Labour Relations in a Changing Environment: A Publication of the International Industrial Relations Association 9783110857788, 9783110126044

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Labour Relations in a Changing Environment Editors: Gladstone, with Wheeler, Rojot, Eyraud, Ben-Israel

Labour Relations in a Changing Environment Edited by Alan Gladstone, with Hoyt Wheeler, Jacques Rojot, Frangois Eyraud and Ruth Ben-Israel A Publication of the International Industrial Relations Association

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G Walter de Gruyter · Berlin · N e w York 1992

Alan Gladstone is Secretary of the International Industrial Relations Association in Geneva, Switzerland Hoyt Wheeler is Professor of Business Administration at the University of South Carolina, College of Business Administration, Columbia, U.S.A. Jacques Rojot is Professor of Management at the University of Paris I (Sorbonne) Franfois Eyraud is Senior Specialist at the Renumeration Section, International Labour Office, Geneva, Switzerland Ruth Ben-Israel is Professor at the Faculty of Law, University of Tel Aviv in Tel Aviv, Israel With 11 figures and 33 tables © Printed on acid-free paper which falls within the guidelines of the ANSI to ensure permanence and durability

Library of Congress Cataloging-in-Publication

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Labour relations in a changing environment / edited by Alan Gladstone with Hoyt Wheeler ... fet al.]. p. cm. "A publication of the International Industrial Relations Association." Includes bibliographical references and index. ISBN 3-11-012604-4 (alk. paper) 1. Industrial relations. 2. Labor market. I. Gladstone, Alan, II. Wheeler, Hoyt N. HD6971.L323 1991 331 — dc20 91-38031 CIP

Die Deutsche Bibliothek

— Cataloging-in-Publication

Data

Labour relations in a changing environment : a publication of the International Industrial Relations Association / ed. by Alan Gladstone ... — Berlin ; New York : de Gruyter, 1992 ISBN 3-11-012604-4 NE: Gladstone, Alan [Hrsg.]; International Industrial Relations Association

© Copyright 1991 by Walter de Gruyter & Co., D-1000 Berlin 30. All rights reserved, including those of translation into foreign languages. No part of this book may be reproduced in any form — by photoprint, microfilm, or any other means nor transmitted nor translated into a machine language without written permission from the publisher. — Printed in Germany. Typesetting: Arthur Collignon GmbH, Berlin. — Printing: Gerike GmbH, Berlin. — Binding: D. Mikolai, Berlin. — Cover Design: Johannes Rother, Berlin.

Preface

The essays in this volume cover some of the most critical questions in industrial relations today. Each of the chapters represents a theme that was discussed at the Eighth World Congress of the International Industrial Relations Association (IIRA), which was held in Brussels in September 1989. The essays, most of which were originally prepared for the Congress, have been revised and in most cases updated. The group of essays on each theme is preceded by an introduction which seeks to analyse the various issues in that particular theme, present a synthesis of the essays and draw certain conclusions or findings. The volume draws heavily on the experience of the World Congress. However, it should not be considered as a "conference volume" but rather as an independent and interrelated collection of essays which hopefully will contribute to an understanding of the forces at play in, and foster further discussion of, the changing environment of industrial relations and its implications for the future of industrial relations systems. While the bulk of the material is drawn from the experience of the industrialised market economies, analyses are not without relevance to developing countries. And these analyses could be of particular value to those countries moving towards a market economy and concerned with reforming their industrial relations in a manner consistent with such politico-economic transformation. I must acknowledge the debt that both I and the IIRA owe to the International Labour Office for its cooperation in supporting the Association and in providing an infrastructure that made it possible to prepare this volume. My thanks also to my co-editors, Hoyt Wheeler, Jacques Rojot, Francois Eyraud and Ruth Ben-Israel, for their intellectual contribution to this venture. I particularly wish to thank our IIRA administrative secretary, Kate Mennie, an ILO official, for her invaluable and gracious help in preparing the manuscript. Thanks also to Bianka Ralle, our senior editor at de Gruyter for her patience and help.

Alan Gladstone Geneva, May 1991

Table of Contents

Contributors

Introductory Alan Gladstone

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Chapter I Labour Market Flexibility and New Employment Patterns Introduction Hoyt N. Wheeler The Economic Perspective on Flexibility and New Patterns — An Industrial Relations Framework — The Essays on Labour Market Flexibility and New Patterns — Conclusions

17

Developments of Working-Time Patterns and Flexibility Tiziano Treu The Factors Impacting on Working-Time Flexibility — The Sources of Regulation: Statutory Law — The Techniques of Flexibilitation — The Promotional Role of Legislation — Controlled Flexibility — The Role of Collective Bargaining: Centralisation and Decentralisation — Guide-Lines and Typologies of Working-Time Arrangement — Perspectives

33

Flexibility and Contracts of Employment: Western Europe Antonio Ojeda Aviles Basic Concepts — The New Forms of Contract — Contracts of Employment and Collective Bargaining in Europe: "Half-Mandatory" Regulations

45

Have Pay Systems Become More Flexible in Western Europe in the 1980s? . David Marsden Introduction — Recent Management and Government Initiatives on Pay Policies — The composition of Earnings — Conclusion

57

Job Flexibility: International Comparisons and Research Propositions Greg J. Bamber Critics of Fragmented Work Organisation — Unions and Work Organisation — New Technologies — Britain — Australia — Conclusions

75

Job Protection and Flexibility in Western Europe Willem Dercksen Introduction — Job Protection and the Trade-Off Between Flexibility and Unemployment — Job Protection in European Countries — Recent Developments in the Dutch System of Job Protection — The Impact of the Internal European Market — Conclusions

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Labour Market Flexibility in Japan Ill Kazutoshi Koshiro Introduction — Historical Background — Declining Union Density — Method of Wage-Fixing and Wage Flexibility — Employment Security and New Employment Patterns — New Employment Patterns — Managerial Flexibility — Future Problems Labour Market Flexibility: The U S Case in a Comparative Framework . . . . 133 Everett M. Kassalow The US Labour Market Performance — The Industrial Relations Response to the Adjustment Process Labour Market Flexibility in the U S S R 159 Hans-Erich Gramatzki Introductory Remarks — Employment in Centrally Planned Economies — Soviet Employment Patterns and Problems — Labour Market Flexibility — Prospects for the Development of Employment

Chapter II Structural Change and Industrial Relations Strategies

Introduction Jacques Rojot

173

A Comparative View of United States and Canadian Industrial Relations: A Strategic Choice Perspective 187 Thomas A. Kochan and Anil Verma The Strategic Choice Model — Environmental Trends and Their Effects — Union and Management Responses — Implications for the Future Structural Change and Industrial Relations: The United Kingdom 203 P. B. Beaumont Introduction — The Three-Tier Intra-Organisational Perspective — The Non-Union Sector in Britain — The Role of Human Resource Management Systems — Following the US Path? - Conclusion Structural Change and Industrial Relations: Australia 215 John Niland and Keri Spooner Introduction — Activities of the Top Tier — Activities of the Upper Middle Tier — Activities of the Lower Middle Tier — Activities of the Bottom Tier — Conclusion Structural Change and Industrial Relations: Japan 233 Haruo Shimada Introduction — The Changing Foreign and Domestic Situation and Industrial Relations — Industrial Culture in the Industrial Relations of Japan — Constraints and Possibilities of Industrial Culture Structural Change and Industrial Relations: The Federal Republic of Germany 243 Manfred Weiss

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T h e C o m i n g Divergence in D u t c h I n d u s t r i a l R e l a t i o n s 251 Jelle Visser The Economic Constraints of the 1980s — Unemployment and Growth — The Political Turn to Austerity — Liberating the Private Sector — The End of Redistributive Bargaining — A Shift in the Power Triangle — The Stability of Collective Bargaining — The Decline of National Concertation — Consultation Within Firms — Terra Nuova: More in Smaller Circles — The Mainland: Less of the Same — The Commons: Less Cosy but Still Top-Down

Chapter III Aspirations and Expectations of a New Labour Force and Implications for Industrial Relations

Introduction

267

Frangois Eyraud The Difficulty of Assessing the Future of Industrial Relations — Asserting the Central Role of the Actors in the Process of Change — The Situation of Women Workers — New and Traditional Patterns of Migration — The Changing Structure of the Labour Force — The Break-Up of Working Relationships — The Future of Trade Unions — Conclusion: Process of Change and Institutional Arrangements Collective B a r g a i n i n g a n d E c o n o m i c C h a n g e 277 Frangois Eyraud Collective Bargaining: A Substitute for the Market — Collective Bargaining and Economic Constraints: A Presentation of the Functionalist Logic — Trade Union Strategy Changes Over Time — ... and from Country to Country — The Consequences for Current Analysis of Changes in the Collective Bargaining Process L a b o u r Law and the New L a b o u r Force 287 Bob Hepple Introduction — The Deregulation Model — The Juridification Model — Subordination, Collaboration and the Contract of Employment C h a n g e s in L a b o r R e l a t i o n s a n d t h e N e w L a b o r F o r c e in U.S. P r o d u c t i v e Systems 297 Charles Craypo Increased Competition and Industry Responses — Uneven Growth, Unions and Collective Bargaining — Labor Markets and the Social and Political Environment — International Comparison — Summary and Analysis I m p l i c a t i o n s f o r I n d u s t r i a l R e l a t i o n s of t h e N e w L a b o u r F o r c e in Israel . . . . Amira Galin Israel and its Labour Force: Some Background — The New Labour Force in Israel — Young People — Women — Immigrants — Possible Implications for Israeli Industrial Relations — Concluding Remark

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White Collar and Human Resource Management: A Study of Computer Software Workers in Japan 319 Michio Nitta Background and Framework — Career Expectations and Career Patterns — Wage Profile for Software Engineers/Technicians — The Patterns of H R M Systems for Software Workers — Conclusion The Aspirations of Building Workers in Quebec 329 Jean Sexton The Building Industry in Quebec and its System of Labour Relations — The Job Security Experiment — Some Lessons in Industrial Relations Aspirations and Expectations of Migrants 335 Peter Brosnan Introduction — Migration and Colonialism — Restriction of Migrant Numbers — Migrants as a Reserve Army — The Structuring of the Labour Market — Adaptation of Migrants — Implications for Industrial Relations — Conclusion

Chapter IV Equity and Equality of Treatment in Employment Introduction 349 Ruth Ben-Israel Labour and the Striving for Equality — The Notion — The Duality of the Occupational Equality Concept — Grounds for Prohibited Discrimination — Field of Application — Procedural Remedies and Burden of Proof — Affirmative Action — Equal Pay — Parental Rights — Outlook for the Future International Labour Standards: The Case of Equal Pay — ILO Perspective 367 Werner K. Blenk and Jacqueline Ancel-Lenners Introduction — Basic Elements of the International Labour Standards of Equal Pay — The Role of Governments, Employers and Workers in the Application of Equal Pay — International Supervisory Machinery and Methods of Application — Tools for the Implementation of Equal Pay — Effectiveness and Application of Equal Pay — In Lieu of Conclusions International Labour Standards: The Case of Equal Pay — European Community Perspective 383 Eve C. Landau Introduction — The Scope and Basic Elements of the Equal Pay Principle — General Overview of Implementation of Community Law in the Member States and its Effectiveness — Problems and Prospects Affirmative Action, Employment Equity and Visible Minorities in Canada . . 399 Harish C. Jain Employment Equity in Canada: An Overview — Employment Equity Act — Federal Contractors' Programme — Affirmative Action in the Federal Public Service — Affirmative Action Programmes Across Canada — Effectiveness of the Employment Equity Legislation — Conclusions

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From Equal Pay to Equal Value in Australia: Myth or Reality? 413 Jane Stackpool Moore The Historical Background for the Legal Guarantee of Equal Pay — The Quest for Equal Pay: State Initiatives — Equal Pay in the Federal Jurisdication — The Male/ Female Work Differential — The Supervision and Enforcement of Equal Pay — Conclusions Occupational Equality in France: H o w Effective is the Law? 429 Claude Piganiol The Real Disparities — The History of Regulation — Occupational Equality in the Civil Service — Equality of Pay Under the Labour Code — The Actual Scope of the Approaches to Inequality of Treatment — Conclusion Equal Pay and Equal Opportunity Issues in Japan Hiromasa Suzuki General Background — Equality of Treatment

441

Parental Rights and Employment Flexibility in Sweden 451 Elisabet Näsman and Eva Falkenberg Introduction — The Present Regulation of the Parenthood-Working Life Interface — What are the Prospects for the Future? Parental Rights and Employment Flexibility in the Netherlands 465 Helen M. Hootsmans Introduction — Prohibition of Discrimination on the Ground of Marital Status and Parenthood — Maternal or Parental Rights — Flexibility in Employment — National Policy and Initiatives — Two-Career Partnership Epilogue Labour Relations in a Changing Environment: A General Overview Roger Blanpain

481

The Ford Motor Case. The UK and Beyond — Industrial Relations Features Subject Index

491

N a m e Index

497

Contributors

Introductory Alan Gladstone is Secretary of the International Industrial Relations Association and former Director of the Industrial Relations and Labour Administration Department of the International Labour Organisation, Geneva, Switzerland. Chapter I Hoyt Wheeler is a Professor of Management and Industrial Relations at the University of South Carolina, College of Business Administration, Columbia, USA Tiziano Treu is a Professor of Labour Law at the Universitä Cattolica di Milano, Milan, Italy Antonio Ojeda Aviles is a Professor of Labour Law at the Universidad de Sevilla, Faculty of Law, Seville, Spain David Marsden is a Lecturer in Industrial Relations at the London School of Economics and Political Science, London, United Kingdom Greg Bamber is a Professor at the Graduate School of Management, University of Queensland, Brisbane, Australia Willem Dercksen is a labour relations and labour economics specialist at the Scientific Council for Government Policy, The Hague, Netherlands Kazutoshi Koshiro is a Professor at the Faculty of Economics, Yokohama National University, Yokohama, Japan Everett Kassalow is a Professor at the University of the District of Columbia, Labor Studies Center, Washington, USA Hans-Erich Gramatzki is a Professor in the Department of Economics at the Osteuropa Institut, Freie Universität Berlin, Berlin, Germany Chapter II Jacques Rojot is a Professor of Management at the University of Paris I (Sorbonne), Paris, France Thomas Kochan is a Professor of Industrial Relations at the Massachusetts Institute of Technology, Sloan School of Management, Cambridge, USA Anil Verma is a Professor at the Centre for Industrial Relations, Faculty of Management, University of Toronto, Toronto, Canada Phillip B. Beaumont is a Professor in the Department of Social and Economic Research, University of Glasgow, Glasgow, United Kingdom John Niland is Dean of the Faculty of Commerce and Economics, The University of New South Wales, Kensington, Australia Keri Spooner is a Senior Lecturer in Industrial Relations at the University of Technology, Sydney, Australia Haruo Shimada is a Professor at the Department of Economics, Keio University, Tokyo, Japan and Senior Researcher at The Japan Institute of Labour, Tokyo, Japan

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Contributors

Manfred Weiss is a Professor at the Faculty of Labour Law, J. W. Goethe-Universität, Institut für Arbeits-, Wirtschafts- und Zivilrecht, Frankfurt am Main, Germany Jelle Visser is a Professor at the Sociology of Organizations Research Unit, Universiteit van Amsterdam, Amsterdam, Netherlands Chapter 3 Francois Eyraud is a senior specialist with the Remuneration Section, Labour Law and Labour Relations Branch, International Labour Office, Geneva, Switzerland Bob Hepple is Dean and Head of Department at the Faculty of Laws, University College London, London, United Kingdom Charles Craypo is a Professor of Economics with a Chair in the Department of Economics at the University of Notre Dame, South Bend, USA Amira Galin is a Professor of the Organizational Behaviour Department at Tel Aviv University, Faculty of Management, Tel Aviv, Israel Michio Nitta is a Professor at Musashi University, Tokyo, Japan Jean Sexton is a Professor of Labour Relations at the Departement des relations industrielles, Universite Laval, Quebec, Canada Peter Brosnan is a Senior Lecturer at the Industrial Relations Centre, Victoria University of Wellington, Wellington, New Zealand Chapter 4 Ruth Ben-Israel is Dean and Professor of Law at the Faculty of Law, University of Tel Aviv, Tel Aviv, Israel Werner Blenk is a senior specialist with the Labour Management Relations Section, Labour Law and Labour Relations Branch, International Labour Office, Geneva, Switzerland Jacqueline Ancel-Lenners is a senior specialist with the Application of Standards Branch, International Labour Office, Geneva, Switzerland Eve C. Landau is a Professor of Comparative Law and European Law, formerly of the Universities of Luxembourg, Geneva and Jerusalem Harish Jain is a Professor of Personnel and Industrial Relations at McMaster University, Faculty of Business, Hamilton, Canada Jane Stackpool Moore is a Consultant with Manager Precedents, Pymble, Australia Claude Piganiol-Jacquet has a Chair in Administration and Personnel Management at the Conservatoire National des Arts et Metiers, Paris, France Hiromasa Suzuki is an Associate Professor of Economics at Waseda University, Tokyo,Japan Elisabet Näsman is a Researcher at the Arbetslivscentrum (Swedish Centre for Working Life), Stockholm, Sweden Eva Falkenberg is a Researcher at the Arbetslivscentrum (Swedish Centre for Working Life), Stockholm, Sweden Helen M. Hootsmans is Director of the Partners and Life/Career Planning Project, Amersfoort, Netherlands Roger Blanpain is Director of the Institute for Labour Relations, Katholieke Universiteit Leuven, Leuven, Belgium

