Research shows success of 90 day trial periods

February 2nd, 2011 at 1:00 pm by David Farrar

have released research into the 90 day trial periods. What they did is:

Data are now available to analyse these impacts in the policy’s first several months in operation.1 NZIER has conducted an initial analysis of the publicly available data from Statistics New Zealand’s Linked Employer-Employee Database (LEED), including April 2009 to September 2009. Our analysis assessed year-over-year changes in total jobs, accessions (hirings), and separations (firings) from 2005 to 2009 for six size categories of employers in 17 industries. The analysis controlled for seasonal variation in employment by identifying second and third quarter figures separately. Simple regression models2 were estimated for the three employment variables. The models also included a variable indicating whether the trial period was in effect for the time period and firm size. The regressions used are a simple analytical technique; more complex models may be able to estimate the policy’s impact more precisely.

So this is an analysis of actual employer data from Stats NZ. So what did they find:

  • The trial period appears to have increased hiring. On average, hiring by SMEs was almost six percentage points higher than expected, given the relative performance of other firms and the annual hiring trends.
  • Total job numbers for these firms were also higher, by about two percentage points.
  • These positive employment outcomes happened while hiring overall was falling. The model found that hirings fell on average in 2008 and 2009.
  • There was little difference in hiring behaviours across industries.

A 6% improvement in hiring and a 2% improvement in job numbers are good outcomes. The extension of the 90 day trial period to all employers is a good thing.

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32 Responses to “Research shows success of 90 day trial periods”

  1. Chris2 (754 comments) says:

    Those of us that run companies always knew this, so it’s nice to have the research proving the benefit of the 90-day trial period.

    Now, we just need the reintroduction of youth pay rates.

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  2. Komata (1,107 comments) says:

    Excellent, now lets all sit back and watch Mmmmmaatt, Unite and all the other self-serving Unionists try to denigrate these figures.

    ‘Wonder what tack they’ll use?

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  3. k.jones (210 comments) says:

    dont wont to burst anyones bubble but NZEIR also say (i paraphrase naturally- “this data is pretty meanginless: we cant accruately attribute causation cause its only one years data”)

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  4. ben (2,396 comments) says:

    I hope they were smart enough to control for changes in general hiring conditions in the wider economy, so that the effects of general economic improvement are separated from the 90 rule effect. Of course if the 90 day rule explains some of the improvement in the wider economy (and it might) then endogeneity problems are intorduced and more advanced techniques are needed, which presumably NZIER hasn’t got in to. They should at least have tested for such endogeneity, and if they haven’t then the numbers here may not mean much.

    That said, the findings are entirely consistent with theory, which says reducing exit costs will improve hiring.

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  5. gravedodger (1,509 comments) says:

    Imagine if the research had discovered the opposite then k.jones would not be at all worried.

    Pity this will be buried as the dopey repeaters concentrate on the big news that John Key has signed his death warrant by dicsounting the irrelevant unemployed senior citizen aka the natty dressed dwarf of St Marys Bay aka the liar ,thief of $158 thousand dollars, the best thing to happen to the racing industry and the most favored patron of The Green Parrot. Now there IS a C.V.

    Good on John Key for bring some certainty to our electoral system, would show the benefit of a fixed term,even 4 years, we would have got rid of the last lot before they spent even more money and WE WOULDN”T OWN THE BLOODY TRAIN SET and WE WOULD HAVE STILL HAD THAT $700 000 000.

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  6. pete (428 comments) says:

    I can’t see where they’ve estimated the effect on wages. What use is an analysis that looks at the benefits of a policy but completely ignores the costs?

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  7. pete (428 comments) says:

    Of course National would see a negative effect on wages as a “success”, so I guess that part of the cost-benefit analysis is “subjective”.

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  8. KiwiGreg (3,169 comments) says:

    Pete you must be one of those folk who think that making it easier to hire people couldn’t possibly increase hiring.

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  9. Herman Poole (297 comments) says:

    # Chris2 (334) Says:
    February 2nd, 2011 at 1:10 pm

    Those of us that run companies always knew this, so it’s nice to have the research proving the benefit of the 90-day trial period.

