Academic field of industrial relations

How would you define an effective system of industrial relations and what are the central features of such a system? Do you think that liberal market economies have more or less effective industrial relations systems than those of coordinated market economies? In answering these questions, draw on material from at least five countries.

The academic field of industrial relations is typically defined 'as being the study of various aspects of job regulation (Bain and Clegg 1974), with a consequent focus on rule-making in the employment relationship. For those who regard this definition as too restrictive - 'study of the process of control over work relations' (Hyman 1975:12). Such definitions widens the scope of the industrial relations towards an assessment of wider social influences which affect the character of relations between workers, employers and their respective collective organisations. Over the past decade major changes have taken place in the environment in which industrial relations operate in advanced industrial societies. These have occurred especially as a consequence of growing competition in national or international product markets, together with their rapid change, which has meant that organisations have been forced to introduce radical innovations either technological or organisational in order to cope with the challenge. In some countries against a background of conservative political victories, privatisation and deregulation, more 'individual' employee relationships are often advocated with less emphasis on collectivism. The industrial relations system comprises of a whole gamut of relationships between workers and employers which are governed by the means of conflict and cooperation.

The above diagram portrays various attributes of an industrial relations system, In order to frame a effective industrial relations system the relationship between various 'Actors' like employers, employees and government should be more harmonious and cooperative rather than conflictual by which a conducive environment is created between economic efficiency and motivation, productivity and development of employees and finally employee loyalty which creates mutual trust. As it is observed that industrial relations systems of particular countries differ, in order to define a 'Effective system of Industrial relations' we need to first look into the general objectives laid before the system, which are:

  • To look after the interest of employees and management by securing the utmost level of mutual understanding and good-will among all those sections in the industry which are drawn in the process of production.
  • To avoid industrial conflict and develop harmonious relations, which act as essentials in determining productivity of workers as well as to the industrial progress of a country.
  • To increase productivity to an all new level in a period of full employment by reducing the tendency to high turnover and frequency absenteeism.
  • To establish and promote the enlargement of an industrial democracy based on labour partnership in sharing of profits and of managerial decisions.
  • To eliminate or minimise the number of strikes and lockouts by providing rational wages, recuperating living and working conditions for employees.
  • To improve the economic conditions of employees in the active state of industrial managements and political government.
  • Socialisation of industries by making the 'state' itself a major employer.
  • Vesting of a proprietary interest of the employees in the industries in which they are employed.

These objectives are drawn with keeping in mind the various institutional procedures followed in different countries. A healthy industrial relations is the key to progress and attain success in any economy, immaterial of how organised their social and political structures are. We can the draw the following set of 'Values' which govern the characteristics for an effective industrial relations system, rather than acting autonomously or in an independent fashion all values would act together so that their synergies would be interdependent and beneficial to all 'actors' involved in it:

Ø 'Ensuring uninterrupted production' - The most important benefit of an industrial relations system is that it ensures continuity of production. This ensures continuous employment for all employees' right from labourers to managers and uninterrupted income flow for all. Hassle free running of the industry ensures that several other dependent industries are not affected.

Ø 'Fairness or Equity' - Implicitly underlines the entire conduct of industrial relations where Zweig suggests that the notion of 'Fairness' is linked strongly with the best customs and traditions and the best social rules and the term 'Equity' is confused by many people by its close association with 'Equality'. However the concept of 'Equity' does not explicitly imply equality; equality is only one value or belief set that may be used to judge the existence of social fairness. Certainly there is no doubt that inequalities exist both within the society and the organisation e.g. unequal distribution of wealth, education, nature of work etc. Therefore these concepts are dynamic in nature and they keep changing according to the environment they operate in, the very nature of these concepts in to ensure a smooth relationship between the employer-employee and act as a medium for grievance & dispute handling.

Ø 'Collectivism and Individualism' - Frequently expressed value throughout a modern industrialised society is the importance given to individuals. Emphasis on viewing individuals as 'Human Beings' with aspirations, attributes and attitudes rather than a number on the clock card or a unit in the production line. 'Individualism' refers to the relationship between management and employees and 'Collectivism' involves the relationship between management and unions, it is however important to realise that the inputs of both management and trade unions into the industrial relations system has elements of both 'Individualism' and 'Collectivism'. It is this interdependence between the two that lies at the core of industrial relations. It is also important to recognise that the terms 'Individualism' and 'Collectivism' may be used to refer three distinct aspects of industrial relations. i.e.