Introductory Alan

Gladstone

It is not news to students and practitioners of industrial relations that industrial relations systems and the environments in which they operate exercise a reciprocal impact on each other. Of late, the political and socio-political environment offers a striking example. One has only to look at the political and economic transformations in the countries of Eastern and Central Europe, as well as the Soviet Union itself, or to a number of Latin American countries, to recognise that democratisation and, in the case of the former group, the beginnings of a transition to a market economy, provoke a complete overhaul of the industrial relations system. There is movement towards free trade unionism, towards genuine collective bargaining and to decentralised and carefully considered dispute resolution procedures. At the same time often spontaneous changes in industrial relations such as unofficial strikes, bargaining and sometimes illegal independent trade unions and other phenomena incite and are a precursor to greater or lesser changes in the political environment. On a completely different level, more than a decade of Margaret Thatcher's government in Great Britain has wrought, through legislative fiat based upon clear political options, a marked change in industrial relations, all the consequences of which are not yet entirely apparent. In any event, starting from a relatively voluntaristic system, we have seen the adoption and application of numerous laws and regulations setting ground rules for the internal conduct of trade unions, as well as for their interaction, particularly as regards disputes, with employers. More generally as regards industrialised market economies, the changing socioeconomic environment is impacting in significant and often crucial ways on traditional industrial relations and particularly on the influence and role of trade unions, on the extent and scope of collective bargaining, and on the nature and intensity of labour disputes. The socio-economic and related influences, both of a conjunctural and more structural nature, have been much commented on in the industrial relations and economics literature. Among other things, the obstinate recessionary tendencies which persist in many of the industrialised market economies, the industrial restructuring which has changed the nature and extent of activities and balance of employment both within industry and as between the industrial and service sectors as well, and the rapid advent of advanced technology, are elements which have affected the size and occupational requirements of the workforce. More particularly, the impact of these developments has been felt by the trade union movement both directly and indirectly in terms of both degree of penetration, or numerical strength, and real influence. Persistent high unemployment, and particularly that deriving from the compression or shut-down of major industry groups, has diminished the pool from which trade union membership can be readily drawn. Moreover, the job insecurity felt by

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workers in the contracting sectors, coupled with the threat to their jobs perceived by them to be posed by ever-increasing technological change has, in the view of many commentators, resulted in membership decrease or, at least, in a decrease in member militancy. The shift to a services dominated economy — at least in terms of numbers of workers — which has accompanied industrial restructuring has also meant an increase in job categories which, in a number of industrialised market economies, have traditionally presented difficulties for trade union organisation. This is particularly the case in view of the increase in the number of women in the workforce — not unrelated to the burgeoning of the tertiary sector — as women similarly present problems for trade union organisation in some of the countries concerned. Add to this the changing characteristics of a new generation of workers — more educated and thought to be more independent-minded — and the problems for trade unions to maintain their strength and influence are compounded. Many employers in the countries concerned, often citing the need to meet intense competition both nationally and internationally, have been in a position to profit from the fact that trade unions are on the defensive and thus to introduce changes in conditions of work and in work organisation which would not have been easily realisable in the past in the face of strong union opposition or reluctance. And some employers have tried and others have been able to stifle the voice of trade unions in moving from collective industrial relations to an individualisation of the labour relationship. At the same time, and certainly not unrelatedly, there seems to have developed a less contentious atmosphere of industrial relations. The statistics on industrial disputes demonstrate a clear downward trend over the last decade and more and more schemes of labour-management (both union-management and employeemanagement) cooperation have emerged. Whether these changes in the atmosphere of industrial relations result from a common acceptance of the need for greater cooperation in an increasingly competitive world, or a certain relative weakness on the part of trade unions, is certainly debatable. I would suggest that both factors have come into play. What remains to be seen is whether or not a recognised trend towards greater labour-management cooperation will be sustainable over the longer term, and particularly when economic recovery and growth in industrialised market economies is more solidly implanted. Socio-economic change — the "changing environment" in the title of this volume — is, as has been suggested in the preceding discussion, changing the contours of industrial relations in industrialised market economies. A number of these macro and meso phenomena and their impact on industrial relations are covered in the following essays under four headings: labour market flexibility and new employment patterns; structural change (industrial restructuring); aspirations and expectations of a new labour force; and equity and equality of treatment in employment.

Labour Market Flexibility and New Employment Patterns The term "labour market flexibility", although much discussed, has never been very well defined, nor has the concept itself been very well circumscribed. There are however a number of recognised aspects or characteristics associated with the

Introductory

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concept. These include so-called numerical flexibility, meaning the possibility for the enterprise to adjust rapidly the size of the workforce — i.e. to dismiss or lay off workers — in response to business considerations. Working time flexibility refers to both the faculty of making adjustments in total working time for a given period and the possibility of arranging working time within given periods without necessarily curtailing or extending such working time. Wage flexibility refers to adapting wages to changing market conditions. Functional flexibility refers to job or task mobility within the enterprise (internal mobility). Another type of mobility associated with the flexibility debate is geographical mobility (external mobility). Finally it should be noted that certain elements of flexibility give rise to more vehement controversy than others. For example numerical and wage flexibility (or the lack thereof) is normally more contentious than working time flexibility, and functional flexibility is often quite a bit more challenged than the enhancement of geographical mobility. As with all elements of flexibility, the other side of the coin, and that which flexibility is supposed to remedy, is a certain perceived rigidity in the internal or external labour market. In the case of numerical flexibility, that "rigidity" would be various rules or regulations stemming from legislation or collective agreements which in one way or another restrict the employer in dismissing or laying off employees when he deems that economic considerations necessitate such action. Employers insist on the need to make such adjustments in the size of the workforce — rapidly and without undue administrative obstacles, and certainly without a need for prior administrative authorisation. Trade unions argue just as vehemently that legislative or bargained job or employment security and protection against possible arbitrary dismissal is a hard-won social benefit that they are not ready to give up. Unions and others further argue that job security leads to better morale and motivation on the part of workers. There is also the argument advanced by certain employers as well as some public officials that removing at least certain legislated or contractual restrictions on the freedom of employers to dismiss or lay-off would have a positive effect on employment globally. Those advancing this argument maintain that employers would be more inclined to recruit new workers if they knew that they would not have to retain those workers when they were no longer needed. This would imply less use of overtime or temporary work on the one hand and, on the other hand, less use of contracting out, or other forms of "non-conventional" employment. Wheeler sees the evidence that this is the case quite problematical and this is buttressed by somewhat tentative conclusions reached by the OECD secretariat1 as well as by the OECD report prepared by the Dahrendorf "high-level group of experts".2 Wheeler concludes that effective, active labour market policies can, in affording "employment" security, more than make up for weak "job" protection. The contentiousness surrounding numerical flexibility is far less pronounced as regards working time. In particular the arrangement of working time includes some bold new approaches which can operate to the immediate or longer term advantage of both manager and employee by providing flexibility for all concerned. Of course when this flexibility involves a net reduction in worktime and consequent loss of income, employees, and more so their unions, will in most cases react negatively. But even when there is no net loss in income, flexible working time whether it be

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on a daily or annual basis often involves a personalisation of worktime that, in the view of some, as pointed out by Wheeler, can serve as a challenge to the essentially collective nature of labour relations which is at the heart of trade union ideology. Moreover, even when there is no quarrel on the principle of flexible working time, for example where it is collectively bargained, controversy between various employee or union membership groups can be a source of labour relations difficulties for both employers and unions. An example is the well known difference in preferences between men and women workers, the former often preferring a shorter work week, the latter a shorter work day. These different preferences cannot always all be satisfied in the bulk of work situations. In any event it is clear that through legislative revision and collective bargaining, many perceived rigidities impeding worktime flexibility have been removed. This is for example evident in recent legislative changes regarding reference periods for calculating maximum hours or the application of overtime rates. The push for increased wage and labour cost flexibility is largely based on the claim that wage rates are not sufficiently responsive to product and labour market changes or, more generally, to the changing economic situation of enterprises. Increased flexibility in this domain is reflected in the appearance in the last decade or so (in addition to forms of concession bargaining) of the ebbing of indexation, or at least of automatic or full cost of living adjustments, and efforts to relate pay more directly to group or individual performance or results (among other things through various forms of profit-sharing and productivity schemes). Non-wage labour costs have also been the subject of discussion and contention. In particular social charges mandated by legislation (social security contributions, obligatory employer financed insurance schemes, redundancy payments, vacation and holiday pay, etc.) have in fact been eased in certain countries. In all of these moves there has been resistance by trade unions who often see wage flexibility as employers scheming to increase profits at the expense of the workers or as yet another threat in the name of "flexibility" to rights won through social struggle over the decades. Moreover many unions have been traditionally opposed to payment by results and profit-sharing as being mechanisms which are exploitative and over which they, the unions, have little control. Indeed, as alluded to by Wheeler, the essays in this chapter show that linking pay to group or individual performance, productivity and/or profit, along with increasing skill differentials (which is not antithetical to functional flexibility discussed later) have been two of the principal developments in the area of wage flexibility in recent years. Add to this an increase in the extent and depth of merit pay and the trade unions' perceived problems become even more troublesome. But looking at the global picture in industrialised market economy countries, Wheeler's essay finds, and this may offer those trade unions which are concerned some solace, that internal and institutional factors — seniority, government policies, trade union positions — remain relevant influences which limit unbridled wage flexibility. As far as functional flexibility is concerned, employers see undue limitations on the number, variety or type of tasks a worker can perform, i. e. rigidities in the utilisation of manpower within the enterprise. These rigidities come about either through restrictive work rules contained in collective agreements, in union rules or simply owing to long-standing traditions. Flexibility in this regard implies such

Introductory

5

practices as multi-skilling and broad-banding; in essence allowing a given worker to perform more tasks. This is frequently reflected in dramatic reductions in the number of job categories or classifications extant in the enterprise. Trade unions have tended to look askance at "flexible" job functions in the enterprise and more generally the breaking down of long-established job barriers which they consider can mean more intensive work, speed-ups, and a collapse of job classification and payment systems. On the other hand many workers (and some unions) appear to be rather positive to greater functional flexibility where it involves a significant programme of training and retraining to equip workers with new and expanded skills. Indeed unions in Great Britain and the United States, where job demarcation has traditionally been jealously guarded by them, have been willing to negotiate on these issues. In Great Britain one can go back to the so-called productivity agreements initiated in the 1960s where wage and other benefits were traded for relaxation of restrictive work rules and practices, including those associated with job categories. In the United States the Saturn (General Motors) and N U M M I Motors (GM and Toyota) agreements have enlarged job content and increased job mobility to the extent that the number of job classifications and categories are a very small fraction of those extant in traditional plants. Trade union acquiescence or cooperation in what seems to be an inevitable trend does not, however, necessarily vitiate their concern and that of the workers, that, if carried too far, functional flexibility can, as pointed out by Wheeler, lead to greater stress on the job and exploitation by the employer. Finally, mention may be made of mobility — both internal and external — as an element of flexibility. Internal mobility is of course directly related to functional flexibility in that it refers to the ease with which workers can shift from task to task or job to job. External or geographical mobility is certainly a less contentious issue in labour relations insofar as it refers to the ease with which workers may shift from enterprise to enterprise or from locality to locality. Unions, and many employers, have generally supported measures aimed at increasing geographical mobility (such as pension portability and removal allocations) which can contribute to a more balanced labour market. Partially as a result of the perceived inability to "flexibilise" job and employment security arrangements, as well as wages and labour costs, recourse is increasingly had to various forms of employment or work relationships such as fixed term, temporary or casual and part time work, as well as home work and contracting out. These practices often can contribute to allowing workers themselves to arrange their working life in a manner that better concords with their personal preferences and non-work obligations. Nevertheless, the trade unions take a dim view of the increase in "non-conventional" forms of work relationships. They have an obvious impact on union membership and perhaps more importantly, are susceptible of greater abuse than conventional full-time "dependent" employment. One important factor to be noted is the link between "conventional" employment and unemployment compensation and health insurance, eligibility for both being compromised in certain countries such as the United States when the worker is not working full time and on a permanent basis. Entry into non-conventional employment in such countries can mean loss of possible benefits in the absence of public health insurance

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schemes; prohibitive cost of medical care can make of otherwise desirable nonconventional employment a near intolerable financial burden. In any event, Wheeler points out, many of the legislative restrictions and disabilities associated with nonconventional work relations have been lifted in the common rush to greater flexibility; this in the hopes of both raising employment levels generally and affording more freedom to enterprises in the realm of recruitment and wages. Wheeler, drawing on the essays in chapter I, also points out that the trend to easing restrictions on non-conventional employment relationships is aimed at facilitating employment schemes for certain vulnerable groups (for example training wages for younger or first-job workers or special conditions for limited work for older workers). As indicated by Wheeler, in the final analysis, and given the good faith of the parties, the flexibility debate is one expressly or implicitly centring on efficiency versus equity. In an ideal situation, reconciling these two virtues should not be too difficult once the issue is shorn of its rhetoric and polemics. However we do not yet seem to be at that stage (although many trade union leaders now accept to a certain degree the need for flexibility in given areas but, of course, insist that such flexibility must be negotiated). But we have definitely reached the stage that a significant degree of increased flexibility, if not always agreement on it, is now a reality in most industrialised market economies. To what extent this is or is not turning back the social calendar and vitiating our societies' social achievements is a question yet to be answered.

Structural Change As alluded to earlier, structural change implies a number of different but often related phenomena that have taken place, essentially in the industrialised market economies, but including at least certain of the newly-industrialising countries of Southeast Asia (the emphasis in chapter II being however on the former group of countries). Rojot, in his introduction to the chapter, identifies the following as structural changes (some of which are interlinked or interdependent): greater international competition (stemming inter alia from the emergence of newly industrialising countries; the growth and territorial expansion, and hence a new role, of transnational enterprises; the shortening of product life cycles); increased differentiation within product markets; greater importance attached by consumers to quality and innovation in products and services; volatile exchange rates and, relatedly, raw material (e. g. oil) costs; growth of the service sector; the dramatic advances in technology and, in particular, information technology; and the demographics of the workforce. Regional economic integration and in particular the strengthening of the European Communities may also be cited as a factor of — or impacting on — structural change. These phenomena have been accompanied, in varying degrees and with varying causal relationships, by high — and frequently chronically high — unemployment, pressures for increased labour productivity, a drop in or at least a stabilisation of labour costs, a certain rationalisation of production, the restructuring or closing

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down of non-competitive industries, and, as is evident from the preceding section, a call for greater labour market flexibility. Rojot finds that structural changes and the pressures that they comport have influenced the evolution of industrial relations in all industrialised market economies. But he also considers that various industrial relations systems have reacted differently to these extrinsic influences, some changing considerably, others being reinforced in their historic shape and form. In Rojot's view basic systemic stability in industrial relations has been maintained in Germany at least insofar as trade unions appear to be in good shape and the co-determination system remains intact. It is recognised that everything is not as it used to be and, in particular, that there has been a certain devolution of significant decision making to works councils at the enterprise level. Other commentators would perhaps see in this decentralisation of the level of labour-management interaction a somewhat greater significance, and hence at least a strong indication of systemic change. In fact if important areas of or subjects for collective bargaining or joint decision making are now in the province of works councils then these areas or subjects can in many cases escape the control or at least an input on the part of the trade unions. Granted that the independence and autonomy of works councils vis-ä-vis the unions is not always the case in practical terms, there are nevertheless numerous examples of works councils acting on their own and not submitting to union discipline in taking positions at enterprise level. And this would mean that certain issues that previously were in the domain of industry-wide bargaining between trade unions and employers' associations are no longer in that domain, while newer ranges of important issues — for example the introduction and consequences of technological change, training, work organisation, flexible wage schemes, and others — will escape their jurisdiction. It is questionable whether works councils are being — or can be — integrated into existing formal bargaining structures and equally evident that this dichotomy of representation in an era of increasing decentralisation is capable of producing (if not already producing) serious tensions between the actors at the various levels of labour-management interaction. It is submitted that this tension can further result in severe systemic strains and ultimately in serious changes in the contours of industrial relations. This may be true not only for Germany but also for other European countries with dual systems of workers' representation. This is so particularly since the decentralisation trend seems to be apparent in much of Europe. Reference is also made to Japan as an example of stability and even reinforcement of the industrial relations system in the face of structural change. In particular Rojot finds that the Japanese system — with its three legendary pillars of lifetime commitment, seniority wage and enterprise unionism, coupled with constructive cooperation, has shown evidence of self-reinforcement to cope with the consequences of change and, particularly, with the oil crises of the 1970s. Nevertheless, and paradoxically, the very success of the Japanese industrial relations model is being called into question owing to its role in contributing to constant balance of payment surpluses and yet at the same time failing to provide really improved standards of living even for permanent workers (not to mention the majority of workers in precarious employment). Thus the seeds of systemic change may very well have been planted and will sprout in a not too distant future. Already there

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is evidence that the lifetime employment pillar is suffering serious cracks with layoffs of "permanent" employees having taken place. Canada is a third example, as presented by Rojot in his introduction to chapter II, of systemic stability and lack of change in industrial relations. This is based on the fact that in spite of pressures similar to those in the United States, trade union strength (at least numerically) has been sustained. This is attributed — in contrast to the United States — at least in part to a different and less militantly anti-union position of employers and management, to a greater pro-union bias in labour legislation and in its implementation and to greater influence of trade unions on the political process. In fact these surmises are just that. No-one can really be sure of the reasons for relative stability in trade union strength in Canada. Perhaps it just takes a bit longer in Canada than in the United States for various environmental factors to have their effect felt. Indeed, as Rojot points out, certain observers are discerning the beginnings of a decline in trade union strength in Canada. In any case, to pin simply on trade union membership figures — and even union influence — a determination of whether a significant change in an industrial relations system is occurring, may be somewhat insufficient. Whatever case can be made for holding forth the three above countries as examples of stability, it is probable that in each case there has been some greater resistance to the impact of structural change than in the United States, Great Britain or Australia, as discussed below. In the United States the increasing central role of "human resources management" coupled with what some would consider the related idea that U. S. employers have never really accepted trade unionism as an institution in American industrial life, have served as a basis for employers to act as the motor of change in economic and social circumstances that were favourable. Thus in what amounts to a distinct distancing of collective labour relations, collective bargaining is viewed as a poor instrument to mediate or integrate change. Its confrontational nature taken together with trade union insistence on job and task control (i. e. lack of flexibility) preclude, in the eyes of certain observers, the use of collective bargaining as a vehicle for joint action aimed at developing consensual solutions to the problems, and particularly the newer problems, facing American industry and enterprises. The traditional view of United States labour relations generally, and collective bargaining in particular, as exclusively or preponderantly adversarial is of course widely held. Yet there is more than anecdotal evidence to indicate that in recent years there is movement towards more cooperative union-management relations. In the automobile industry and in communications, as an example, extensive agreements have been reached and arrangements worked out in fields such as training which have all the aura of mutual problem solving. In the United Kingdom it has been the government, rather than employers, which has been the chief actor — both through drastic legislative action and as an employer — in effectuating significant change in the traditionally voluntaristic industrial relations system. Although a slew of enactments have been adopted since the late 1970s, many with the ostensible purpose of making trade unions more democratic and responsible, it does not seem, according to Rojot's introduction to chapter II, that employers have been particularly anxious to take advantage of these new possibilities to strengthen their position vis-ä-vis the unions. Thus, despite

