Dismissal Costs and Their Impact on Employment: Evidence from Australian Small and Medium Enterprises*

The influence of labour market regulation on employment is intensely debated across the OECD. In Australia, the focus is currently on the employment impact of recent changes to unfair dismissal provisions. There is surprisingly little research on the magnitude and structure of dismissal costs, and this paper presents new data from a major survey of small‐ and medium‐sized Australian enterprises. Dismissal costs are compared for different types of separations, including redundancy, uncontested fires and complex fires. Using the data and a simple labour demand model, we estimate the direct employment impact of Australia's changes to unfair dismissal protection. The impact is found to be modest.