Ø 'Rights and Responsibilities' - Rights and Responsibilities govern the various 'actors' in a well defined industrial relations system i.e. employees, management and unions. Much of law in industrial relations is not universally or even widely accepted, therefore the explicit statement of rights and responsibilities within legislation may be little more than the use of state power to impose the beliefs and expectations of one group on others. For example during the 1980's the UK government espoused the view that 'unions have a responsibility to represent the views and interests of all their members', this was the governments perception of what is called 'responsible union behaviour'. Therefore well defined rights and responsibilities along with its scope will assist the IR system efficiency in control.

Ø 'Mental revolution & High Morale' - The main objective of industrial relations is a complete mental revolution of workers and management. The industrial peace lies beneath in a transformed outlook of both. It is the business of leadership in the ranks of employees, management and government to work out a new relationship in consonance with a spirit of true democracy. Another main objective of industrial relations is to improve the morale of employees. Employees work with great enthusiasm with a feeling in mind that the interest of employees and the employer are one and the same e.g. increase production. Both these factors naturally influence production as in mental revolution the interests of both management and workers have to merge while in high morale only co-operative efforts can produce greater results. Therefore both these features have significant impact in framing a effective industrial relations system.

Ø 'Power and Authority' - The two features occupy a central position in industrial relations, particularly in respect to its collective aspects. People usually have make value perceptions about trade unions exercising too much or too little power in relation to management and government. Keeping in mind the collective nature of industrial relations it is important to realise that the concept of power has both an internal and external dimension. Without exercising power and authority the collectivity would lack direction and control. 'Authority' as per Koontz and O'Donnell is 'the right inherent in a position to utilise discretion in such a way that organisational objectives are set and achieved'. Both power and authority frame the jurisdiction inside which all features listed above are made to play their role.

Thus it is clear that good industrial relations are the basis of higher production with least costs and high profits. It also plays a role in increasing efficiency of workers. If the clone objectives of rapid national development and increased social justice are to be achieved, there must be a harmonious relationship between the management and labour which results in industrial peace.

One notable feature about all European countries after World War ?? was the kind of institutional arrangements that had developed between capital and labour. A persistent question right from empirical research concerns whether liberal competitive labour markets or organised corporatist labour markets are more efficient? In discussing the economic performance and the occurrence of industrial disputes in these different market arrangements we are going to draw comparisons' from a number of OECD countries right from the 1980's till the 20th century. We are going to concentrate on the 'Efficiency of Economy' and 'Industrial disputes' between these two economies. Testing the proposition LME's that performance increases with the degree of disorganisation i.e weak unions and low collective bargaining coverage and from this perspective LME's are predicted to be more economically efficient than more organised economies. Contradicting this is the CME's where economies are predicted to be more efficient and that performance increases with the degree of centralisation of labour relations where strong corporatist countries can be predicted to out-run LME's.

Nature of CME's and LME's:

Though the form of corporatist arrangements varied across European countries a number of distinguishing features can be identified. Firstly, the agreements that were negotiated were extensive in scope and included broad economic and social goals. The agreements were a negotiated exchange between the parties in which trade unions agreed to restrain wage militancy in cooperation with the government and employers in exchange for political intervention and influence in public policy areas of critical concern for their constituents, such as employment, social welfare and taxation (Maier 1984; Roche 1994). These arrangements primarily aid in providing a solution to improve inflation. in countries which had well developed coordinated structure, unions traded wage restraint or average wage bargaining for employment, on the contrary in LME's inflation was curtailed through restricting aggregate demand which in return had adverse effects such as high unemployment, low rates of capacity utilisation and low rates of investment and productivity growth (Cornwall Cornwall 1987). Moving further from this macroeconomic function, another central feature of CME's was the establishment of long term relationships that were broad in scope between capital, labour and the state (Henley and Tsakalotos 1993: 87). Referring to Pizzorno (1978) political exchange is where workers offer restraint in the labour market in exchange for greater influence in the political sphere that, in turn is routed to their economic and social objectives. In this regards the outcomes of CME's have been positive and substantial not only for the trade unions and its members but to the society in general. 'Corporatism' acted as an institutional mechanism modified the unequal outcomes of wealth in a free market. CME arrangements have been closely linked with extensive universal welfare systems, lower levels of inequality, lower levels of wage dispersion, higher levels of social and employment benefits, higher levels of union density and state support for union organisation at workplace level.