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a significant weakening in trade union strength and a number of legislated shackles on trade union freedom of action (inter alia regarding strikes, internal union affairs and the like), it is not entirely clear that there have in effect been deep-seated systemic changes in British industrial relations, at least at industry and enterprise level. What may be looked into further however, and this appears to reflect a significant departure, is a certain breakdown during the Thatcher era of tripartite economic and social consultation at the national level, which consultations had been rather a distinctive feature in the past of British industrial relations. Two final examples of relative "transformation" of industrial relations discussed in chapter II refer to Australia and the Netherlands. In a sense the direction of change has been quite the opposite in the two cases. In Australia the trade unions have played a key role since the beginning of the 1980s and the advent of a Labour Government in moulding an edifice of relative labour peace and cooperation. In contrast to a traditional highly adversarial approach, through the famous accord with the Labour Party Government, the Australian trade union movement has turned to wage moderation and acceptance of many labour market flexibility measures in exchange inter alia for a two-tier wage negotiation system and measures to combat unemployment. In general then, the Australian industrial relations system has moved from a highly centralised structure to one that is fairly flexible and, in a certain measure, decentralised (although there may be a certain slowing-down of the decentralisation tendency judging from recent national wage awards). In the view of some commentators, the Australian trade unions saw the future and sought to mould it in a way that would not do too much damage to perceived union interests. In the Netherlands on the other hand it would appear from Rojot's essay that a centre-right government in 1988, with encouragement from employers' circles, and faced with an already weakened trade union movement, decided that it did not need trade union support, nor did it have to seek consultation with the unions. Although the Netherlands subsequently passed to a centre-left government, it does not seem that this governmental attitude has much changed. Moreover, as with other European countries, and indeed similar to Australia, a degree of decentralisation has somewhat shifted the focus of labour-management interaction from industry level to the enterprise level. However whereas Australian unions are organised and active at that level, Dutch unions are not at all strong in enterprises. If any conclusions are to be drawn from this discussion of the influence of structural change (or changes) on industrial relations, it may be that classifications are somewhat speculative and transitory. Rojot himself says that there is a certain relativity to his transformation/reinforcement dichotomy. Nevertheless it is reasonably clear that, as Rojot states, in many if not most industrialised market economies, industrial relations systems are in a state of unstable equilibrium. Constants cited by Rojot in the current evolution of numerous systems refer to labour force segmentation, which he feels is furthered by decentralisation tendencies; trade union weakness (in part owing to segmentation and decentralisation) which, he cautions, cannot be assayed solely on the basis of membership figures and the emergence of the employer as the dominant actor in industrial relations.

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Aspirations and Expectations of a New Labour Force Is there a "new" labour force? How does it differ from the "old" labour force? Whether or not there is really a new labour force, most commentators would agree that there have been significant changes in that workforce in recent years, some of which are quite universal, at least in industrialised market economies, and others of which vary from country to country. One points to a more educated (and sometimes more mobile) workforce owing to the advances made in educational systems and universal primary and secondary education as well as to a relative affluence resulting in more and more young people moving on to higher and higher levels in the educational system. A better educated and trained workforce in turn is said to lend to more worker interest in variety and responsibility in the work context. At the same time the younger, better educated, worker may be more independent-minded with at least two possible effects. First, he or she may be more prone to prefer various types of nonconventional work relationships — as discussed in the above section on new employment patterns — which would take the worker concerned out of the traditional "full-time, permanent, dependent" employment relationship. Secondly, he or she, because of the feeling of independence, or because of his or her removal from the "conventional" workforce, might be either less inclined or simply not in a position to become members of trade unions. Indeed, a good bit of current union attention in industrialised market economies is focussed on how better to interest independent-minded younger workers in supporting and becoming members of unions. Another change, also alluded to above, is the influx of women into the "new" labour force. In industrialised market economies women now comprise more than half of the workforce. This has come about for a number of reasons, including those related to women's liberation, better educational opportunities for women, perhaps the less onerous and time-consuming nature of household tasks, the dramatic increase in the service sector where women are more apt, in conventional theory, to find suitable jobs (the blue- to white-collar phenomenon which in itself reflects a profound change in the workforce) and a need or desire for increased household revenues. This influx in women workers also has an impact on industrial relations in at least two major and related ways. First, the increased presence of women in the workforce has both precipitated and been a result of a trend towards more flexible work patterns (part-time, temporary, home-based work, etc.). Secondly, women have traditionally been more difficult to organise in trade unions than men, inter alia because of the nature of the unfortunately gender-specific job patterns (secretarial and retail jobs, among others) which are less susceptible to organisational efforts, and the relative transitory nature of women in the workforce as they enter and leave work for differing periods in line with their household and child-rearing role. Further there is the growth in importance of the technology and information sector, with highly skilled, technically-oriented workers, often professionally qualified, who also constitute a group not always amenable to trade union organisation. Eyraud, in his introduction to the chapter on "aspirations and expectations of a new labour force", finds that the really new industrial relations consequence of

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developments such as those just discussed, is that there is no longer a dominant core group in the labour force that, from the workers' side, dominates the game, imposing itself over other and formerly marginal groups. Another change in the workforce worthy of note is the increasing numbers of migrant and immigrant workers. This development has become all the more significant in Europe with the newer influx of workers into western Europe from eastern and central Europe, including the influx of ethnic Germans into a reunited Germany. The impact of this tide of new workers, often with different traditions, work habits, aspirations and expectations, presents problems of integration and receptivity for employers and trade unions alike, as well as for the workers who may feel personally threatened by this foreign influx. In addition, unions may suffer some problems of internal cohesion where large numbers of foreign or immigrant workers become members (often through the application of union security provisions) and seek to assert themselves in terms of a certain priority being given to their particular concerns. And, of course, it can be even worse for the unions' position, role and strength, where the foreign or immigrant workers resist unionisation. Eyraud, after tracing certain historical industrial relations patterns in the United States and Europe, and in a Perlmanesque analysis, submits that particular temporal conditions and structural dimensions combine at a given time and result in a set of aspirations and expectations common to the bulk of workers in a society, these differing in different countries. He insists on the central role of the actors in industrial relations systemic change (as opposed to a Kerr, Dunlop, Harbison and Meyers approach which stresses technological and economic factors rather than the role of the actors in the evolution of industrial relations systems). The question is also posed — as alluded to earlier — of whether it is adverse economic conditions or attitudinal changes of the actors which have led to more cooperative labour relations (perceived by Eyraud and other commentators). Here we might posit two, perhaps three, combinations: first, the mutually reinforcing effect of economic difficulties and changes in workers' attitudes and expectations; secondly, with an acknowledgement to McKersie, Kochan and Katz, the newer pro-active employer role as epitomised by the emphasis on human resource management conjugated with workers themselves looking for alternative models more suited to their aspirations. There is obviously something of substance in all these (overlapping) aspects. But their relative weight in the balance undoubtedly has to be examined in the context of diverse national systems. To return to the leitmotif that has been recurrent in the above discussion, how are trade unions adjusting, or how are they to adjust, to this new workforce with new and sometimes diverse aspirations and expectations? Will and can the unions overcome a certain inertia, as Eyraud poses the question, and move on to organise effectively a more complex workforce with many internal contradictions? Or will they lose further ground as institutional actors in industrial relations systems and put in jeopardy such systems as we have known them?

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Equity and Equality of Treatment in Employment The incorporation of the concepts of equity and equality of opportunity into the realm of employment is relatively recent; and equity and equality as a significant facet of the industrial relations and labour law environment is fast developing. Legislation, court decisions, collective agreement and personnel practices are increasingly coming to grips with issues of equity and equality in employment, although many would contend that progress in this field is too slow. Moreover, even within the ranks of those who most ardently defend the rights, in the employment situation and elsewhere, of those against whom discrimination has traditionally been practised — in particular women and racial and ethnic minorities — there is not always a real consensus on measures to be taken and priorities to be accorded. Professor Ben-Israel, in her introduction to the "Equity and equality" chapter, traces legal developments in this field and particularly the transition in individual labour law in the first instance from status to contract. Individual treatment was based on the individual contract of employment. While perhaps a welcome break with the past, given that an employment contract was normally a contract of "adhesion" rather than a freely negotiated one ("take it or leave it"), the situation of disadvantaged job seekers was not very much better under such a legal regime. And the advent of the collective agreement did not change the situation all that much. Discrimination, although in some cases made more difficult, was still far from eliminated through collective bargaining. This was particularly the case since often minority groups did not have a real voice in trade union policy-making and hence were unable to ensure that their particular interests and concerns would be dealt with in collective bargaining. (Although progress has been made, it is still the case that women in particular, but other disadvantaged or minority groups as well, have in general neither acceded to leadership positions in unions — in the case of women, even in unions where they are in a majority — nor been able to influence sufficiently union policies.) 3 Thus, occupational equality had to be sought through external normative measures, sometimes even at the expense of trade union traditions and collective bargaining stability. Ben-Israel discusses the impact of international standards and, in particular, that of Conventions and Recommendations of the International Labour Organisation where equality and the prohibition of discrimination have long been a basic tenet. The most significant ILO instruments are the Discrimination (Employment and Occupation) Convention and the Equal Pay Convention; the former mandating equal treatment in the employment situation and the latter espousing the principle of equal pay for work of equal value. In the regulation of equality in employment and occupation, Ben-Israel points to the duality of protection — that of the individual and that of the affected class. It is precisely this duality which gives rise to the controversy surrounding "affirmative action" programmes. These programmes relate to collective equality of opportunity rather than a mere prohibition of discrimination or even equality of treatment. In fact its critics decry the denial of equal treatment on an individual

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basis that results from affirmative action. Supporters of affirmative action, in this regard, make a distinction between the short term and the long term, i. e. the need to compromise individual equal treatment in the short run so as to ensure it in the longer run through an upwards levelling of equality of opportunity. Ben-Israel, and the essays in the chapter she introduces, dwell on the concept of equal pay for women which must, for purposes of equity, reflect the idea of comparable worth, for which job evaluation is the key. Strict enforcement of the principle of equal pay for work of equal value, in spite of difficulties of application, will also contribute to breaking down gender specificity in jobs through making financially attractive to both sexes jobs that previously had officially or unofficially been reserved to men or women almost exclusively. Ben-Israel also touches on the related issue of parental rights and facilitating shared family responsibilities as an essential element in progressing towards true equity and equality, inter alia by adopting greater flexibility in working-time patterns. Moreover, with specific reference to parental leave, since traditionally men have had the better paying jobs making it economically imperative that women take parental leave, the spread of equal pay guarantees and affirmative action aimed at abolishing gender-based job segregation can contribute to a more equitable implementation of parental rights. In the face of increasing (indirect) challenges to occupational equality, sometimes based on resuscitated notions of freedom of contract and property rights as well as renewed emphasis on managerial prerogatives, Ben-Israel discerns a decelerating trend with regard to progress on employment and occupational equality. She sees the need for greater educational, training and public information efforts to heighten public awareness of the issues involved in order to regain the momentum in the years to come.

The four issues that comprise the substance of the essays in this volume are of signal importance for they are shaping the changing contours of industrial relations systems. At the same time, whether we are speaking of flexibility, equity and equality, the consequences of structural change or changing expectations and aspirations of workers, these issues are eminently suitable to labour-management dialogue, through collective bargaining or other machinery of labour-management interaction at various levels. Some of the issues, in their most macro aspects, could also profitably be considered, and in a number of cases are considered, on a tripartite basis at the national level, involving trade unions, employer associations and the public authorities; this with a view to fashioning sound and agreed public policies, some of which might be subsequently reflected in legislation or bipartite or tripartite national agreements. In any event, finding the widest social consensus on these issues can only enhance the contribution that the changing environment of industrial relations can make to economic progress and social justice. Notes 1 OECD, Flexibility in the Labour Market: The Current Debate (Paris 1986) pp. 92 and 114. 2 OECD, Labour Market Flexibility (Paris, 1986), p. 9. 3 See Gladstone, "Women and Industrial Relations" in Women at Work, No. 2, 1988, ILO, Geneva.

Chapter I Labour Market Flexibility and New Employment Patterns

Introduction Hoyt N. Wheeler

On rare occasions, there develops in the field of industrial relations a constellation of powers that sweeps institutions in a dramatically different direction. This has recently been the case with labour market flexibility and the development of new patterns of employment in Western Europe. The powers involved might be labeled functionality, force and facile use of language. It is reasonably clear that there has been a strong case for the functionality of flexibility for the societies of Western Europe, and for labour and employers, as a means of dealing with serious problems of international competitiveness and high unemployment. It is equally clear that these changes have occurred at a time when the economic and political force available to employers, the party that had the most to gain from flexibility, was at a relatively high point. Last, the facile use of the attractive term "flexibility" helped to make the changes more palatable to workers, unions and the public. Interestingly, this has taken place at the same time that important changes were taking place in those countries that were viewed as models of flexibility — the United States (external flexibility) and Japan (internal flexibility). Most recently, the forces of flexibility seem to be on the move in even the most unlikely place — the Soviet Union. It is with all of these phenomena that the essays in this chapter deal. As might be expected from the unsettled state of theory in the industrial relations field, there is no single agreed upon framework for analysis that appears in the essays of this chapter. They use the language of labour market analysis, but add to this some broader industrial relations ideas. I will argue below that this addition is necessary. It would also be useful, I will contend, to carry this one step further and posit a simple industrial relations framework within which labour market flexibility and new employment patterns can be considered.

The Economic Perspective on Flexibility and New Patterns With rare exceptions the literature on flexibility is framed in the terms of neoclassical economics. One hears of "rigidities" and the importance of the labour "market" constantly. This perspective is one that is quite useful for penetrating some of the mysteries of employment, and has often been put to good use for policy and analytical purposes, as it is in these essays. However, because it, like other views, has weaknesses as well as strengths, its adoption to the exclusion of other views would have some unfortunate consequences. The chief problem with traditional neoclassical labour market analysis is that its conception of the employment relationship is too blunt an instrument for the requirements of sophisticated analysis. It essentially treats the "commodity" of labour as if it were any other commodity. Although attention is given to its special

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nature through recognition that it is intimately connected to the seller in a way that no other commodity is, it still misses a crucial point. This is that labor is delivered, that is the sale of labour is consummated, only within the context of a particular relationship. One could argue that in the American employment at will relationship even the contract through which labour is sold is itself not legally effective until the labour is already rendered. This is because the employment contract is unilateral, rather than bilateral. Such a contract comes into existence upon the offer being accepted by performance. The employer offers to pay upon the rendering of the services, has no right to insist that the services be rendered, is under no obligation until they are rendered, and can terminate the relationship by revoking the offer at any time. The employee is under no obligation to perform services and can quit at any time. However, if he or she does choose to work, it is at the price offered. Here, there is not even a contract for sale, let alone a completed transaction, until after the employee performs. Even in systems that require notice by the employee before leaving the employer's service and notice or cause before the employer terminates the relationship, these obligations ordinarily do not come into existence until the relationship itself has been in existence for some period. Where there is a contract for a set term, of course, the obligations to labour and to employ the labourer are effective upon being agreed upon. More important than when the contract of employment becomes effective is when it is consummated by delivery of the labour. Labour is a unique commodity in that its sale is completed only within the employment relationship. This relationship is one of subordinance in which obedience is required. John R. Commons was close to the mark when he spoke of employment as involving a "managerial" transaction rather than a "bargaining" transaction. 1 His focus was on the power imbalance that existed in managerial transactions such as employment, making them fundamentally different from the run of the mill market (bargaining) transactions to which traditional economic analysis relates. But in the sale of labour there is not only an imbalance of power (indeed in some cases power may be equally balanced or favor the employee). There is also a relationship in which natural human proclivities for subordinance are present and available for exploitation. 2 The employer has a special status because of being at the top of a social hierarchy. This social or, if you will, political aspect of the relationship needs to be taken into account when dealing with the labour problem. Labour may be a commodity, but it is the only commodity that is sold only within the context of this peculiar institution called employment. Because of the above considerations, when we speak of "labour markets" it is well to keep in mind that we are not referring to a locus outside of the firm where a commodity's sale is consummated. We are instead dealing with a more complex phenomenon. Buyers and sellers get together in an external market, but they make complete their transactions only as occupants of other statuses. Here their full humanity cannot be ignored as it is in traditional market analysis. Here they deal as human occupants of positions in a social hierarchy. This is not the place to expect pure economic rationality, as other ancient and basic motivations come into

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play. A strategy for analysis that limits itself to economic rationality is doomed to inadequacy in this setting. What are the consequences of this inadequacy? First, to focus solely upon the financial aspects of the relationship, or even those which are rationally calculated, can be grossly misleading. Do employers want control only because this leaves them free to pursue efficiency, or is the drive for control (managerial flexibility) something that has other roots as well? Do employees resist managerial flexibility only because they are misinformed or ill intentioned, or is this part of the enduring struggle for freedom from dominance that has always been a part of human history? Second, to see mobility of labour, which clearly contributes to efficiency and is required for some kinds of flexibility, as something that is as simple a matter as shipping sacks of flour, misses the essential nature of the sale of labour. This sale does not complete itself on the open market as does that of physical goods or shares of corporate stock. Relationships among human beings are involved, including their severance and formation. Third, to treat labour as an abstraction in the hand of abstract forces misses the moral content that exists when human beings are involved. Fourth, as noted above, failing to recognize issues of power and exploitation deeply biases the analysis in favor of those who have the power and do the exploiting. Fifth, it ignores the commonalities of interest that arise among employees by virtue of their subordinate position vis-a-vis managers and owners of capital. Employees are not just sellers of an ordinary commodity. They are sellers who occupy a very special relationship to the buyers. The same is true of employers as buyers of labour. All employees have this in common, as do all employers. Recognition of these collective concerns makes it possible to view institutions such as labour markets for the purpose of systematically analyzing their functionality for these groups — employees, managers and owners. The concerns of the general public can be added. Efficiency and equity synergisms or tradeoffs and other matters can be considered from the standpoints of these groups. 3 All of this is not an argument for abandoning the concepts and analytical tools of the labour market. This perspective clearly contains some great insights. Ideas such as the forces of supply and demand, the derived nature of the demand for labour, and the substitution of capital for labour in a production function relationship are particularly useful. Instead, the suggestion is that these understandings be supplemented by broader interdisciplinary ones which, taken in combination, can be used for erecting an industrial relations framework.

