As a result, firms are likely to have a lower “trigger level” for the expected return of an employee when they initially hire someone.

The choice of employment is now more “reversible”, I think that is the key for the statement “it will increase hiring”

I suppose we also need to think about our normative ideas about how much bargaining power firms have relative to individuals. If this is going to put downward pressure on wages then are we giving too much bargaining power to the employer?

When people make a contract they are agreeing setting down things that they are willing to accept given bargaining power etc – but ultimately they will only accept a contract when it makes them better off.

Now if the employer really values the probation period and the employee doesn’t care it should be allowed to happen – and it can in current law. If the employer doesn’t care and the employee does, the employee will take a lower wage to avoid it – all good, and as long as the firm is over the size of 20 employees the new law is cool with that.

However, there is a signaling issue because of a market imperfection – asymmetric information. In this case, the existence of a pure probation option leads to “too many” people getting stuck in these types of contracts, compared to the socially optimal level.

As a result, legislation to decrease the usefulness of probation periods could be socially optimal – however, the magnitude of these costs is the debatable issue.

The National policy reduces these costs – so we have to make some value judgments here to figure out if it is good or not.

The benefit I can see is that because firing someone is a less costly process now, ex ante employers will be more willing to hire people since there is less of a risk that you will hire a “lemon” and then be stuck with it.

I’m yet to think through the costs.

One thing I want to think through is in what situations you would fire someone now that you wouldn’t have previously.

Indeed, more flexible but also more volatile.

Ultimately I do have something to write on this – but it will be more of a discussion than a prescription methinks.