    Now, we just need the reintroduction of youth pay rates.

    What we need is the removal of the minimum wage.

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  10. big bruv (13,217 comments) says:

    God I love it when the left and the unions end up with egg on their face.

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  11. pete (428 comments) says:

    >you must be one of those folk who think that making it easier to hire people couldn’t possibly increase hiring.

    A million dollar subsidy for each new hire would increase hiring too. But any study which ignored the cost of such a policy would be pretty dishonest.

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  12. scrubone (3,044 comments) says:

    I can’t see where they’ve estimated the effect on wages. What use is an analysis that looks at the benefits of a policy but completely ignores the costs?

    True. It’s quite possible that more qualified people are being passed over to give less qualified people a chance at a lower wage.

    Not sure how such a policy would encourage people with the same qualifications to be offered lower wages though.

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  13. KiwiGreg (3,169 comments) says:

    @ pete do you seriously regard the wage someone gets paid when they have a job as a “cost of the policy”? A freely entered into bargain between employer and employee doesn’t have a “cost”.

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  14. toad (3,669 comments) says:

    I don’t recall anyone ever disputing that it would encourage employers to hire additional staff (I certainly didn’t), so the results are not unexpected. Making slavery lawful would encourage more hiring too.

    The issue for me is whether it has also encouraged more firing, and in particular whether it has encouraged more firing that is unjustifiable but cannot be contested as such in the Employment Relations Authority or Employment Court. Those for me are the real issues with the 90 day law.

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  15. Pete George (22,754 comments) says:

    I’d be interested in knowing if it has reduced the number of unproductive employees being retained. Also if it reduces over time the number of employment disputes due to better hiring success rates ie weeding out the duds.

    This won’t just affect bad employees who don’t last, it will also affect employees who have to work alongside new hirees, a better chance of a co-operative more productive workforce.

    In the vast majority of cases good employees shouldn’t have anything to worry about with the 90 day trial, if they back their ability.

    A handful of bad employer decisions is a small price to pay for a better way to hire better (which benefits both employee and employer).

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  16. pete (428 comments) says:

    > do you seriously regard the wage someone gets paid when they have a job as a “cost of the policy”? A freely entered into bargain between employer and employee doesn’t have a “cost”.

    Yes. Lower wage levels mean less investment in productivity-improving capital, which reduces economic growth.

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  17. dime (9,368 comments) says:

    Toad – you promised me countless examples of employees being mistreated because of this law.

    I think you came up with one.. a labour stooge that worked in a shoe shop? or an ice cream parlour or something?!?! and maybe a skank that didnt wear shoes to work…

    Great law. Its working. Good luck repealing it.

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  18. Inky_the_Red (734 comments) says:

    A while years worth of data.

    Well I wonder if they have done any work to see if the change had an impact on the floods in Northland or Earthquake in Darfield.

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  19. ben (2,396 comments) says:

    Except at Easter, eh Big Bruv.

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  20. thedavincimode (6,528 comments) says:

    Toad, what on earth are you saying? That you wonder whether more people were unjustitiablt fired than hired? How can that be?

    Inky, I guess this wasn’t the news you wanted. Sorry about that.

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  21. Inky_the_Red (734 comments) says:

    Are the IRD collecting collecting data to see if employees are employed under the 90 trial period?

    How many small employers are usingb the act?

    I can’t see the answers to those two basic questions. It seems to assume that all SME are employing all their staff. What evidence is there of this?

    I can’t see how you can make conclussion you have without it

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  22. Dirty Rat (504 comments) says:

    1 While the Department of Labour reviewed the first year of the 90-day trial period in 2010, it was focused more on experiences and knowledge of the policy, rather than on impacts on job numbers. The report found that half of relevant employers had used a probationary period.

    2 We have chosen a simple statistical technique for this illustrative analysis. A more complex time-series analysis will be possible once additional data are available, and subject to resource availability. However, given the short time period of the data on the trial period and the confounding effects of the economic turmoil in 2007-2009, we judged that a simple model would be a useful initial tool.