An Industrial Relations Framework Posing an analytical framework for dealing with current developments in flexibility and employment patterns is a daunting task for two reasons. First, the flexibility issue itself is of extraordinarily wide scope, meaning that any framework that is adopted must deal with a large number of aspects of employment. Second, there is currently no agreed upon approach to comparative analysis in industrial relations. However, the lack of a generally accepted structure does leave room for one to be suggested here as a starting point for discussion, with the hope that others may make some improvements upon it, or posit alternative frameworks.

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For a start toward the construction of a simple industrial relations analytical framework, I suggest that we adopt the view that the regularities of behavior as to the employment relationship, whether they be called institutions or structures, must be functional for the parties to the employment relationship and the society in which they exist in order to endure. 4 The degree of failure necessary to induce change depends in part upon the power of the party whose interest the function serves most directly. For example, if laws on dismissal come to be fetters on functions in which employers have a strong interest, particularly under conditions where employers are sufficiently powerful to force a change in this institution, these laws are likely to be modified or abolished. The institutions of employment are looked to by employers to perform the function of "efficiency," meaning profit for private employers, continued viability of the organization and growth. Managers, acting in the service of capital, share an interest in this function, and have their own special class interests in organizational growth and personal status. For employees, the primary function that must be served is "security," meaning a reasonable level of pay and benefits, security in these, and being treated with respect. For the public, the functions of producing a sufficient quantity and quality of goods and services at reasonably low prices, and at least moderate levels of efficiency and security, all without undue harm to the social fabric, would seem to be crucial. 5 Equipped with the tool of an industrial relations framework for analysis, let us proceed to examine these essays and comments that have been made upon them. Then, to conclude this analysis, we will systematically but briefly utilize these intellectual instruments to see whether they aid our understanding.

The Essays on Labour Market Flexibility and New Patterns The essays prepared for this chapter cover most of the dimensions of labor market flexibility and new employment patterns, and utilize both the labour market idea and a variety of other perspectives. They cover issues pertaining to working time, employment contracts, pay, j o b content and j o b protection in Western Europe, Japan, the US, and the Soviet Union. Working Time The developments in working time flexibility and patterns analyzed in Prof. Treu's essay reflect, according to him, some potentially far reaching changes in the employment relationship. Under his penetrating examination, the phenomenon of different arrangements of working hours is revealed to arguably involve a challenge to the very collective nature of labour-management relations. This "personalization" of working time does pose a challenge to the unions, which are by their nature collective. The increasing flexibility of working time in Western Europe stems from factors that come from both sides of the employment relationship. The forms and effects of flexibility required by one side may differ from those required by the other, as the needs of the employer for flexibility may conflict with employees' wishes for

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optimum combinations of work time and free time. As Treu has suggested, the industrial relations actors have different goals for flexibility. Unions are seeking a decline in unemployment, corporations are seeking profits, and employees want personal flexibility. Employees may differ among themselves as to the kind of personal flexibility that they want, there being some evidence, for example, that men prefer a short work week while women prefer a short work day. In any event the "normal working time" ideal appears to be fading. This is further complicated by an accompanying trend toward worktime reduction. Herwig Kressler of Austria has suggested that the matter is further complicated by a decline in the number of jobs involving mere repetitive transformations, making it more difficult to substitute one employee for another. Also, the more directly pay derives from time worked the more difficult it is to vary the number of hours employees work. As Treu notes, the "rigidities" of traditional labour legislation with respect to working time have largely been removed over the last few years in Western Europe. The chief vehicle for this flexibilization has been legislation. In some cases this has gone beyond simple deregulation and has gone on to promoting flexibility. The introduction of worktime flexibility has, however, usually been subject to "some sort of collective procedure" — statutory law in France and Spain, collective bargaining in Italy and West Germany, but deregulation in the U K and the US. Treu has noted that, although there is a link between cooperative collective bargaining and successful handling of flexibility, it is unclear whether it is only where the collective bargaining relationship is already cooperative that this can occur, or that collective bargaining is forced to become cooperative when it deals with flexibility issues. An American commentator on this Treu essay, David Zimmerman, has noted that the kind of bargaining necessary to deal with this problem is more likely to occur in Western Europe where labour is an accepted social partner than in the United States where this is not the case. Given labour's political weakness in the US, this leaves little alternative to deregulation. In a typology suggested by Treu, there are several kinds of worktime flexibilities. First, there is the flexibility of employers to distribute hours over weekly or multiweekly periods with fewer constraints than before. This may permit variations in the work week within limits, such as work weeks of from 37 to 39.5 hours. The multiweekly periods over which the average working time may be calculated vary. In West Germany it is six months. This permits the employer to have a greater ability to escape paying an overtime bonus. Second, both the amount of overtime allowed and the discretion of the employer in assigning it have increased. Third, work on Saturday and Sunday is more likely to be permitted. Fourth, there has been an increase in shift work. Fifth, part-time work is increasingly permitted. Employment Contract Patterns There have been significant developments in patterns and flexibility in types of employment contracts in Western Europe since the 1970's, according to Prof. Ojeda Aviles. Prior to this, as a general rule, there was only one typical work contract — full time, indefinite length. Temporary contracts were permitted under rather severe legal restrictions. More recently, however, more flexibility in work contracts has been introduced.

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The new types of employment contracts include: (1) temporary contracts for special reasons such as sickness of a full time employee, a specific project, and seasonal work; (2) temporary contracts not for special reasons, so-called "free" contracts, such as first time jobs for workers (West Germany); (3) youth temporary employment contracts; (4) special contracts for older workers; (5) apprenticeships; (6) on-the-job training contracts; (7) adaptation contracts where young workers who have received training have a chance to practice their skills; (8) employment orientation contracts to familiarize young workers with work; (9) solidarity contracts, where wages and work time are reduced to avoid layoffs or to enable new workers to be hired; (10) job sharing contracts; (11) variable time contracts, where the length of the work day and the pay are adjusted to meet the firm's requirements; and, (12) part time contracts, mostly for women. These changes in employment contracts have come about through legislative intervention, other government norms, collective bargaining, and government norms adjusted by collective bargaining. As Ojeda Aviles has elsewhere commented, the mix of law and collective bargaining has varied in different parts of Europe. Also, where collective bargaining has been the engine of change it has varied in effectiveness, working quite well, for example, in at least some parts of Italy where unions are strong, and not so well in Spain where they are relatively weak. Many of the new forms of contract emphasize training and attempt to provide employment for young workers. It has been commented that the US is far behind in innovations to encourage training and employment of young workers. However, it should be noted that the 1989 amendments to the US minimum wage laws provided for a lower "training wage" for younger workers, leaving more room for the labour market to operate in their case. Pay Flexibility and Patterns There have been two main developments in pay flexibility in the 1980's in the countries reported on by Dr. Marsden — France, West Germany, Italy, and the UK. These have been the effort to increase skill differentials, which had been shrinking in the 1970's, and the tying of pay to individual or group performance, in an effort to improve quality and quantity of work. Occupational pay differentials increased in both Italy and the U K during the 1980's, as there was a partial de-indexization in Italy and the abandonment of private sector incomes policies under the Thatcher government in the UK. Although this has not occurred in France, there has been a long term growth in employment in the higher paid categories of employment. West Germany stands alone among these countries in not having any movement in occupational pay differentials during this period. Linking pay to performance is an idea that has received a great deal of attention in all of these countries, but has been less important in actual practice. As to merit pay, considerable progress has been made in France in terms of number of employees affected. In the UK, the development of merit pay has been limited, with the main growth areas being in the financial sector and in white-collar work. In Italy, merit pay has taken the form of "merit bonuses" that make up only a small fraction of

Introduction

23

compensation. In all of these countries, the amounts of money involved are quite modest. Profit-related pay has seen some growth. In France, with some long-standing legal support, about one-fourth of the labour force is covered by such schemes, but the sums involved are limited. In the U K there has also been an increase in these plans, including making them open to non-managerial employees. Productivity-related pay has increased in frequency somewhat in Italy, the UK and France. The amounts of profit and productivity related pay have not, however, increased greatly as a proportion of earnings. Marsden calls into question wages naturally flexing in response to long run external labour market pressures. According to his argument, internal factors such as seniority and institutional factors such as trade union and government policies limit the extent to which firms are free to respond to the forces of labour market supply and demand. One commentator on this essay, John Addison, has remarked that Marsden's analysis of wage structures and the results he reports on productivity based wages, despite his protestations, are highly consistent with neoclassical economic analysis. Addison also argues that those such as Marsden who challenge the neoclassical paradigm have a responsibility to suggest a solid alternative. Job Content Flexibility The modern movement toward flexible jobs arises out of an historical context of great inflexibility and fragmentation that constituted a principal strategy of industrialization. Prof. Bamber's essay considers this historical reality and critiques of it from a variety of perspectives. Bamber divides countries into two types. Type I countries are characterized by adversarial industrial relations — U K , Canada, Ireland, US, Australia and New Zealand. Type II countries have more consensual industrial relations — the Scandinavian countries, West Germany and Austria. It is hypothesized that the potential for redesigning jobs to reverse the division of labour is greater in Type II consensual countries. In spite of the difficulty of increasing j o b content flexibility in Type I adversarial countries, a number of efforts to do so have been made in the U K and Australia. Productivity bargaining to eliminate restrictive work practices in the U K has been well documented, starting with the Fawley agreement of the early 1960's. In the 1980's an industry wide flexibility agreement was reached in the general printing industry in the U K , but this only enabled flexibility to be agreed to at lower levels. "Japanization" by Japanese firms, Ford, and some others, where job classifications have been reduced, has had some success. The degree to which this trend is widespread, however, is subject to some dispute. In Australia, where industrial relations is less devolved than in the U K , there has been more success in moving toward work reorganization. In both countries there has been an emphasis upon more general skill training to make flexibility more practicable. Looking across national boundaries, Bamber also finds support for three more hypotheses: (1) countries, sectors and organizations with turbulent environments are more likely to innovate with job flexibility; (2) the presence of well-educated, selected, and trained first-line managers facilitate job content flexibility; and, (3)

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flexibility is more likely to be achieved where management style is participative than when it is autocratic. Bamber proposes organizational audits to help prepare the parties to implement j o b reorganization. Comments on the Bamber essay have included some varied observations. For instance, it has been remarked that stress for workers may increase with job content flexibility. It has also been noted that the industrial institutions in Australia and the U K have shown a marked slowness in adjusting in this respect, which is consistent with what Bamber would predict in adversarial countries. One could add that this slowness might only be predicted in those adversarial countries where trade unions are strong. In countries such as the US, which are historically adversarial in the small unionized sector, adversarialism is absent, or at least suppressed, in the larger nonunion sector. Here, the employer rules supreme. Given this, and the employer interest in flexibility, one would expect a very high level of it. Whether this is the case is unclear. Job Protection As Dr. Dercksen states, "job protection and labour market flexibility are opposites," at least to some extent. As he argues, job protection regulation has as its purpose preventing labour from being "merely a n economic good that has to sell itself continuously on the labour market." However, it is also true that this protection may limit adjustments and innovations by firms and discourage them from employing more workers, particularly in permanent positions. Unfortunately, the evidence on this is fragmentary at best. But if secure employment induces workers to feel more loyalty and employers to invest more heavily in human resources this may increase internal flexibility. As Dercksen says, it is extremely difficult to form a judgment as to the net effects of job protection on the basis of reliable empirical evidence. Dercksen classifies European systems of job protection into two categories. There are the "repressive" systems, which most countries have, that provide for a remedy for an improperly terminated employee after the termination. A few countries, such as Holland, have "preventive" systems which require advance approval of terminations. In either category, a system of job protection that is weak can be a contributor to a "well functioning labour market" only if employers do not abuse it and if employees can readily locate other jobs. He sees labour market policies as important mediators of the effects of job protection. He classifies European national labour market policies as either "active" or "passive." Sweden is virtually alone in having a highly active policy, spending a very large percentage of its overall budget, and its labour market expenditures, on j o b training and other positive policies. H e also gives a detailed account of employment protection policies of the European Community and of Sweden, Belgium, the U K , West Germany and the Netherlands. Looking toward 1992, Dercksen sees two alternative responses in j o b protection. First, harmonization could be effected through the EC. Second, there could be a deregulation of prescriptions of national law generally. Under either of these alternatives, there is a danger of "social demolition" as countries vie for industry by competitively lowering their protection.

Introduction

25

Dercksen's conclusions include his view that a weak system of job protection coupled with an active labour market policy, such as exists in Sweden, may provide more protection for workers than a strong system with a passive policy. He believes that collective bargaining will remain an important source of job protection, with labour laws continuing to set minimum levels. Harmonization of national laws may be provoked by European integration, and this may be a partial answer to the problem of competitive social demolition. We may also see a rise of European collective agreements with transeuropean enterprises, as unions are currently advocating. Commenting on this essay, one observer, Joep Bolweg of the Netherlands, has stated that it points u p the fact that ultimately labour market flexibility is a political question, and will remain so in 1992. This political connection has also been noted by an expert from one of the African countries, who says that flexibility from the standpoint of the worker can only exist in a democracy. Otherwise, government will simply permit whatever foreign firms demand as a condition for investment, which will prevent the collective withdrawal of labour by means of strikes. This may indeed be the opposite side of the coin of managerial numerical flexibility. So long as workers cannot withhold labour collectively, one could argue that their flexibility is limited. One other comment, by Allen Ponak of Canada, is that if general European Community regulation of employment protection comes about in 1992, practices may not automatically conform. This would leave a gap between de facto and de jure protections. Japan As it is generally considered an international model of flexibility, Japan is especially deserving of thorough analysis. Prof. Koshiro's essay begins by reminding us of the strong necessity of latecomers to industrialization, such as Japan, to carry out innovation in social structures, and of the special crisis consciousness of the Japanese that has been reinforced by recent crises. The Japanese labour market is less subject to union influence than some European ones because of the relatively low and declining rate of unionization. At the same time, after a 50 per cent increase in 1973 — 74, negotiated wage increases have declined to one digit levels. A downward shift in the Phillips Curve has occurred, with both low levels of unemployment and wage increases being present. This occurred because enterprise unions in major firms moderated wages to preserve employment, the core work force of these firms was reduced by 11 per cent between 1975 and 1986, labour demand slackened, inflation went down, and militant unions in the public sector were beaten down. Wages in Japan are more flexible than in most other advanced countries. This is true of both basic wages and bonus payments, with bonus payments being the more flexible. However, the magnitude of flexibility of both basic wages and bonuses is quite limited. Employment security is one of the better known features of Japanese industrial relations. Not only d o large firms have policies of lifetime employment, but there also exists an impressive array of laws, which increased in the 1960's, that discourage employers from terminating employees. This is reinforced by the traditional militancy of Japanese unions on this subject. However, Japanese employers in fact

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dismissed redundant workers after the first oil crisis. The appreciation of the yen since September 1985 also has led to significant declines in employment. However, only in the first oil crisis was regular employment affected. In the later crises Japan's speed of adjustment was quite rapid, with restrictions on freedom of dismissal being largely offset by flexibility in hours of work, mostly by changes in overtime work. Employment patterns in Japan are in a state of flux. The number of employees in the core labour force of the major corporations has been reduced. The number of "short-time" workers, three-quarters of whom are female, has almost doubled since the oil crisis. Private employment services have grown with the growth of part-time workers since the mid-1970's. Dispatching services for temporary workers have also grown. Students are increasingly participating in the labour force. In large firms the practice of detachment, where employees are sent to other parts of the firm, has become widespread. This has been facilitated by increasing diversification of the large firms. Joint consultation with unions has played a vital role in both reductions in force and detachments. Experts commenting on Koshiro's report of Japan's experience make one particularly interesting argument. This starts out with the observation that Japan in recent years and the US from 1940 to 1970 had similarly successful economies, leading one to look for similarities between these countries during these two periods. The similarity in industrial relations phenomena that parallels these economic successes, it is suggested, is the very high degree of job security enjoyed by workers. One could argue on this basis that it was a situation of at least numerical inflexibility, rather than one of flexibility, that is associated with the economic successes of both countries. The United States While it is difficult to compare labour market performance in different countries because of such factors as varying traditions of worker mobility, Prof. Kassalow argues that it is necessary to do so in order to evaluate national labour market performance. This evaluation should not simply regard efficiency, but should, as the Dahrendorf commission suggests, look beyond this to individual welfare and social progress. Over the last decade, the US has increased employment 20 per cent, while the increase in Japan was 11 per cent, and in France, West Germany and the UK it was only one or two per cent. Whether this is attributable to labour market flexibility is questionable, as high budget deficits and population increases may be powerful contributors to this result. Also, at least as to wages the US's flexibility may not be any greater than in Western Europe. On the crucial measure of ratio between adult population and employment, the US has also done well over the decade, but still lags behind Sweden and holds only a slight lead over Japan. This compares to declines in the ratio in France, the U K and West Germany. The US increase is due almost entirely to an "enormous" increase in female participation in employment. Also, this ratio can be influenced by non-economic factors such as family allowances or religious beliefs. There is the further point that the new jobs created in the US economy are of questionable quality.

