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Unionists say 90-day work trials are freezing the labour market and contributing to skills shortages because workers fear a job change could leave them joining rising queues of unemployed.
The government and employers disagree, but the issue flared after unemployment hit an 18-year high in the June quarter at 6.8%, with 162,000 people out of work.
Hundreds of redundancies have been announced in the past fortnight at companies, including Norske Skog, Solid Energy, North Island Mussel Processors Limited and Goodman Fielder.
The government introduced 90-day trials for new workers for companies with fewer than 20 employees in 2008, and extended it last year to all businesses to encourage employers to take on new staff.
Employers do not have to give a reason for sacking a new worker during their trial and workers have no right of redress.
First Union general secretary Robert Reid said rather than introducing flexibility as the government claimed, the labour market had "seized up" because people were not changing jobs.
"Why would you leave a good, or even a bad job at a lower rate of pay, go to another one, when you can be sacked any time in the first three months without any comeback at all?"
Employers were "screaming out" for skilled workers because people were not moving from entry level jobs to more experienced positions, he said.
"It opens up what we are told is a skill gap which we are then told has to be filled by migrants because we now have a policy which stops New Zealanders bettering themselves by moving up the labour market."
A recent study by the Business, Innovation and Employment Ministry found one in five workers were fired during their probationary period.
The government claims the provision has resulted in 13,000 new jobs but Council of Trade Unions secretary Peter Conway said there was no evidence that 90-day trials were creating jobs.
"While people can argue it's due to all sorts of things, unemployment has consistently and steadily gone up under this."
Labour Minister Kate Wilkinson said the ministry study also found the provision was encouraging businesses to take on more staff, with 40 per cent of employers hiring someone they wouldn't have taken on otherwise.
Employers and Manufacturers Association's employment services manager David Lowe disagreed work trials were freezing the labour market.
"If the employers are finding they can't fill positions, then they won't worry about a trial period."