    3 The results for separations are not presented here, but are available upon request

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  23. Falafulu Fisi (2,176 comments) says:

    Dirty Rat, do you get access to advanced time-series software that uses state-space and kalman filtering methods/algorithms? I do use them for dynamical system analysis, i.e., application where the model is updated as new data arrives.

    These algorithms have been used mainly in real-time applications, such as engineering control and real-time signal processing tasks (signal de-noising such as your cell phone’s reception signals ) and some have used them for stock market data monitoring (live or real-time). These dynamic methods are much more robust than their static counterparts, because they can be updated in real time, i.e., the model parameters changes as the data changes (and this is how the real data world behaves – be it engineering, economics, crime-rates, interest rates, etc…).

    I have seen some NZ Reserve Banks discussion papers using the “Kalman Filter” for economics static data analytics.

    - Estimating a time varying neutral real interest rate for New Zealand

    - Estimates of time-varying term premia for New Zealand and Australia

    What software do you use? Do you use any AR (auto-regression) type methods/algorithms? I do develop my own Java numerical libraries from ground up for use in my software application development, but I think the Matlab commercial software is the best tool for an economist , an engineer or a scientist to use, because the numerical algorithms (both statistical & algebraic) have been developed into standard packages that come with Matlab. It means that you don’t need to re-invent the wheel, since everything you need is already available.

    There are other statistical/numerical commercial software out there available for analysts, but Matlab dominates and it has a large user-based world wide, where you can get your question answered pretty fast or some one from somewhere has already developed that particular algorithm (which he/she can send it to you if requested).

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  24. DJP6-25 (1,268 comments) says:

    Good another defeat for the Socialists.

    cheers

    David Prosser

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  25. gravedodger (1,509 comments) says:

    Did any reference to the released research from NZIER make either of the infotainment channels tonight.

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  26. Inky_the_Red (734 comments) says:

    It was mentioned on TV3. Like Kiwiblog they just reported the release unchallenged as if it was fact.

    Hardly expected as MSM alike most bloggers are fairly lazy

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  27. RRM (9,427 comments) says:

    A huge, complex market with all sorts of inputting factors grows 2%, somehow it is obvious that this tiny growth is thanks to the Govt’s 90-day trial.

    How can you keep a straight face while you spin like this?

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  28. kiwi in america (2,432 comments) says:

    Inky
    The keft hates this policy because it strikes at the heart of one of their sacred cows – unions and the belief in their altruism and supreme importance to the world. A policy change bringing NZ in line with new worker standdown periods in Australia, the UK and many US States is seen as an ideologically driven blow to the ‘union is good – Labour governments look after unions’ mentality. Any evidence that the policy change is working is to be dismissed, ignored or opposed. Your posts on this subject are a waa waa waa hands on the ears dont want to hear anything that might contradict my blessed unions and their line that the 90 day extension is evil.

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  29. kiwi in america (2,432 comments) says:

    Where are all the horror stories that were predicted? There will always being a small minority of employers who will be pricks to their employees regardless of the legislative environment. The initial law change was supposed to unleash an army of David Copperfields according to the unions. It didnt happen hence the mainstream support for the extension and the popularity of the government promoting the law changes.

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  30. scrubone (3,044 comments) says:

    Where are all the horror stories that were predicted?

    Exactly. I can only recall 3.

    One was before the courts and was ruled that the actual contract was invalid in the first place.

    One seemed to be at best a case of employee not telling the union the whole story.

    And the last was a Labour party youngster who by her own admission told her employer how to run her business.

    Not exactly compelling evidence, no matter how dramatic the video presentation.

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  31. scrubone (3,044 comments) says:

    How can you keep a straight face while you spin like this?

    As the bloke on the radio said this morning, it’s an educated guess.

    But the fellows who made the guess weren’t interested in the outcome, unlike the unions.

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  32. David Seymour (8 comments) says:

    Remember this is the kind of legislation that we get because ACT is in the government: http://www.radionz.co.nz/news/political/55331/act-behind-extension-of-90-day-job-trial

    Otherwise it’s Labour-lite all the way down.

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