Introduction

27

Of interest with respect to job quality, and to patterns of employment in the US generally are the great increases in both part-time and temporary employment. Although these increases have been less than in Western European countries, its significance is greater in social welfare consequences because of the link in the US between full time employment and such benefits as unemployment compensation and health insurance. The US labour market gets mixed marks when one looks at unemployment rate, productivity and real compensation. The unemployment rate has indeed been lower in the US than in Western Europe in recent years, reversing the historic relationship. In 1987 it was 6.2 per cent in the US, 10.3 per cent in the UK, 10.7 per cent in France, and 6 per cent in West Germany. In 1988 the US rate dipped even lower. As to productivity, overall US rates have lagged considerably behind those of European countries, although it has done relatively well in manufacturing productivity. Real compensation remained unchanged in the US from 1977 to 1987, while increasing 20 per cent in Japan, 26 per cent in France, 32 per cent in West Germany, 35 per cent in the UK, and 8 per cent in Sweden. In gross domestic product per capita, the US remained well ahead of other O E C D countries, with only Canada being close. With the exception of Japan, the relationship with other countries remained about the same in this respect as in 1980. The industrial relations response to the adjustment process in the US differs significantly from that in Europe. In the US only unionized employees have strong legal protection in cases of dismissal and redundancy, leaving management with a relatively free hand. In 1988, legislation was adopted requiring advance notice of large layoffs and "plant closings." In addition, many unions have agreed to pay cuts and increased job content flexibility, often in exchange for increased participation, training and job security guarantees. The Soviet Union In viewing the problems of labour market flexibility in the Soviet Union as described by Dr. Gramatski, one feels as though one is truly in a world turned upside down. While both the West and the East in Europe are concerned with waste of human capital, in the East the concern has been not with unemployment but with overfull employment. The Soviet system is clearly one that is both in transition and in turmoil in fundamental ways as the drive for marketization encounters deep fears of unemployment. In all of the countries of Eastern Europe there have been problems of labour shortage at the national level, in some industrialized regional labour markets, and in the service sector. A combination of tight labour markets and too little sensitivity to the cost of labour has led to labour hoarding. In order to deal with this problem, both limits on employment and taxes on wages have been utilized. This, however, interfered with the ability to tie wage increases to productivity increases. The Soviet "extensive" approach to developing the economy, which involved using more labour instead of increasing its productivity, led to a drying up of labour force reserves in the late 1970's. The effects of this are exacerbated by a demographic "valley" of working age persons in the population in the 1980's and

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1990's. There have also been major differences in population growth in different regions. There is considerable agreement among both Soviet and Western analysts that considerably more flexibility is needed in the Soviet labour market. Barriers to this include an underdeveloped state employment service (especially as to training and retraining), a long tradition of sectoral decisions, bad conditions for geographic mobility because of variations in living conditions among regions, and the difficulty of finding housing by workers who change jobs. Economic adjustment and technological innovation are needed, but are hindered by the "brake mechanism" of the failure to use capital and labour according to a consistent efficiency criterion. Social problems arising from the resulting overfull employment include poor labour discipline, low productivity, and an extremely high participation rate of female workers. Low income has led to low productivity which has led to low income. Purchasing power is even lower, as some goods are unavailable except in unofficial markets where prices are high. In this situation non-monetary considerations such as living quarters and places for holidays become important providers of incentive to work. Several categories of factors that affect labour market flexibility require attention in the Soviet system. Labour costs, a fundamental factor, must be changed in three ways. First, non-wage costs must be increased to discourage overhiring. Second, wage differentials favoring heavy industry must be eliminated. Third, regional and occupational wage differentials should be strengthened according to enterprise or regional needs. Conditions of employment must change in that job security must be handled in a different manner — not in having massive displacements, but through employee transfers to different shifts and advance planning for placement of redundant worker. Work practices need to change to organization of work that involves more group autonomy, as in the brigade system, and in leasing arrangements that broaden the property rights of worker groups. Rules and regulations should change with respect to ownership, permitting small scale production on a cooperative or leasing basis. Labour mobility is something on which it has been said that the right to work is "organically based." If geographic mobility is limited, occupational mobility will have to be increased. Education and training has to be changed so that the match between vocational and other training and the economic system is improved. Other special subjects of concern in the Soviet system include the need to increase the shift coefficient (use of industrial capacity by using multiple shifts), and the establishment of a labour reserve. One commentator has remarked that labour hoarding has been the other side of the full employment coin. As Gramatski has said elsewhere, this is particularly difficult to eliminate. As a Soviet expert has commented, it is difficult at this time to specify the impacts of perestroika and democratic reforms upon labour market flexibility and employment patterns in the Soviet Union. However, the reforms are directed at the area of industrial relations as well as at other facets of Soviet society. The aim here, according to him, is to put people into the functions of social owners and manufacturers. In his view, the decentralization of industrial relations is of high importance, as the government makes more flexible the regulation of labour at

Introduction

29

local, regional and enterprise levels. The Soviet government believes that these measures will make possible a greatly increased degree of success in labour market flexibility and effective employment patterns.

Conclusions In Western Europe the movement toward flexibility and new patterns of employment arose, I believe, from evidence that some of the crucial functions of the employment relationship for the parties and society were not being performed very well. As to employee interests, the rapid rise of unemployment, particularly of the long-term variety, and the unfavorable comparison to the American experience, gave rise to the perception, justified or not, that inflexibilities needed to be gotten rid of to improve job security. From the employer perspective, the need to compete internationally and the rise of new technology were environmental factors that seemed to argue strongly for more managerial discretion to ensure not only profitability but survival of firms. At the same time, and through the same forces, the ability of employers to institute these changes increased dramatically. It should be noted that at the same time in the U. S. "rigidities" have been increasing, as limitations on the employment at will doctrine have been increasingly erected by the courts, and plant closing legislation has been passed, as well as an increase in the minimum wage. This may be linked to perceptions that the employee security interest is being inadequately served, but seems to be taking place under conditions where employee interests do not seem to be especially powerful. As to the public interest, the general security of employment and the profitability of capital in Western Europe seemed in jeopardy because of differences between some structures in Europe and those in the United States and Japan. International competitiveness seemed threatened by the relative inability of European firms to control labour costs and the quality of goods produced. Last, change seemed possible without too much disturbance, chiefly because of the high unemployment rates that could be used to convince workers and unions that the changes were necessary, and also put them is such a weak position that it was very difficult for them to resist. Changes in employment relations occurred in the last decade in all of the countries discussed in the essays in this chapter. Indeed, in many aspects of employment the atypical has become the typical. It appears that these changes have resulted from an increasingly competitive international environment, new technology, and other factors. They have had as their channel of influence the assertion of managerial power, but the arguments have been framed in terms of the public interest. It does seem, however, that the forces of capital and those who serve them have seized an opportunity that has had the consequence of placing them in an improved position relative to government, unions, and employees. This may all be for the good. It does, however, remain to be seen whether the main public policy goal asserted in Western Europe in justification for these changes, the reduction of unemployment, will eventuate. Although with the approach of 1992 it is necessary to take quite seriously the question of evaluating effects of different flexibilities and patterns, it is extremely

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difficult to do so. This may be partly because the benefits of flexibility are easier to measure than the costs, or simply that the question is an inherently difficult one. There are, however, a number of indications that the new flexibility in Western Europe has had some beneficial effects. Increases in flexibility do increase the choices available to individual workers, attracting more and different kinds of people into the labour force. There is some evidence that productivity rose in West Germany and France in 1986, about the time that some of the flexibilities might have been expected to take effect. In addition, there is some evidence from surveys in Italy that employees are more positive than negative when asked about their feelings about increases in shift work. Furthermore, it may be that unemployment has been kept from being higher than it might otherwise have been. In addition, it does make sense that increasing the flexibility of managers to manage should increase efficiency, given the managerial role in ensuring efficiency. The new flexibility in Western Europe has been criticized on a number of counts. It is asserted, for example, that there is no evidence that it has lowered unemployment. One commentator has cited a study in Austria showing that unemployment was not improved by increased flexibility. Another has argued that not the number, but the distribution, of the unemployed is changed by the flexibilities. Changes in hours are said to lead to speedups in work and increased overtime work. There is some evidence of safety problems being created by having temporary workers on the job, one Italian study showing much higher accident rates among temporary workers. Flexibility in job content has been accused of encouraging management by stress. The effects of flexibilities on the standard of living are said to be at best unclear. There has rather clearly been a negative impact on unions, one commentator even suggesting that the collective nature of labour relations, upon which unions are based, is challenged by these developments. It is said that flexibility is a God that is not to be followed too closely if one is concerned about the quality of long term employment relationships. In both Japan and the US their respective flexibilities have been relatively functional for the societies and the parties. These structures have been reinforced by the enormous power of employers in both these systems. However, in both countries forces are at work that seem to be threatening their flexibilities. Japan's high degree of employment security, as precondition for internal flexibility, is becoming less practicable. In response to the declining functionality of internal flexibility for efficiency, Japanese employers appear to be moving systematically toward new external flexibilities, using more part time and temporary employees. There is also the enduring problem of exploitation of women workers in the Japanese system. In the US the extreme lack of protection in an increasingly de-unionized industrial relations system appears to be bringing about a reaction from the political system, demanded by employees in their role as citizens. This could be viewed as a response to the extreme dysfunctionality of the highly externally flexible system from the standpoint of the employee security interest. Perhaps it has met less resistance than would have otherwise been the case because of employer perceptions that increased internal flexibility would be favored by greater job security. These developments, coupled with increasing flexibility in Western Europe, may be bringing about a significant degree of convergence.

Introduction

31

In the Soviet Union, the insights of capitalist neoclassical economics seem, interestingly enough, to be at their greatest strength. There, labour market ideas of the traditional sort constitute a particularly useful tool for both understanding and policy prescriptions. Using our industrial relations framework for analysis, what would be predicted for the future? To begin with, perceptions of the effects of increased flexibility and new employment patterns in Western Europe would be expected to influence whether they are extended or reversed. If employees and union officials, as well as the public and public officials, see the recent changes as having helped the problem of unemployment, thereby being functional for employee security interests and public interests in avoiding substantial unemployment, one would predict tensions to extend, or at least preserve, these flexibilities and patterns. If, on the other hand, these actors do not believe these structures to serve these functions or others that they value, tensions will probably be generated to change them. Employers are likely to want to maintain them. However, both the strength of their desire to do so and their ability to resist pressures for change is heavily dependent upon perceptions as to their functionality. Even more important to employer attitudes are their perceptions as to the effects upon efficiency. What these perceptions are will depend rather heavily upon the actual workings of the labour market in response to what have largely been changes in the laws. The evaluation of these effects will in turn depend upon considerations related to the general welfare. This has to do not only with unemployment rates but also with the quality of working life, level of income, individual dignity and personal fulfillment of workers at the workplace. Hopefully, this analysis has illuminated the developments in labour market flexibility and new employment patterns. It is also hoped that the method of analysis will help to make sure that the proper questions are at the forefront of our considerations when evaluating these institutions as they are now. It is important to remember that, as the Dahrendorf Group of the OECD says, the goal is not just economic efficiency but also individual welfare and social progress. Notes 1 This view draws upon traditional organizational analysis. See Tom Burns and G. M. Stalker, The Management of Innovation, 2nd ed., London: Tavistock Publications, 1968; Neil J. Smelser, Theory of Collective Behavior, New York: The Free Press, 1962; Paul R. Lawrence and Jay W. Lorsch, Organization and Environment: Managing Differentiation and Integration, Cambridge: Harvard Graduate School of Business Administration, 1967; Richard L. Daft, Organization Theory and Design, St. Paul: West Publishing Co., 1983, pp. 4 0 - 7 9 . 2 John R. Commons, The Economics of Collective Action, New York: The Macmillan Company, 1950, p. 43. 3 Hoyt N. Wheeler, Industrial Conflict: An Integrative Theory, Columbia: University of South Carolina Press, 1985, pp. 1 4 - 1 8 , 1 0 3 - 1 4 6 . 4 Jack Barbash, "Equity as Function: Its Rise and Attrition," in: Theories and Concepts in Comparative Industrial Relations, ed. by Jack Barbash and Kate Barbash, Columbia: University of South Carolina Press, 1988, pp. 1 2 0 - 2 1 ; Noah M. Meltz, "Industrial Relations: Balancing Equity and Efficiency," in: Barbash and Barbash, pp. 111—12. 5 Jack Barbash, The Elements of Industrial Relations, Madison: University of Wisconsin Press, 1984, pp. 3 - 8 .

Developments of Working-Time Patterns and Flexibility Tiziano Treu

The Factors Impacting on Working-Time Flexibility In the last decade flexibility has become a key word in the labour relations field and working time has been a main area for testing its implications, particularly in western Europe. Two main factors relating to the flexibility question stem from labour offer and demand: namely, increased economic pressures at the national and international level requiring changes in the organisation of work, which changes are in turn influenced by technological innovation; and changes in the structure of the labour force (femininisation and tertiarisation) which account for social and cultural changes in the appreciation of work as against free time, family activities, etc. These two factors imply different attitudes towards flexibility by the various parties to industrial relations: by the employers and the trade unions but also by employees as individuals. If the initiative for flexibility in working-time patterns (as with other flexibility issues) has been mostly taken by employers, here the importance of individual attitudes is possibly greater than in other areas, and is particularly strong among young workers and women, which represent the future trend of labour force patterns. These factors account for different meanings of flexibility, for the employees it means a more "individualised" balance between work and private life; for the employers it is a means of better adapting production to demand, of fully exploiting productive capacity and, in general, of increasing labour productivity. The forms and the effects of flexibility required by the two sides may differ accordingly. Those required by enterprise needs may conflict with the "personal" optimum combination of working time demanded by individuals and may have negative employment effects due to the intensified use of manpower. The possibility of reconciling the welfare and "personal" motivations of work-time flexibility with its economic rationale and constraints has been and still is a critical issue. A further factor that increases the complexity of the issue is the trend toward work-time reduction. The experience of the last decade, as analysed by most observers, confirms that reduction of working time and multiplication of workingtime patterns are both long-term trends common to most European countries, even though they have different intensity in different countries and periods. It is also clear that these two aspects are inter-related at least in two respects. In recent bargaining rounds flexibility has been the major quid pro quo demanded and obtained by employers in return for working-time reductions demanded by the trade unions. But flexibility is not merely a counter-demand or tactical response from employers to trade union pressure for working-time reduction. There is a long-term and

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strategic element in the employers' demand for flexibility. Nevertheless, the quid pro quo element is important and it is here to stay. In fact, the union pressure for work-time reduction continues, as is demonstrated by the negotiations beginning with that of German metalworkers and printers (which fixed the working week at 37.5 hours from April 1988 and at 37 from April 1989). Faced with this pressure, the employers have found that a counter-demand for flexibility in working schedules is a more practicable response (to reduce costs) than either a simply negative stand or a demand for wage compensation or reduction. Moreover, this type of tradeoff has been looked upon favourably by European governments as being socially more acceptable than any other. It is also recognised that work-time reduction itself is linked to "welfare" reasons more complex than the original protection of health and safety, and which include quality of life objectives. In spite of these connections the relationship between flexibility and reduction of working time is most controversial not only in collective labour-management relations but also from the point of view of the union-employee relationship. The objective of working-time reduction may not be easily compatible with the employer's search for productivity or with the employee's evaluation of leisure and better (real) wages. The combination of these three different targets — productivity, personal accommodation, employment redistribution — sought in different degrees by employers, employees and trade unions has become particularly difficult since the mid-1970s, mostly as a result of worsened economic conditions — slow growth, increased international competition, etc. The relative improvement of these conditions in the second half of the 1980s might reduce the difficulties. But a distinction must still be made between large and small firms, between core and peripheral workers, between rich and less rich areas. Positive compromises are more likely in the former cases than in the latter. As we will indicate below, some signs can be detected showing that the alternatives in the areas of work-time flexibility and reduction have become less dramatic than a few years ago, at least in the central areas of the labour market. Some trends are visible and allow a clearer systematisation of the forms of flexibility and of the techniques of their introduction and regulation. Even so, the uncertainty of the economic and social scenario for the 1990s, and the persisting dualisms within Europe suggest the greatest degree of analytical caution. The variety of working-time arrangements has so greatly increased in the last years that it has dramatically altered the traditional pattern on which labour relations were built: i. e. a standard working week in a standard working year for a fixed period of years until retirement. The multiplication of different regimes of working hours has also made for a separation between personal working time and operating hours of the productive unit. These "non-standard" arrangements range from well-known systems like overtime and moonlighting, part-time employment (which has been spreading faster than ever), temporary employment and shift work (both on the rise) to more recent forms like job-sharing and work-sharing, voluntarily reduced working hours, phased retirement, work-year contract, longer sabbaticals and leaves of absence, flexitime and telecommuting (or telework). Significantly, self-employment has also been increasing steadily in many countries.

