Comparative industrial relations

Comparative Industrial Relations Course work 1

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

Abstract: This essay first briefly outlines the definition and central features of an effective industrial relations system and then addresses the issue whether coordinated market economies (CMEs) have more or less effective IR system than that of the liberal market economies (LMEs). In order to present this argument the essay briefly outlines the features of IR system in LMEs and CMEs and then considers economic growth and conflict management systems as two critical factors to test the efficiency of an IR system in these economies. This essay argues that CMEs have more effective industrial systems than LMEs drawing material from various countries

Industrial relation is the study of the process or control over work relations according to Hyman 1975. To elaborate it is the study of all the aspects about management, individuals, group of workers at the work place and the behaviour of union organisations and employers together with the legal framework that governs the employment conditions. An industrial relations system consists of the basic laws, practices and institutions that are associated with the employer employee relationship in a country. For it to be called as an effective industrial relations system, it should cater the needs of the employer and employees and should also be compatible with the economic and social environment. According to Dunlop industrial relations system consists of three main players or he terms it as 'Actors', the management organisation, workers who are organised in formal and informal ways, government agencies who have an important role to play in the system, along with the specialised agencies who are created by these players. These players and their hierarchies are located in a particular environment which is defined in terms of technology, labour and product markets. These players interact and negotiate using their political and economic power to determine certain set of rules and regulations about the employer employee relationship and that output constitutes the industrial relations system. In relatively stable environment the understanding held by these players enables to define their roles easily. The problem arises when changes take place in several contexts and when the rules of work place are expected to change. The task of an effective industrial relation system is to understand and explain these changes of rules of work place with the help of managerial and government actors, even if the workers are devoid. The industrial relation system process can be illustrated using the diagram below,

The main objectives of an effective industrial relations system is,

  • Safeguarding the interest of labour and management by securing mutual understanding and good will among the players who contribute to the process of production.
  • Avoid industrial conflict instead develop a harmonious relationship which is essential for productivity and industrial progress of the country
  • Eliminate or minimise the number of strikes, lockouts with the system which provides reasonable wages, improved working conditions and benefits.
  • Improve the economic conditions of the state, by reducing unemployment, inflation and increasing productivity.
  • Developing proprietary interest in the workers towards the industry in which they are employed by promoting their participation.
  • Encourage and develop trade unions to improve workers strength through which their problems are solved through mutual negotiation and consultation.

Dunlop in 1958 referred the rule making in the industrial relations, which originates from different sources like legal, political, economical, social and historical context should follow the basic concepts and values for it to be effective in accomplishing the above objectives. The concepts and values are equity and fairness, power and authority, individualism and collectivism, rights and responsibilities, integrity trust and transparency which stand as the central feature of any effective industrial relations system.

Equity and fairness: Equity-"equal treatment to one and all under all comparable circumstances". Fairness-"utilisation when one goes by the majority accepts". Equality and fairness is an essential feature that determines the entire conduct of the industrial relations system. It is mostly linked to pay and dismissal in most of the cases. Many argue that there is nothing that is fair, such as Brown says that the concept is more than an ideological whitewash to just provide an appearance of rationality. Where as authors like Zwieg suggests that "idea of fairness is linked strongly to the best custom, traditions and best social rules" this raises a question of how to identify the best rules because what is considered to be the highest priority may not be the same for another. For example the employer may want to reduce the wages due to recession and it may be fair from the employer point of view but may be considered as a totally unfair activity by the workers. Thus the out come of any rule making even though it is legitimised by the nature of process it may not be considered as right of fair by the minority who have different values and expectations. Therefore equality and fairness in industrial relations simply denotes that the rules and policies should be framed to ensure equity and fairness in the employer employee relationship by also facilitating the negotiations about ongoing employee conditions by providing legal mechanisms for resolution of grievance and disputes.

Power and authority: Power is the ability to influence, impose or control whereas authority is the ability to expect and command obedience. This occupies a central position in the industrial relation system. Management, work groups, trade unions exercise power and authority on its members to accomplish its objectives. Therefore without power and authority there will be a lack of direction and control over the system of industrial relations.

Individualism and collectivism: This feature talks about the nature of relationship held by the workers, unions and management. In modern industrialised society lays much importance for individualism where rules are not just made considering people as simply a unit of factors of production. Rather there should be considerable importance given to the individual aspirations, attitudes seeing them as humans who make significant contribution to the success of the organisation. On one hand when individualism is related to management/individual relationship on the other hand collectivism is related to management/union relationship. The central concept of collectivism is collective bargaining. Collective bargaining is the method by which the terms of the employment are fixed and the grievances arising are also settled through negotiations. Thus the effectiveness of the IR system relies on the effectiveness of collective bargaining and the coverage it has.

Rights and responsibilities: An effective IR system should have well defined rights and responsibilities of the actors. The IR system sets out certain rights and obligations for the employees and employers in relation to their employment including minimum entitlements. The term rights in IR system are the degree of freedom the individual have and the exclusive rights or privileges held by the workers or management. Responsibilities are the duty and their obligations.

