Unions said the new law was not the way to compete with fast-growing Asian economies.
The law weakens the unions by encouraging workers to sign individual contracts with employers, rather than group contracts. Employees will be stopped from launching unfair dismissal claims against small businesses.
The changes prompted the biggest union rallies across Australia in more than seven years, with up to 500,000 workers turning out to protest in November.
Australian wages are much higher than those in Asia but unions said these changes were not the way to compete.
Greg Combet, the president of union umbrella group the Australian Council of Trade Unions, told Australian television: "This is not an economic strategy for Australia. This is just a major assault on workers' rights and it's a huge boost for big business."
The main opposition party, Labor, has vowed to reverse the changes by the 10-year-old Liberal/National coalition government, but John Howard, the prime minister, said the new laws would encourage employers to hire more people.
"I do not believe that the world is going to come to an end or the sky will fall in," Howard told Australian television.
"Sure some people will complain, I have no doubt about that. There will be a lot of people who will benefit from this through getting job opportunities."