Developments of Working-Time Patterns and Flexibility

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The Sources of Regulation: Statutory Law1 Given the implications of these flexible arrangements, it is not surprising that they heavily depend, but also exert influence, on the normative regulation of working time and on the structure of industrial relations. In both respects the issue of flexibility in general and of working time in particular has been debated much more in Europe than in the United States and Japan. The main reason is that labour flexibility in its various aspects is effected more easily in the context of the industrial relations system and the labour legislation of these two countries than in Europe. A major and preliminary issue arises in most European countries which have a statutory law tradition that limited a flexible use of working time through provisions concerning maximum hours of work; restrictions on night work; overtime pay with the purpose of discouraging an excessive use of overtime; compulsory weekly rest and prescribed paid holidays, etc.; and annual vacation. Many "quantitative" limits to working time imply some sort of restriction on qualitative work-time arrangements (e. g. shift systems). Against this background, collective bargaining had the well-known function of fixing actual working time (daily, weekly, yearly) either improving or implementing legislative standards. The same regulatory approach traditionally limited the patterns of employment relationship with respect to time. What we now call atypical or precarious forms of employment (part-time, fixed-term, temporary or intermittent work and mixed forms of employment-education) have always existed, but have assumed new significance. For example, in most countries, legislation limited the possibility of the collective and individual parties to stipulate fixed-term contracts on the assumption that the fixing of a term endangered the positive principle of employment continuity.

The Techniques of Flexibilitation Most of the "rigidities" of traditional labour legislation have been either abolished or softened during the last decade, thereby opening the way to greater flexibility in the organisation of work-time. Usually this has required legislative intervention; which confirms that state initiative in labour relations is still quite relevant. Here the effect of the law has been to liberalise and legitimise flexible work-time and employment patterns, by removing pre-existing legal obstacles. Among the most relevant examples are: legislative reforms allowing for a wider use of fixed-term work in Italy, Sweden, Spain, France, the Federal Republic of Germany; legislative provisions reducing some restrictions on part-time work (Italy); provisions easing daily and weekly maximum work standards; provisions allowing employers greater responsibilities to organise work-time during the year (Spain, 1984), or to individualise work schedules (France); provisions abolishing or loosening restrictions on night work, and compulsory rest periods for women workers (Italy, Act 903/1977; France, Act of June 1987).

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The Promotional Role of Legislation The role of statutory law has at times been more complex than that of simply "deregulating". The law has sought to promote new working patterns that intentionally favoured employment (as well as flexibility). This has been widespread in continental European countries, particularly for specific groups of (disadvantaged) employees. This is the case of legislation, and State action in general, which has favoured education contracts of various forms for young persons, solidarity contracts, other forms of work-sharing and, sometimes, the encouragement of parttime work (France and Sweden). The promotion of these work-time arrangements is pursued with different techniques, but usually implies itself a certain deregulation. Significantly enough, the loosening of rigid provisions on fixed-term and part-time work has often been first experienced with respect to specific groups or sectors (Italy, Federal Republic of Germany). This has made legislative innovation more acceptable to trade unions. However, the effectiveness of this promotion remains to be demonstrated. A peculiar combination of deregulatory and promotional objectives has been adopted by the French legislation of 1982. The possibility recognised for the parties to adopt flexible working-time arrangements, contrary to previous patterns, is recognised only if the same parties adopt some measures of working-time reduction. But this attempt to establish by law an explicit link between work-time flexibilisation and reduction met with strong resistance, mainly by the employers, and was abandoned in the legislation of 1986. The Belgian Act of March 1987 permits the adoption of flexible working time and the extension of hours beyond the standard on the condition that the measures (to be agreed upon) have positive employment effects. A peculiar type of promotional legislation has been introduced in most countries in order to favour forms of working-time reduction over one's lifetime, such as early retirement, or phased exit from the labour market. The reason is essentially practical: the need for State financial support to the parties' arrangements on early retirements (similar to, or even more acute than, the need to favour youth employment).

Controlled Flexibility The techniques of legislative intervention are different in another manner. A sheer deregulatory technique implies an abrogation of previous legal rigidities with the consequence that the parties are free to fill the legal vacuum as they wish and according to their (individual or collective) power positions. The main objection to this technique is that simply creating a "void" in this area might give complete leeway to the discretion of the employer in an area (the shaping of work schedules) which should more appropriately be subject to social and/or collective consensus. For this reason the introduction of most forms of work-time flexibility has been subject to some sort of collective procedure, of consultation or bargaining, sometimes coupled with public control. For example, in Italy, night

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work for women can be introduced only on the basis of a collective agreement (Act 903/1977). The situation is similar in respect of fixed-term contracts. Certain education contracts must be approved by a tripartite regional employment commission and be reflected in collective agreements. Work-sharing in solidarity contracts must follow from a collective agreement plus a decree approving the intervention of the special social security Fund which pays 50 per cent of wages lost for the reduction of work-time (Act 863/1984). The French law of 19 June 1987 allows modularisation of work-time on a yearly basis and raises to 44 hours weekly the limit beyond which overtime must be paid, provided that agreement on this is reached at the enterprise level. Similarly the law provides that the prohibition of night-work for women can be waived by collective agreement (under some conditions). In Belgium the Act of 7 March 1987 (which extended the so-called Hansenne Experiment of 1982) permits the adaptation of work-time subject to previous concertation with representative unions at the enterprise level; where unions are not present a procedure of information with possibilities of raising grievances is called for and control may be exerted at sectoral level. Similar conditions are provided for regarding the annualisation of work-time by the Social Recovery Act of 1985. The draft of a new Act on working time expected in the Federal Republic of Germany provides for the transfer of responsibility for developing adequate working-time patterns to collective agreements and works agreements. 2 All these provisions have in common a policy option, namely not to endorse sheer deregulation but to promote a sort of a re-regulation by way of "negotiated and controlled flexibility". This is consistent with the main character of most European systems: while reducing the scope of legislation, they have confirmed collective bargaining as the privileged way to regulate labour-management relations. In the particularly controversial field of work-time flexibility (made even more controversial by the legal vacuum) collective bargaining is explicitly promoted as the most acceptable instrument to balance the opposing interests of the parties: the employer's need for efficiency, the employee's preferences and, possibly, protection of employment. The trend towards flexibilisation implies a modification — more or less profound — of some fundamental tenets of traditional labour law. The most frequently discussed is the principle of favour or of economic public order (to use the French terminology): i. e. the principle whereby statutory law can be derogated from only in melius, or to the advantage of employees. The concepts of "more or less favourable" terms are easy to verify when applied to traditional economic or normative regulation of working conditions. They become more ambiguous when relating to matters like work-time arrangements or other aspects of flexibility, whose implementation is linked to variable organisation of work. Moreover, these regulations apply to a matter — organisation of work — largely coming within management prerogatives and subject to unilateral changes. So, employees' individual rights (with regard to working time) with which to compare the "more or less favourable treatment" may simply not exist. Significantly, the legislation introducing these forms of controlled flexibility is usually itself the result of bargaining or of social concertation. Such concertation

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can be informal but is often quite formal as in Italy and Spain, where directives on flexibility and reduction of work-time have been agreed upon in central tripartite agreements (between 1983 and 1985).

The Role of Collective Bargaining: Centralisation and Decentralisation The interplay of legislation and collective bargaining is the rule in this area of working time although with different emphasis according to the systems and the issues. The particularly "strong" use of statutory law in France corresponds to a long-standing legislative tradition and to the relative weakness there of collective bargaining. This is true also for Spain even though here the role of social concertation has been decisive in allowing legislation to play a role. There is less use of legislation in Italy and the Federal Republic of Germany, consistent with the key role acquired by central collective bargaining in shaping major developments of their industrial relations systems. Deregulation plus decentralised action through management initiative have prevailed in the United Kingdom and the United States. This corresponds again to a wider orientation of these systems to favour market forces. A generalisation is, however, possible. While legislation has been decisive to legitimise and to promote work-time flexibility, collective bargaining has usually been the main instrument for shaping the concrete forms of flexibility. The level at which bargaining takes place varies according to the systems and to the issues. However, here too, some generalisations are appropriate. On one hand, the pressure towards planned reduction in working time by trade unions and some governments tends to favour central action and co-ordination. Central initiative can better realise the solidarity-related objectives of quality of life, welfare and redistribution of work opportunities, and allows implementation of working-time arrangements sufficiently substantial to be effective, and to avoid the intended employment effects being eroded by competitive imbalances between firms. On the other hand, not only the demand for flexibility but the actual implementation of flexible work-time arrangement requires some decentralisation of initiative to the level of the enterprise, or even of small workshops and groups. The trend towards decentralisation in collective bargaining over work-time arrangements is reported even in traditionally centralised systems like those of the Nordic countries, of the Netherlands and of the Federal Republic of Germany. The unions themselves have agreed that the possibility of centrally controlling all matters of working time is illusory. The need to reconcile the necessary decentralisation of bargaining on flexibility with central control over the process has made for stress on the collective bargaining structures of the various countries. Co-ordination of bargaining levels over worktime arrangements has proved almost as difficult as co-ordination over wage bargaining. This is not surprising given the nature of the issue. The increased differentiation of work-time patterns is challenging not only the traditional forms of central control of industrial relations, but also the "normative" capacity of legal

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and contractual rules to regulate the matter. These rules have been framed to set uniform measures on wages and working conditions of fairly standardised employment relationships (full-time employment contracts in industry, for indefinite periods); now they have to cope with highly differentiated, atypical hourly schedules and employment patterns which may well "frustrate" their regulatory capacity. Moreover, at decentralised levels the pressures toward the individualisation of work-time patterns may be so strong as to challenge the very collective nature of labour-management relations.

Guide-Lines and Typologies of Work-Time Arrangement A common although tentative solution adopted to this problem has been to fix at the national level the guide-lines of flexibility to be implemented at enterprise and plant level. These guide-lines usually include not only the dimensions and limits of flexibility, and of work reduction, acceptable to the parties, but also the procedures for its implementation. This solution is consistent with the central position of industry-wide bargaining in most European countries. Moreover, it emphasises its double role: i.e. of setting both normative and procedural standards for labour management relations at lower levels. Examples of this can be found in the major national agreements of various European countries since the early 1980s which gave the first significant impulse to this trend (France in 1982; Federal Republic of Germany in 1984; Italy in 1983; Netherlands in 1985; Spain in 1983). While it is impossible to enumerate in detail the content of these provisions, a rough typology can be sketched. (a) A first and most important type of clause regulates the distribution of hours over a weekly and/or multi-weekly period. This in fact is a major point of controversy not only between unions and employers, but also among employers. 3 These clauses try to mediate the pressure, coming mainly from the trade unions, for a standard reduction of the working-week and the opposing interest of calculating working time and spreading its reduction, over periods longer than a week. This latter possibility has been increasingly acknowledged in collective agreements as being beneficial for work organisation, in so far as it can deal with variations in activity, and possibly also for the employees. The guide-lines fixed in the same agreements may set differing limits: limits of variations allowed in weekly working-hours (e.g. between 37 and 39.5 in the Federal Republic of Germany or up to 48 in the Italian textile industry) and sometimes in daily working time; the multi-weekly periods over which the average working time has to be respected, e. g. two months now extended to six in the Federal Republic of Germany (the reductioin of average working time is the quid pro quo demanded by the unions) or the maximum total extra time allowed during the year (to be transformed in special rest periods on an individual or collective basis). In various forms therefore the idea of annualisation of working time, as a way of flexibilisation, is gaining ground. 4 (b) A major implication of this type of flexibility has been to allow the enterprise variations in working schedules over the standard weekly and daily time without

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the higher costs deriving from the applications of overtime bonus. Sometimes the agreements provide that the hours worked in excess of normal working time have still to be rewarded with an extra bonus but lower than usual overtime rates (e. g. Italian textile agreements). In France it is possible through agreement to compensate overtime with longer rest periods (1.15 or 1.30 hours for each hour or overtime) instead of bonus rates. (c) A reversal of the past trend of strict control of overtime has been apparent in most countries in various forms: increase in the total number of overtime hours allowed; more leeway to employers to use at their discretion at least part of these hours; and reduced cost of overtime. Indeed flexibility in this direction (like that under (a)) has increased so much as to evoke reactions by some national unions. A major preoccupation of the unions is not only to retain control on distribution of overtime but to avoid the use of increased overtime to frustrate the redistribution of employment pursued through work-time reduction and recently reasserted as a major objective by the European Trade Union Confederation. For this reason a major attempt of the unions is to condition their approval of overtime on its being compensated by rest periods. Economic disincentives to the use of overtime are also envisaged as reflected by the proposal of some Italian unions relating to differentiated social contributions and fiscal benefits according to the number of hours worked in the week and in the year. (d) Work on Saturday and Sunday is usually not included in the general provisions concerning weekly and multi-weekly working-time flexibility; it requires specific provisions, which are however not very common. Work on Saturday and on Sunday to meet peaks of activity is still usually bargained on a case-by-case basis. In Belgium a recent national collective agreement allows work on three Sundays, one before Christmas and two to be bargained at local level (in any case to be accepted by the individuals concerned). The resistance to a longer working-week remains in fact strong, particularly among male employees, while women workers, in some countries, are more inclined to trade off a longer work-week for a shorter work-day. Among the most interesting developments in this type of flexibility are those agreements which allow regular work on Saturday in case of the adoption of a 36-hour week with a shift system (six shifts of six hours per six days). This system has become quite common in the Italian cotton industry and implies night-work for women (agreed upon in the national agreement). Agreement over regular Saturday work can be found also among office employers, again in conjunction with a reduced work-week. (e) A major expression of the trend towards flexible working-time arrangements is the increased use of shift work, an increase both in the total quantity and in the variety of fornjs. The regulation of shift work has always been, and remains, a major subject of collective bargaining. Generalisations in this respect are hardly possible given the variety of regimes. The place and forms of regulations in the various countries reflect more than ever the structure of collective bargaining systems. Central standard regulations are adopted in those countries and sectors where national bargaining agreements exist; in the others, shift work is typically a matter of decentralised-enterprise or plant-wide bargaining. (f) The diffusion of part-time work is one of the major aspects of work-time

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flexibility. Indeed, it comes under the trend towards new patterns of work-time more than toward its reduction. While the trend is common to all European countries its dimension varies considerably: from over 25 per cent of the workforce, e. g. in the United Kingdom, to a minimum in Italy (5 per cent of the workforce). In this country, the legislation still poses rather restrictive conditions on the use of part-time work. 5 Indeed most European unions, while accepting in principle the positive effects of part-time work on employment, continue to be preoccupied by its possible discriminatory use and the reduced social protection of part-time workers. Consequently, the unions' objective is mainly to regulate the forms and conditions of part-time work. The typology of part-time work in fact is quite varied. To the traditional "horizontal" parttime, many forms of "vertical" part-time have been introduced, as being beneficial to both parties' interest. For example, vertical yearly part-time work (certain weeks or months every year) has been considered a valuable alternative to fixed-term contracts, and more favourable to employees since it can afford a measure of job security. However, vertical weekly part-time — particularly in the form of week-end work — has been questioned by some trade unions since it implies regular work (only) on Saturday and Sundays and consequently a much sharper "separation" between the part-timers and the rest of the workforce than horizontal part-time. However, this form too is reported to be on the increase. The regulation of part-time work by collective agreement varies in extent and in uniformity. A major variable is again the structure of the bargaining system. In the countries and sectors where national industry-wide agreements prevail, a standard regulation is usually adopted. This may be general, or it may consist of very detailed provisions, common in a few Italian collective agreements, which, for example, state the maximum number of parttimers allowed in proportion to the total workforce; the wage to be paid (sometimes more than proportional to full-time); the right of part-timers to return to full-time work with priority over new employees, etc.

Perspectives As indicated above, innovation in working-time patterns has proved to be a major trend in the last decade, together with, or even more than, the parallel trend toward work-time reduction. The typology that has been sketched confirms that variety is still the rule in many aspects of this area of labour relations, and particularly in the forms and conditions of flexibility, in the techniques of its regulation and control. Moreover, the bargained guide-lines indicated above are applicable only to part of the labour relations systems. They leave out areas which are not reached by collective bargaining: in particular small firms and peripheral workers. For this reason, a consistent regulation of this matter within each European country is still a difficult task. Harmonisation among the various European systems, which is a major target for 1992, will meet with even greater difficulties. But working-time duration and arrangements are certainly a major factor of productive competitiveness (particu-

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larly important in an innovative and service-oriented society) as much as they are a key aspect of quality of working life. The need for flexibility has been widely recognised, in practice even more than in principle, by trade unions. On the other hand, the risks of unlimited flexibility are also acknowledged by many employers. Some evidence suggests that the cost of handling unbridled flexibility may exceed its advantages, not only social but also economic. It is commonly recognised that the effects of work-sharing, like those of flexibility, on employment and productivity are difficult to evaluate. A trial-anderror approach seems to be prevalent. Significantly enough, the actual implementation of working-time arrangements has been more varied than originally envisaged by the two opposing actors. A wide spectrum of measures has been applied, taking into account economic constraints and the need to find a balanced mix of worktime reduction and flexibility. A small reduction of the working-week has been combined with annual work-time reductions, contributing to the modularisation of working time; working patterns have been differentiated ranging from flexitime to an increased variety of shift work, to more flexible use of overtime; greater development of part-time, and occasionally phased entry and exit from the labour market. The very forms and techniques of these combinations vary: and it could hardly be otherwise. But the consensus that some combination is socially desirable or inevitable has grown in most European countries. So has the idea that this search must be pursued with the contribution of all the actors of the industrial relations system. The pars destruens of legislative intervention, i.e. removing legal obstacles to flexibility, is basically over. But the role of the State in promoting and guiding new patterns of working time is still important, if not through legislation, through its action as an employer and as an agent of active labour market policies. This latter role may be appropriate not only for the individual States but also for the European Community authorities. The social partners have the major responsibility in the actual implementation of flexible working arrangements. Demands for an increasing "personalisation" of working time are being expressed by various groups of employees and may be a threat to the unions' capacity to control working conditions. This trend is part of a wider challenge to the representative character of the trade unions. But the perspective of a drastic individualisation of labour relations appears to be less likely now than at the beginning of the 1980s. Much depends on the policy choices of the parties themselves and on the adaptability of labour-management techniques. The challenge directly concerns the employers because their pursuit of flexibility must take into account the needs of a more educated workforce. But the challenge is greater for the trade unions that have to respond to the pressures for greater individual diversity of work-time patterns, and for production flexibility, without losing the collective objective of redistributing employment and of maintaining some minimum standards of work. They have to cope with the growing number of peripheral workers, i.e. try to internalise them, while still having to count on the core labour force. The traditional institutions of industrial relations are challenged because they were devised for a stabler and more homogeneous reality than that prevailing in the "service society".