Integrity, trust and transparency: Effective IR system promotes transparency through sharing of information, openness in communication etc. it has to create an atmosphere where there is co operation between the labour and management where they consult and share ideas to bridge the gap between policy making and implementation. The IR system should focus on creating high trust employment relationship where management and employees have an informal give and take policy avoiding greater formalisation of control which will create a low trust atmosphere.

The IR system is expected to differ between countries based on the political, social and economic conditions of the country because each country has its own system which will suit their economy. In making comparison between the IR systems of various countries it is sometimes claimed that the system of one country is better than the other. Historically if we see there has been many countries that were considered as a model to the other country for instance during the late 19th century it was Britain, during 1970s and pre first world war it was Germany, in 1960s Sweden, US between 1945 & 1960 and Japan during 1980s. The main reason for considering a country as a model to others was highly based on the economic growth and conflict minimised conflict (due to effective conflict management system) that the countries had during the considered period. Therefore in talking about the effectiveness of an IR system it is these two factors that are to be considered to determine the effectiveness. Therefore in determining whether coordinated market economies (CMEs) have more or less effective IR systems than liberal market economies (LMEs), this paper consider the economic growth and conflict management systems as two important factors to test the efficiency of IR systems in various liberal market countries and coordinated market countries.

Industrial relations system in LMEs and CMEs: Though the features of IR system vary between nations but there are a number of characteristic features that can be identified as the basic features of IR system in CMEs and LMEs. In CMEs it is formal institutions that play a much central role in governing the economy and regulating the labour relations, wage determination is at industry level which happens through collective bargaining and unions play an important role in this and thus employees have a strong role in making decisions that are relevant to labour force, strong education and training system are present which encourages vocational training, technological transfers take place through inter company relationships and there is patient capital system to retain skilled labour force even through economic downturns. In CMEs there are substantial rules like right of participation, employment rights, unfair dismissal, redundancy arrangements, health and safety regulations etc that governs the employment relationships. Sometimes it is argued that these rules prevent CMEs from adjusting their labour supply and makes it inefficient in allocating factors of production. Financial systems in CMEs allow long term financing to the companies. The role of the state in the CMEs is to cooperate with the companies to establish a good framework in which each of the companies can operate effectively and the institutional framework in CMEs also encourage long term cooperation among the companies. Thus these features make CMEs a high-skill, high-wage and high-productivity approach where employers compete on quality and not cost. CMEs include northern European countries like Germany, Sweden, Norway, Denmark, Finland, Austria Etc. On the other hand LMEs are typical Anglo Saxon economies of US, UK, Canada, Australia, New Zealand etc. In this case the features of IR system is coordination occurs through market mechanisms, wages are set by market forces where union and employee participation is excluded progressively, employee representations are discouraged, education and training systems emphasis on only general education rather than vocational training, inter company systems impose strong competition that limits the co operation between them. In LMEs the state plays very less role and therefore the companies have a weak capacity to organise their activities collectively to negotiate their framework with the state. Financial systems in LMEs are characterised in a way that it imposes short term finances and also allows high risk taking. Traditional literature states that the end result of LMEs is lack of skills in the market and this will drive them to low-wage, low-skill and low-productivity approach to attain competitiveness.

Factor 1: Economic performance in LMEs and CMEs- Over the past years there is a central question in the literature which is concerned about whether LMEs are economically efficient or the CMEs. In testing the economic efficiency of a country we consider the basic determinants of economic efficiency like inflation, unemployment rate, productivity and social equity. The agreements negotiated in CMEs are extensive in scope and includes broad economic and social goals. The institutional arrangement in CMEs to negotiate agreements is know as corporatism. The agreements are thus associated with extensive welfare system, higher levels of social and employment benefits, lower levels of inequality and lower levels of wage dispersion. Thus the CMEs attain social equity and overcome the outcomes of LMEs in terms of unequal wealth and education. Adding to these inequalities in income is been higher in LMEs. The percentage of income inequality in CMEs like Sweden, Norway, Denmark and Finland was on an average of 23.2% during the 1990s whereas among the LMEs like Canada, Australia, UK, US the percentage of income inequality was on an average 31.1%. On the other hand the gross public expenditure spent on social protection in CMEs is higher than that of the LMEs. for instance among Sweden, Norway, Denmark and Finland it was 36.6% of GDP on an average during the 1990s. Whereas in Canada, Australia, UK and US it was only 21% of GDP on an average, that was spent on social protection. In CMEs trade unions negotiate and agree to restrain wages in exchange of social welfare, employment and taxation. Thus during the 1970s and early 1980s when inflation hit almost all the OECD countries CMEs provided employment restraining wages where as LMEs controlled inflation through restricting aggregate demand which in turn led to high unemployment and low productivity. Thus on an economic perspective CMEs can be viewed as a solution to reduce inflation or unemployment. However there was a considerable change in the IR systems in CMEs in the 1990s aiming at setting up agreements based on attaining greater flexibility in labour market to meet the demands of the competition. But still the impact on social equity and inflation remained the same. Many commentators have argued that CMEs institutional arrangement are better or the least bad solution for the partners during economic hard times.

