When the Employment Contracts Act of 1991 was passed, after extensive fanfare and debate, unions and some politicians suggested the sky would fall in on ordinary working-class people.

That statute has since been displaced by the Employment Relations Act of 2000, in part because opponents have insisted that the ECA was one-sided in its key provisions and, thus, proved advantageous only to employers.

I was involved in the debate about the ECA during my first trip to New Zealand in July 1990. Now, as then, I am an academic and an employee.

My goal in thinking about labour relations has no partisan twist. Rather, it is to maximise the sum of employer and employee surplus generated in the labour market.

It would be foolish and irresponsible to support legislation that made employers richer at the expense of employees.

The aim should always be to create a system of ex ante opportunities from which both sides will be able to profit through voluntary exchange.

Although it should have gone further, this objective is exactly what the Employment Contracts Act went a long way to achieving.

How did things work out in practice? Before 1991, New Zealand had a highly unionised workforce with strong monopoly protections.

The elimination of those privileges was bound to result in a transitional decline in the wages of some unionised workers until improvements in productivity over time drove them up again.

This impending loss of privilege accounts for the fierce political resistance to change. But that partisan fear is not a reason to regard the legislation as unjust. Quite the opposite - it served to reveal the artificial nature of the previous state of affairs.

The ECA exposed unions as being less attractive to workers in the long run, even if they could secure some immediate redistribution in favour of their members. It underlined the fact that supply and demand, and long-run improvements in productivity, determine wages and other employment conditions, not union power. Only about 12 per cent of private-sector workers now belong to a union.

Even though the ECA did not permit contracts at will (meaning the right to quit or fire for good cause, bad cause or no cause at all), unions felt threatened by changes that moved employment law in the direction of straightforward contracts. Yet labour markets operate like most other markets and the decision to retain a mandatory for-cause regime - and extend it to employees on individual contracts - was neither efficient nor fair.

It is true that people dismissed unjustly under a simple contractual system may experience personal and psychological setbacks, but even a regime that allows for personal grievance procedures can result in harsh decisions. People will always point to hard cases with any system.