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Flexible production and the diversified preferences of the workforce, which characterise the future, call for more flexible models of labour law and collective bargaining. Recent experience has convincingly demonstrated the "illusion of rigidity". The search is open for improved procedures — legal and consensual — capable of working out adaptable working patterns which are also socially acceptable.

Notes 1 Detailed information on regulations of working time in Europe can be found in R. Blanpain and E. Kohler, Legal and contractual limitations to working time in the European Community Member States, Deventer/Netherlands: Kluwer, 1988. 2 See M.Weiss, "German report", in: Legal and contractual limitations, op. cit., p. 231. 3 See T. Treu, "New Trends in Working Time Arrangements. Introduction", in: Alan Gladstone et al. (eds.), Current Issues in Labour Relations, Berlin, New York: de Gruyter 1989, pp. 149-160. 4 See R. Blanpain, "General report", in: Inegal and contractual limitations, op. cit., p. 25. 5 The part-time employment contract must be concluded in writing indicating the job and distribution of working-hours. A copy of the contract must be filed with the provincial labour inspectorate. Even stricter formalities are provided for the transfer from full-time to part-time in order to protect the employees: a written agreement of the parties and confirmation from the provincial labour office, after hearing the employee concerned, are required. Overtime is forbidden unless provided for by collective agreements and is for specific production purposes.

Flexibility and Contracts of Employment: Western Europe Antonio Ojeda Aviles

Basic Concepts In appraising the evolution that has taken place in recent years in the forms of contracts of employment we should bear in mind that, until the world economic crisis of the early 1970s, there were essentially a "standard contract", which was concluded for an unspecified period in respect of full-time work, and a "temporary contract", which was subject to statutory restrictions as regards its use by employers. The simplicity of the contractual system in Europe is accounted for, perhaps, by an obvious fact: the full employment that existed until the late 1960s, as reflected in the following table showing percentage rates of unemployment in 1971 (OECD, 1983): Canada United States France Germany, Federal Republic of Italy Spain Great Britain

5.8 5.1 1.5 0.6 3.7 2.1 3.1

per per per per per per per

cent cent cent cent cent cent cent

During the 1970s, there began to be felt in Europe the need to deal with the "social dumping" used in its various forms by the countries of the Pacific basin to penetrate international markets. One of the problems in this regard was the lack of rules governing contracts of employment — subsequently referred to as "contractual flexibility". The legislation and collective agreements in the various countries of Europe had established a solid system of guarantees for workers, including restrictions on the use of atypical contracts of employment and, because there were strong and militant trade unions, these guarantees could hardly be abolished or neutralised. However, as the crisis became manifest conservative parties took control of government, employers began to take the initiative in industrial relations, and the trade unions' strength was weakened, with the consequence that towards the mid-1970s it became feasible to enact legislation permitting "precarious" forms of contract. For this purpose European governments began cautiously to make new rules removing restrictions on the use of such contracts or enlarging the scope for their use, the idea — real or ostensible — being to promote the employment of the unemployed, and above all the employment of young persons, who were mainly affected by the crisis. Before very long, the range of the contracts encouraged by the law-givers broadened, to the point where one could find various forms of

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atypical contracts that combined temporary employment with vocational training and part-time work; eventually one could count at least 13 such forms of contract. By means of these new forms of atypical contracts — differing from those for an unspecified term in respect of full-time work — the various countries of Europe acted very fast to change the pre-existing situation: whereas up to the time of the economic crisis the number of workers with atypical jobs could be estimated as accounting for about 10 per cent of the total labour force, since then their number may be reckoned to have risen to the point where they account for about 30 per cent of the total. As indicated in the Memorandum of the Commission of the European Communities entitled "Internal and external adaptation of firms in relation to employment" (1987), recourse to these contractual forms is spreading in the secondary employment market for the purpose of recruiting women, young persons and relatively unskilled workers in general. Three general features should be noted, which are the result of the circumstances in which the diversification of contracts has taken place — (a) Since the majority of unemployed were young people, the forms of contract most commonly used were those under which work alternates with vocational training, and above all the so-called employment-and-training or on-the-job training contract. (b) When, in response to the economic crisis and to unemployment, such contractual situations spread, they tended to assume the form of what have come to be known as "light contracts", the object being to encourage employers to give employment. The consequence is that there are hardly any new forms of permanent contracts of full-time employment; instead, the new kinds are variations of the contract for temporary and part-time employment. (c) As the countries of southern Europe were hardest hit by the crisis, these were the countries that mainly initiated a good many experiments with contracts, though of course there were also innovations in Germany, Belgium, the Netherlands and Great Britain. The methods used by the different governments to encourage employment under atypical contracts — which are becoming progressively less atypical and hence should preferably be called precarious contracts — are the following: (a) Abolition of restrictions, especially as regards temporary and part-time contracts: for example, employment under a temporary contract is allowed even in the absence of any of the reasons hitherto specified in the legislation; or else the administrative permission which hitherto had been required for the conclusion of temporary contracts is dispensed with, as happened in France in pursuance of the Ordinance of 11 August 1986. (b) Financial subsidies, specially in connection with contracts for the training of young persons. In some cases, these subsidies take the form of the payment of monetary amounts to employers in respect of every such employment; in others, they take the form of exemption from the payment of the mandatory contributions payable by the employer in respect of the social insurance of the worker concerned; in yet others, they take the form of some kind of facility granted to the employer, such as official guarantees or credits or licences to carry on business; and, lastly, there may be a combination of all these incentives.

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(c) A lowering of the level of "standard" conditions of employment as regards persons employed under such contracts, specially where these are young persons. This usually takes the form of the establishment of wages inferior to those paid to adult workers and of leaving uncovered or unprotected certain contingencies normally covered by social security. The former of these cases (lower wages) is found in a number of countries, reaching an extreme form in Great Britain and the Netherlands where the minimum wage is abolished or suspended with respect to young persons, the wage being fixed by the employers themselves; among the countries adopting the other course (non-coverage of contingencies) one may mention Spain, where the Decree of 31 October 1984 provides that the employment of young persons for in-service or other training is to be left out of account for purposes of retirement pension. It may be said that, while in phase (a) the object of the legislation of the various countries was to put these types of contract on a footing of equality (as regards requirements) with the contract for an unspecified period, in the following phases the driving idea was to readjust the balance, but this time in favour of these precarious contracts by lowering the level of the statutory requirements. However, in this essay we shall not analyse these methods of encouraging atypical forms of contract; instead, we shall consider the nature of these new forms of contract and their characteristic features. We shall, then, describe the 13 types of contracts of employment that have made their appearance in Europe in recent years, though naturally the analysis will also cover the types of contracts that have been greatly modernised in their structure in order to make them more flexible, an outstanding example being the contract of apprenticeship. The contract for home work has also become widespread in Europe, particularly the variant known as "tele-employment". The reason why such contracts will not be discussed in this context — even though we regard them as contracts of employment — is that their development is guided by considerations extraneous to the typical contract and reflects, rather, the present circumstances of industrial organisation. The group of contracts of employment with which our analysis is concerned have been the subject of an evolution in Europe. Their number and use have been increasing since the 1970s in response to the crisis and are increasing at present in response to the financial and legislative incentives referred to above. But the supporting legislation stopped proliferating as from about 1986, when the crisis ended in Europe and a new expansionary phase began. As from that time, new laws on the subject began to be more rare, the speed with which new rules were enacted lessened, and such legislation as was sporadically enacted was more in the nature of consolidating than of innovative legislation, making minor adjustments or improvements of some detail. Accordingly, the growth phase and the heyday of the legislation concerning these forms of contract can be said to have occurred in the ten-year period from 1975 to 1985, for it was in 1975 that France first introduced the job-orientation contracts, followed soon after by the national plans for employment with new variants, while as from 1985 there was a stabilisation of the promotional legislation at the levels attained, the imagination of governments looking for more flexible solutions having apparently dried up.

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The New Forms of Contract We shall now consider the lines along which the new forms of contract have expanded. 1. Contracts that are temporary because of specific reasons. Under the legislation of a number of European countries, for the purpose of concluding a temporary contract it is necessary to produce evidence of the existence of one of the situations specified in the law, e. g. the sickness of a permanent employee, the performance of a specific task, the inauguration of a new activity, seasonal work in agriculture or in the tourist industry. During the ten-year period mentioned above the tendency was to add to the number of situations justifying temporary employment, to permit the addition of such situations by means of collective bargaining, or to mitigate the legal consequences of temporary employment in breach of the law. The most extreme example of the liberalisation of fixed-term contracts is found in Italy, whose 1962 Act was one of the strictest in Europe: under various Acts (No. 79 of 1983, No. 84 of 1986 and No. 56 of 1987) it is now permissible to use such contracts in circumstances not envisaged by the 1962 Act, provided that the administrative authority consents or that the collective agreement so permits. Moreover (although learned opinion is divided on the point), it seems that where a party fails to observe the existing limits the consequence is not that the contract is deemed to be void or to be made for an unspecified period, but merely that it is held to constitute an administrative offence punishable by a fine. In Spain, too, not only have there been additions to the list of situations in which under the Act of 2 August 1984 workers may be lawfully employed temporarily, but furthermore the requirement that temporary contracts must be made in writing has been relaxed and it has become possible to renew or prolong the period of temporary contracts, beyond the time at which previously they could easily have been treated as contracts for an unspecified term. 2. Contracts that are temporary independently of any particular reason (so-called "free" contracts). Under the legislation of some countries, including those mentioned earlier, an employer who proposes to hire certain categories of workers that are in special demand is not required to give any "objective" reason for such recruitment, though in some cases the legislation prescribes a numerical limit or a limit in terms of a percentage of the firm's permanent workforce, or stipulates that the employer must not have been punished for any breach of the provisions concerning ad hoc recruitment on an earlier occasion; in countries where temporary employment was not subject to restrictions the rules have tended to encourage this form of employment by means of subsidies, tax concession and/or rebates of social security contributions, in the context of quite a number of temporary employment programmes introduced in Europe during these years. In Germany, for example, under the Act of 26 April 1985, amending the Employment Promotion Act, 1969, it is permissible provisionally to conclude temporary contracts, without any particular reason having to be given, for a term not exceeding 18 months, with the possibility of extending the term to two years, such contracts being intended for first-time applicants for employment; the French Ordinance of 6 August 1986, which is broader in scope, abolished the requirement to obtain the administration's

Flexibility and Contracts of Employment: Western Europe

49

permission for fixed-term and temporary employment contracts (in France, the latter are the contracts arranged through temporary help agencies) and in addition extended the maximum term of such contracts to two years. 3. Temporary contracts for young persons. Whereas in some countries the employment of young persons under temporary contracts in no way differs from that of other workers under such contracts, in others, by contrast, the conditions for young persons are worse in some respects. Owing to the age of the applicants and their urgent need — in the whole of Europe it is the young who most lack employment opportunities — there is scope for trying out combinations for which the incentive may be a lower wage payable by the employer — even a wage below the statutory minimum — and the partial reduction of the insurance cover, especially in so far as pension insurance is concerned. The plans in France, Spain, Italy and other countries for the employment of young persons contain many examples of this kind. 4. Contracts for older workers. The contract specially designed for older workers is barely known in Europe, because in view of the problems of this age group the legislature prefers to concentrate on giving older workers a guarantee of a longer period of coverage for unemployment or offering them the possibility of early retirement. In the few countries where there are special provisions for older workers (the Netherlands, programme for promoting the employment of older workers, in force since 1975; Spain, Decree of 28 December 1983), the specific object of contracts designed for older workers is to enable them to make an occupational adjustment to technological changes; for this purpose the employer is eligible for the benefit of a subsidy and/or for exemption from the payment of insurance contributions. 5. Apprenticeship contracts. The old apprenticeship contract has been given a new lease on life in some European countries (Belgium, Act of 19 June 1983), while in others it has been superseded by more progressive on-the-job training arrangements. In the former countries the old form of apprenticeship, with its rigidity and long duration, has been replaced to some extent by a variety of possibilities and by a modernisation of the obligations and duties of employer and worker. By using both possibilities some countries (Italy, Act of 28 February 1987) provide for the simultaneous application of both types of contract, that is, apprenticeship understood as the means of acquiring occupational skills for the more traditional occupations (the "heavy" type) and, by contrast, the "lighter" type involving a period of training properly so called. 6. On-the-job training contracts. This form of contract — which might be likened to a tree trunk that has grown many branches in the space of just a few years — has its main roots in France, where it began to be applied on a large scale as from 1975. Intended as a means of giving rapid training to young workers entering employment for the first time (in France, young persons between the ages of 18 and 26 years: Decree of 7 May 1983; in Spain, young persons between the ages of 16 and 20: Decree of 31 October 1984; in Italy, persons between the ages of 15 and 29: Act of 19 December 1984), this type of contract is characterised by the fact that it divides the young worker's available time into two parts, one meant for acquiring theoretical and practical knowledge, the other meant to be spent on productive work. The State awards a subsidy in respect of the training period, and

50

Antonio Ojeda Aviles

may even assume responsibility for it, and in addition grants certain insurance benefits. In practice, this type of contract has become a channel whereby young people gain an entry into the firms, in "light" jobs where there is "plenty of work and not much training". 7. Contracts of adaptation or of practical work. For young persons who already possess a skill and hence do not need to acquire it, a form of contract has been devised in some countries whereby young persons in possession of a specialised qualification may be employed in order that they should apply in practice the knowledge they have acquired in a job corresponding to their qualification, or — in the words of the French Decree of 19 May 1983 — in order to enable them "to adapt to the occupational practice and environment". The form of the contract varies greatly from one country to another; for example, in some the number of hours to be spent on theoretical training is not specified (Spain), whereas in others a minimum duration of the training period is prescribed (150 hours in France), such training being considered in any case as supplementing that previously acquired. 8. Job-orientation contracts for young persons. In one country provision is made for a form of contract for young persons between the ages of 18 and 26 years that is designed to provide them "with working experience ... in order to facilitate [their] entering employment in the undertaking or to enable [them] to draw up a career plan" (France, Decree of 19 M a y 1983). As can be seen, such contracts do not aim to give young persons a specialised skill, or to enable them to apply such skills as they already possess in practice, but rather to familiarise them with the occupational environment and — as a subsidiary objective — with the public training courses for adults ("within a 30-hour limit"). In the same country other initiatives have been developed on the border-line between contractual employment and extracontractual employment. The Decree of 17 July 1984, for example, makes provision for practical courses for young volunteers: these courses are intended for young persons between the ages of 18 and 25 years, they last for a period varying from six months to one year, are remunerated and involve commitment to full-time work on projects of general interest. A few months later, on 16 and 25 October 1984, decrees were adopted that develop — on the same extra-contractual lines — the programme of public interest projects whereby employment is given to young people between the ages of 16 and 21 for about 20 hours a week in non-profit organisations or in public agencies during a period varying from three months to one year, the remuneration being paid by the State. 9. Solidarity contracts. Such contracts exist in Great Britain, the Federal Republic of Germany, France, Italy, Spain and in other countries. They are of two kinds: defensive solidarity contracts, which involve a reduction in working time and in pay for the purpose of avoiding all or some collective dismissals, and expansionary solidarity contracts, which involve reductions in working time and in pay in order to make the additional hiring of workers possible, for which reason they are known also as "relief' contracts. The State awards a subsidy to the workers in the form of a part of the pay they lose; in some cases it is stipulated that the workers concerned must be elderly, the idea being that the state subsidy should be deemed to be an advance on the retirement pension (Spain, Decree of 31 October 1984). In the Federal Republic of Germany the Acts of 13 and 14 April 1984 established an

Flexibility and Contracts of Employment: Western Europe

51

"inter-contractual" solidarity programme under which the State subsidises onethird of the early retirement in cases where a worker terminates his contract with the employer at a time when another worker who is unemployed is hired to take the retiring worker's place. These contracts do not seem to have met with much success, any more than did the "job-splitting scheme" or "job release scheme" in Great Britain; in France, for example, the matter was dealt with by four decrees in 1985, but the Act of 2 July 1986 and the Ordinance of 6 August 1986 made provision for the retirement on "half-time" of older workers, without requiring that for the other half of the working time another worker had to be hired. Under this new hybrid contract work and retirement are combined: the worker receives half pay from the employer and half a pension from the National Employment Fund. In Spain, in 1987, there were 904 such relief contracts as compared with e.g. 666, 577 temporary contracts. 10. Job-sharing contracts. This is a most unusual form of contract in Europe — only the German legislature has expressed an interest in it — for it is of little effect and is opposed by the workers' organisation. Such contracts involve the employment of two or more workers to perform one and the same job, with a "collegiate" responsibility for fulfilling the duties attaching thereto. The German Employment Promotion Act of 26 April 1985 provides that if one of the workers leaves or is dismissed, the others may not be dismissed on that account nor may they replace that worker in the job he held in the undertaking, except in so far as this is permissible under the agreement. A very original form of job sharing has been devised by the Government of Belgium, which by a series of regulations made in 1985 introduced the system of sabbatical leave with provision for temporary replacements (Act of 22 January 1985 and Decrees of 27 January, 27 February and 21 March 1985); under these enactments, sabbatical leave — a familiar feature of academic professions and of the public service in some countries — may be granted to any worker or official for a period ranging from six months to one year, on condition that in that person's stead an unemployed person is employed temporarily. A novel feature of this system is that the worker on sabbatical leave receives a remuneration of 10,504 Belgian francs a month, paid by the Employment Office, and does not lose seniority or social security rights. 11. Contracts for variable working time. The "Kapovaz" system (from the German Kapazitätsorientierte variable Arbeitszeit = capacity-oriented variable working time), according to which the working time and the wage are adjusted to the undertaking's — constantly fluctuating — needs at any given moment, has enjoyed a certain development in the Federal Republic of Germany; the Act of 26 April 1985 had made it mandatory to fix a specific period of working time in the contract of employment, failing which the working time would be automatically deemed to consist of at least ten hours a week and three consecutive hours a day. Hence, the fluctuation cannot reach zero in any case (at least if the law is observed), which explains why its incidence is now reflected in variations of working time and of pay above the contractual or presumed minimum. 12. Part-time contracts. On the continent of Europe, with the exception of the Nordic countries, flexibility has been perceived as characterising mainly temporary contracts, and for this reason the part-time contract has not enjoyed the development experienced by the competing form of contract. In general, the part-time