Let's consider the evidence from previous studies to illustrate that states that CMEs have outperformed LMEs in curtailing inflation, reducing unemployment and increasing productivity. Crepaz 1992 , Dell Aringa and Lodovici 1990 and Kitschelt et al 1999 analysed the period of 1980 to 1989 and found that CMEs had lowest unemployment rates during that period, increasing corporatism controlled inflation and unemployment and also CMEs had higher economic growth than LMEs. The following data has been drawn from the recent studies conducted to analyse the period of 1990 to 1999,

The recent data during 1990s show that the CMEs have had lower unemployment rates than the LMEs. CMEs like Sweden and Norway the rate of unemployment was 6.4% and 4.9% respectively where as LMEs like UK and Canada the rate of unemployment was 7.9% and 9.6% respectively. The productivity rate has also been 1.7% and 1.9% for Sweden and Norway where as in UK and Canada it was only 1.2% and 0.7% respectively. But there has not been much difference in the GDP rates considerably. Thus the recent data suggest that CMEs still have control over unemployment and productivity but considering the GDP it shows that the CMEs no longer out perform LMEs but it is still difficult to say to what extent this trend is likely to continue because these trends are cyclic in nature. Some cases it s considered that the LMEs are able to keep their GDP rates high at the cost of inflation and also due to low public spending.

Factor 2: Conflict management- The second factor used to test the effectiveness of IR system in the CMEs and LMEs is the ability to resolve inevitable conflict of employment relations protecting the individual rights of the employers and employees because the critical function of the IR system is to establish procedures and process for addressing the problems that arise between employees and employers. When ability to solve issues is one side of the conflict management system to test effectiveness of IR, on the other side the volume of industrial disputes taken place are also systematically related to the performance of an industrial relations system. High degree of conflict between the management and labour is associated to low efficiency and poor quality thus results in poor performance of organisation and IR system. Low degree of conflict between the management and labour is associated to higher efficiency of the IR system. The data from previous studies indicates that CMEs have higher union density and collective bargaining coverage than that of the LMEs, which is an essential feature to settle industrial disputes. Therefore CMEs are expected to have better conflict management policies and procedures than that of the LMEs. For example in 2000 the union density in CMEs like Germany, Sweden and Austria were 30%, 79%, and 40% respectively where as in LMEs like UK and US had only 20% and 14%. The CMEs have effective collective bargaining system than the LMEs because the coverage of collective bargaining system is high in CMEs. Most of the CMEs have more than 80% collective bargaining coverage except Germany with 60% and above whereas LMEs like US the coverage of collective bargaining remained several times lower than this ranging between 12-15%. Another measure used to test the efficiency of IR system is the number of industrial disputes that has arisen. The number of strikes and lockouts has been more in LMEs than the CMEs with the only exception being France. For instance the number of strikes and lockouts in Germany has continuously been low and in Sweden it has ranged between 20 to 2 strikes per year during the last decade. Whereas in US it ranged between 39-14 strikes and in UK it ranged between 226-138 strikes per year during the last decade. Thus the evidence suggest that IR systems in CMEs have performed better in settling disputes and also has constantly kept the number of disputes minimal or less than that of the LMEs.

Therefore in the argument whether CMEs have more or less effective IR systems than LMEs it is essential to compare the concepts and values essential for effective IR system as stated early in the paper to that of the values of IR system in CMEs and LMEs. CMEs tend to have most of those central features. For instance there is equity and fairness in terms of wage determination and dispute settlements. There is individualism and collectivism in the CMEs because employees participation in decision making is encouraged and the unions play an important role in the negotiation process. In CMEs there is long term commitment to the workforce, since they are retained even during economic downturns which in turn build up employee integrity and trust, thus the employees start trusting the management and are likely to accept when changes are implemented and thus minimises conflicts. Thus CMEs have most of the central features of an effective IR system in place than that of the LMEs.

Thus to conclude it is evident that in terms of economic performance till 1980s CMEs have had better GDP growth, lower unemployment and increased productivity than LMEs. And during the 1990s however there was not much difference is the GDP growth between the economies but still the CMEs had lower unemployment rates and better productivity. In terms of conflict management CMEs have better means for conflict resolution as the trade union density and the collective bargaining coverage is more than the LMEs and more over the number of disputes has also been very less in CMEs compared to LMEs. Therefore the more the social partners are coordinated, they are more likely to arrive at workable solutions to which all parties are committed and thus reduces conflicts among them. On conceptual basis also CMEs have most of the features that defines an effective industrial relations system as stated in the literature. Thus CMEs have more effective system of industrial relations than LMEs.

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