, obtaining TEQSA accreditation, and recruiting a permanent Dean and academic staff.

He joined the Australian Catholic University as Professor of Economics in September 2008, an appointment jointly in the School of Business and School of Theology. He left Australian Catholic University in January 2013, though continuing as an Adjunct Professor.

Previously Associate Professor of Economics at University of NSW/ADFA, and a Visiting Fellow at St Marks National Theological Centre and Australian Centre for Christianity and Culture in Canberra. From Sept 2006 – Aug 2007 he was a visiting scholar at Princeton Theological Seminary and Princeton University. From May 2003 - Feb 2004 he was Universitas 21 Fellow at University of British Columbia and Scholar-in-Residence at Regent College, Vancouver. In 1999 he spent six months in the UK as an invited visitor to the Department of Economics, University of Oxford.

For more information, go to: https://apps.acu.edu.au/staffdirectory/?paul-oslington