This when compared to LME's there is simply no efficient rationale for corporatist type institutions. In CME's wages are often set at national level which prevents any adjustments during adverse economic conditions like recession, inflation. Labour markets under CME's are also governed by employment relationship such as employment rights, unfair dismissal, health and safety, training and rights of participation. These governing principles are said to cause rigidities for employers and preventing them in adjusting to labour supply leading to inefficient allocation of the factors of production.

CME's are characterised by financial systems that allow long-term long term financing of companies, IR systems where major part is played by unions, educational training systems that encourage serious initial vocational training of young people with the help of organised business and inter-company systems that enable substantial technological standard setting cooperation to take place between companies (Thomas Turner 2006). CME's include most northern European countries like Sweden, Denmark, Norway, Finland and Germany that are traditionally associated with medium to strong level of corporatist style of industrial relations. LME's include countries such as UK, USA and Canada where there is very little market co-ordination between companies and where unions have completely ignored the state's arm. Organisations have very weak capacity for collectively organising their activities and are ineffective in having a negotiation framework, thus weakening unions at firm level and resting control with the strategic management of the organisation.

To differentiate the policy preferences of these two extreme economies in relation to 'organisations' and 'employees' we need to look at the below mentioned table where we can argue that certain institutional environments favour certain types of industrial activity.

As mentioned earlier about the two key parameters in which this comparison on effective IR system is conducted, let's now look into the 'Efficiency of Economy' between CME's and LME's. As per the latest survey results published by Eurozone in March 2009 and comparing it with figures from 2005-2008 we can draw obvious conclusions in relation to unemployment, GDP and inflation of about 27 member states in the EU and the US. We would narrow down our comparison and concentrate on four core CME nations namely Sweden, Denmark, Finland and Germany with that of two liberal market economies namely UK and US.

Comparing the growth rates especially during the slow and painful recovery of nations from the downturn, we have Finland and Germany who have managed to survive in positive figures compared to LME's which are way below. This again proves the effective influence of the IR system in CME's.

'Inflation' figures drawn in March 2008 for CME's countries like Sweden, Denmark, Finland and Germany were 3.3%, 3.6%, 3.9% and 2.8% compared with that of UK & USA ranging 3.6% and 3.8% which shows that under the present economic situation all co-ordinated market economies are faring better than liberal market nations with the exception of Finland which is still at a high of 3.9%.

Inflation figures as of March 2009

Therefore, inferring from the above listed statistical tables and graphs; we can clearly make out the effect or in other terms the efficiency and the impact which the IR system has had on the two different economies. CME's though not so stable and consistent have outnumbered LME's in three distinct yardsticks i.e. unemployment rates, GDP growth and Inflation figures which act as the medium in measuring 'Economic efficiency'.

Now moving on to the second criterion in which the 'Effectiveness' can be measured, which is 'Industrial disputes' which has affected both economies. The main motive behind choosing this aspect is because it also acts as one of the objectives embedded to the IR system, analysing which would give us a clear understanding of the impact of the system in these economies i.e. CME's and LME's. We again would be considering three features with regard to disputes such as coverage of collective bargaining, trade union density and the number of strikes in these nations. The motive behind considering these factors is that to determine the extent to which employees trust their unions and to determine the consequences if they are absent too. The below mentioned graph's is drawn to illustrate the relationship between union density with their coverage and to draw comparisons between these two economies.

Co-ordinated Market economies:

Liberal Market economies:

It is very clear from the above graphs that CME's have their union density in the upper 70 with exception to Germany with 30% but then has its coverage of 69%. Sweden, Denmark and Finland with coverage of 90%, 83% and 90% compared to LME's such as UK & USA with 29% and 14% in union density and 36% and 15% in coverage. This show that there is a effective structure in place for grievance handling for employees in CME's compared to LME's where very less grievance mechanism's are in place.

And finally is the number of strike activities which has impacted both the economies in their production and growth. The table below shows the number of working days lost due to strikes over a five year period 1996-2000 for each of the coordinated and liberal economy nation. The average is calculated mentioned in the illustrated bar graph.

Strike Activity - (1996-2000)

The above graph shows the number of working days lost though labour disputes per thousand employees over a five year period. This shows that Germany strike rate is ranked the lowest out of the compared six countries. Over the OECD two countries saw significant rise in strike activity namely Denmark and Finland. Among LME's USA experienced the highest level of strike activity followed by the UK and among CME's Germany and Sweden had their control mechanism in place to sort out differences between unions and the management. The overall picture looks healthy for the CME's excluding Denmark.

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