52

A n t o n i o Ojeda Aviles

contract is largely used in the case of women, as is shown by the statistics, and the legislation has not paid much attention to it. According to the statistical data given by O E C D in its Employment Outlook 1983, a study covering 18 countries, women in part-time employment accounted for more than 63 per cent of female employees in Greece and for more than 92 per cent in Germany, Great Britain and Denmark (1981 data). The OECD's statistical data show, furthermore, that the countries in which parttime employment accounts for a high percentage of total employment were Norway (28 per cent). Sweden (25 per cent) and Denmark (21 per cent). However, since 1981 the figures have changed substantially, in consequence of the "tertiarisation" of the economy, and part-time employment has increased — though to a varying extent — in all countries of Europe. For example, while in France the share of part time in total employment rose only from 7.4 to 7.5 per cent between 1981 and 1985, the share in Great Britain had risen from the earlier 15 per cent to 21 per cent by 1986. Unlike temporary contracts, the part-time contracts cannot easily be adapted to employment in the public service in Europe. The case of France is a good example, for it reflects the situation in other countries of the European continent. The Act of 1 January 1984 enlarged the possibilities of part-time employment for persons in the public service, with the consequence that by early 1985 6.7 per cent of public service employees were on part-time contracts. In Great Britain there are fewer obstacles than on the continent, since its administrative system is more "open", and yet little use is made of part-time employment (only 3 per cent of civil servants are on part time). However, the statistics for part-time employment may be deceptive for they are based on different premisses. The meaning attached to the expression "part-time employment" is by no means uniform, so far as one can tell from their respective legislative provisions: in Germany the "part-time contract" means a contract for a weekly working time shorter than that habitual for full-time workers at the workplace (Act of 26 April 1985); in Italy "part-time employment" means employment for a working time that is shorter than that defined as "ordinary" working time in the collective agreements (Act of 19 December 1984), a definition which puzzles the experts because it links the meaning to that of "ordinary" working time, for if the working time falls a mere few minutes short of "ordinary" time it may be considered as part-time employment. In Spain, the part-time contract is defined as being a contract for a working time that is more than 33 per cent shorter than the time habitually worked in the occupation in question (Act of 10 March 1980, the Workers' Charter), a definition more in keeping with that of the International Labour Organisation, viz. that part time should be significantly less than regular working time. Other countries of Europe prefer to frame the definition of part-time employment in numerical terms; some treat as part-time employment any employment that does not exceed 30 hours a week (France, Finland) or 35 hours a week (Norway, Sweden), the latter being also the rule applied in the United States. From the foregoing account it is clear that the interpretation of the statistics is bound to vary from country to country.

Flexibility and Contracts of Employment: Western Europe

53

Contracts of Employment and Collective Bargaining in Europe: "Half-Mandatory" Regulations In the foregoing pages we have described how new forms of contract made their appearance under the auspices of a vast corpus of promotional legislation that encourages structural plurality. This is especially the case in the countries of southern Europe, where the authorities, faced with the threatening spectre of unemployment, have made the greatest efforts to find alternative solutions. However, the picture would not be complete if we did not refer — albeit briefly — to the equally great efforts deployed by the social partners through collective bargaining to take maximum advantage of the opportunities offered by the law. In the collective bargaining process, as many as four approaches to the new forms of contract are distinguishable — (a) The most important approach is that which takes place at the time preceding legislative action by the authorities, specifically at the time when the future rules are being negotiated; this we might call pre-legislative negotiation or prelegislative bargaining. This preliminary process can be broken down into three types — 1. Consensus expressed in formal terms, whereby the government, the employers' organisation and the trade unions agree on the characteristics of the form of contract in question. This type is illustrated by the Spanish National Agreement on Employment of 1981, which inter alia provides for the establishment of relief contracts under which a worker could retire on full pension one year before reaching the statutory age of retirement, subject to the proviso that a young or unemployed person were hired in the retiree's stead. Similarly, in Italy the trilateral agreement of 1983 on the cost of labour made provision for new forms of contracts of employment and for solidarity contracts. 2. Informal consensus, whereby the government consults the social partners without, however, reaching an agreement in express terms. The most pertinent example is provided by the so-called "covenanted laws" in Italy, among which those of interest in the context of this essay are the laws concerning the contract for on-the-job training. 3. The agreements made between the confederation of employers' organisations and the confederation of trade union organisations concerning a specific contract of employment, the substance of such agreements being subsequently incorporated in the State's legislation. (b) Another bargaining approach to the contractual framework is to develop or apply the rules of the legislation discussed earlier in this study. An outstandingly original example of this approach is provided by the collective agreement concluded on 8 July 1986 in the French company DMC-Credit Lyonnais for the purpose of settling the crisis at its head office in Mulhouse: the workers were offered the option, exercisable at their own free will, of converting their full-time contract into a part-time contract, with the choice of any one of four types of part-time employment (reduction of working time by a few working days, or by a few weeks, or an individual system, or not working during school

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Antonio Ojeda Aviles

vacations). In some cases, the law itself makes provision for the involvement of the social partners in determining how the legislative provisions are to be implemented, as happens in Italy under the Act of 19 December 1984 concerning on-the-job training, pursuant to which two agreements between employers' and workers' organisations were concluded, on 7 November 1985 and 8 May 1986, to settle the terms for the application of the Act. (c) The third approach is to establish, by means of collective bargaining, new forms of contract not as yet envisaged by the law. Among the examples that could be cited, the outstanding one is the framework agreement entered into in France on 17 June 1986 between the associations of temporary help agencies and the trade union federations with a view to offering to young persons between the ages of 18 and 26 years two types of contracts of assignment for a period varying from six to 24 months, during which such a person is to receive instruction either by an official body or by the agency which supplies the worker to the firm concerned. The peculiarity of this arrangement is that it involves a triangular relationship in the operation of this "mixed" form of contract. Another French example is the conclusion, in November 1983, of an agreement between employers' and workers' organisations that provides for training alternating with work. (d) Lastly, the authorities occasionally agree that, by means of collective bargaining "half-mandatory" rules may be down-graded, i.e. they allow the level of legislative guarantees to be lowered by collective agreement (though not by individual agreement). The proliferation of such discretionary laws in various countries of Europe has given rise to a bitter controversy among the experts about their repercussions on the labour scene, for, as has been argued — somewhat exaggeratedly perhaps — their effect is to place collective agreements on a par with the law in the system of industrial relations. Actually, one of the first manifestations of such laws showed itself in the Italian legislation on employment, at the time when, in consequence of the earthquake which in the early 1980s devastated the regions of Basilicata and Campania, regulations were called for that differed from the statutory provisions. One of the clearest examples of this kind of binding bargaining — which resembles concession bargaining so closely that it differs from it only in that there is a discretionary law — is found in the German Act of 26 April 1985, repeatedly referred to earlier in this essay, which provides that collective agreements may make downward adjustments in part-time and job-sharing contracts, superseding the more favourable provisions of the Act itself. A very peculiar case is that of Belgium, where two very curious bargaining approaches have made their appearances. In 1982, the "Hansenne experiment" was initiated in Belgium. This experiment envisages the negotiation of collective agreements in which the Minister for Employment and Labour intervenes in order to grant, for a limited period, modifications of certain statutory rules: the main object of this experiment was to reorganise working time, a matter outside the scope of this essay. However, in 1986, after the restrictions on the negotiation of wage increases had been lifted, a framework agreement was concluded on 12 September of

Flexibility and Contracts of Employment: Western Europe

55

that year whereby bargaining freedom was restored but whereby the Government reserved the right to intervene f o r the purpose o f safeguarding competitiveness or the budget. T h e agreement in question is indirectly relevant to the foregoing discussion, for it contains some provisions concerning the employment o f young persons under contracts which provide for training alternating with work.

Have Pay Systems Become More Flexible in Western Europe in the 1980s? David

Marsden

Introduction1 The question of pay flexibility in the 1980s arises in two ways: the first is in relation to changes in pay structures that occurred during the 1970s; and the second is in relation to the longer term evidence on the general insensitivity of pay structures to labour market pressures. The first of these calls attention to the possible reversal of the policies on pay that held sway during the 1970s, and the second raises the possibility of new departures in the management of the employment relation, notably in how pay is related to work done.

France

FR Germany

Italy

United Kingdom

Public incomes policies

1976&SMIC esp. 73 & 81

χ

χ

72-73 75—77

Trade Union policies

χ

Mid-70s on U S K

70-75 77 + Indexation

χ

Equal Pay

χ

χ

χ

70 — 5

Figure 1: Summary of Public and Trade Union Policies Likely to Reduce Wage Inequalities 1970-87. Key: χ = no policy; dates = years an equalising policy in force. Source: Marsden 1989.

During the latter part of the 1960s and the 1970s, wage and salary structures in many West European countries underwent a good deal of change, responding to only a very limited extent to the pressures of labour demand and supply, and to a much greater extent to institutional pressures, notably trade union bargaining policies, and government incomes policies (summarised in Figure 1) (Marsden 1988). In Italy, observers spoke of a "crisis of the large firm", associating this with management's inability to cope with the greatly increased shop floor pressure, a point they could have made equally about Britain. Indeed, the Italian parliamentary commission headed by Senator Coppo spoke of the "remuneration jungle" as payment systems appeared to have lost any overall economic and normative

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David Marsden

rationality (Coppo 1977). Under the joint pressure from workers to maintain living standards during the period of high inflation and from public policies to control inflation, the employers' margin for using pay to motivate employee performance and to reward productivity concessions by employees was severely squeezed. In Italy, DeH'Aringa and Lucifora (1988) show that by the early 1980s, the share of workers' gross earnings determined by industry level agreements and the indexation system had risen to about 80 per cent, with a further 10 per cent fixed by enterprise bargaining, leaving management with discretion over less than a tenth of gross earnings. In Britain, during the 1970s, the granting of pay increases for increased productivity was actually outlawed during several years of incomes policy because of the number of phoney deals used to bypass government incomesa policies in the late 1960s and early 1970s. A survey of formal collective agreements on the subject by Marsden and Thompson (1990) indicates that the volume of bargaining on such issues was low during most of the 1970s, hardly increasing until the 1980s. In Britain, France, and Italy the 1960s and 1970s brought a reduction of earnings differentials among both blue and white collar occupations, a change confined mostly to white collar occupations in West Germany (Saunders and Marsden 1981). In Italy, this was clearly linked initially (1969 — 75) with trade union policy (Dell'Aringa 1976), and subsequently with the working of the indexation system (DeH'Aringa and De Luca 1988). In Britain, the restriction of pay increases for higher paid groups during the periods of incomes policy also had the effect of compressing both managerial and skill differentials (Brown 1976, and Saunders et al. 1977). This movement also suggests that management's ability to reward initiative and training by promotion was somewhat reduced. Although past evidence on the influence of movements in labour supply and demand on wage and salary differentials is predominently in favour of Routh's view of stable differentials with short bursts of radical change (Routh 1980), it relates primarily to differentials across firms and industries. However, wages and salaries can be thought of as acting in two dimensions. The first relates to interfirm relations across local labour markets, and the second, to the motivation and deployment of labour within organisations. Hence, one might ask whether the increased commercial pressure on employers for greater efficiency and productivity is leading to a search for pay systems that are better suited to motivating increased effort and, especially in recent years, increased quality of work. This may lead management to pay greater attention to internal differentials within the organisation, and less to external differentials across local labour markets. The enhanced initiative enjoyed by management in the 1980s might also be expected to give them more freedom to introduce innovations in pay systems. The latter dimension has come to acquire greater scientific recognition in recent years because of the evidence of the importance of long-term jobs in advanced industrial market economies, and of their increased importance during this century. For example, Hall (1982) estimated that in the US, 40 per cent of employees aged thirty and above were currently in jobs that would last over 20 years, and three quarters in jobs that would last more than five years, and S. B. Carter (1988) has demonstrated their secular increase in the US economy. Evidence of similarly long-

Have Pay Systems Become More Flexible in Western Europe in the 1980s?

59

term jobs has been found for Britain by Main (1982), and can be deduced from current length of service patterns in other EEC countries. This essay considers some of the new management initiatives in the area of making pay more responsive to increased commercial pressures on firms, and seeks to draw together some broad statistical indicators to assess their quantitative importance. It concludes with some thoughts on why wage structures remain fairly unresponsive to labour market pressures, and why they seem to be more responsive to institutional pressures, although still resistent to management attempts to change them. The argument rests on the observation that labour markets are characterised by widespread non-compensating wage differentials, and that these provide an incentive for institutional defence of income inequalities, and hence a reason why changes in union policy, and in management policies may have more effect than shifts in labour supply and demand. In other words, external labour market pressures do still matter because of the way they interact with internal labour markets.

Recent Management and Government Initiatives on Pay Policies Management action on pay during the 1980s has consisted, on the one hand, of an attempt to restore occupational, and especially skill and managerial, differentials, and on the other, to make the rules of pay determination more responsive to indicators of organisational and of individual performance. In the following paragraphs, I shall look first at changes in occupational differentials, and then at merit pay, profit related pay, productivity linked pay, and then at attempts to influence pay rates of young workers and trainees.

"Restoration" of Occupational Pay Differentials During the 1970s, in both Britain and especially in Italy, managerial and skill pay differentials underwent a marked compression (Saunders and Marsden 1981). It is hard to establish a link between the level of differentials and performance; indeed, over the period, the best performing economy, West Germany, had the smallest managerial differentials of the four countries. Nevertheless, it is possible that changes in differentials are influential, as was claimed by a number of employers' organisations in the latter years of the 1970s when evoking the compression of differentials. This view was symbolised by the revolt of supervisory and skilled workers against union policy in the famous strike at Fiat in 1980. In both Italy and Britain, there has been some increase in occupational differentials during the early 1980s. Even before the Fiat revolt, the major Italian unions had been trying modestly to improve skill differentials in collective agreements (Dell'Aringa and Luca 1988), but such moves had been reversed by the large flat rate increases given under the Scala Mobile system of indexation after 1977. The moves to partial de-indexation in 1983 and 1984, negotiated by the then Labour Minister, Sg. Scotti, had begun to take effect by 1985 (Table 1), although the effect remains small in comparison to the degree of compression brought about during

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David Marsden

Table 1: Italy. Manual and Non-Manual Occupational Differentials 1980/87. 1980

1985

1986

1987

22.4 21.6 20.3

19.7 21.4 18.1

20.5 22.9 19.2

20.7 25.3 25.3

Mark-up of gross earnings over industry agreed minima General engineering 32.7 32.1 Chemicals 41.4 47.0 Textiles 31.2 24.7

36.0 51.7 28.2

37.7 58.4 22.8

Differentials (CV%) General engineering Chemicals Textiles

Source: Rapporto sui salari. ASAP. Indagine sulle retribuzioni e costo del lavoro dell'industria manifatturiera nella provincia di Milano, Assolombarda.

the 1970s. The effect on skill differentials was greater, but still far short of a restoration of the levels prevailing in the early 1970s (ASAP 1987, p. 61) 2 . In Britain, the widening of occupational differentials began in 1979 — 80 (Table 2) with the final collapse of the then Labour government's incomes policy, and the abandonment of all private sector incomes policy after the election of Mrs. Thatcher's Conservative government in 1980. It also coincided with the onset of the severest recession since the war in which many companies underwent a major restructuring of employment notably at the expense of the less skilled groups. In France, the reduction of occupational pay differentials continued in the early 1980s (Table 3) partly as a result o f the minimum wage (notably by a 10 per cent increase in 1981), and the expansionary domestic policies. Its continuation after the adoption of harsher economic policies and the rise in unemployment, which

Table 2: Great Britain. Weekly Earnings by Occupation 1980 — 1989. All Industries and Services. Full Time Adults. Pay not Affected by Absence. Males

2. Prof & related (mgt.) 3. Prof & related (educn.) 5. Engineers & techns. 6. Managers ( < gen. mgt.) 7. Clerical 8. Sales 9. Security All non-manual All manual All occupations Abs. £. per week.

Females

1980

1989

1980

1989

134.7 112.1 118.5 116.9 83.1 90.8 109.1 113.5 89.7 100.0 124.5

150.0 117.9 120.3 117.6 78.6 89.6 102.2 120.1 80.8 100.0 269.5

154.3 126.9 123.7 115.4 94.3 75.8 134.1 104.9 86.3 100.0 78.8

166.1 129.6 120.9 120.1 90.3 78.1 135.4 107.0 74.0 100.0 182.3

Source: Department of Employment, New Earnings Survey.

Have Pay Systems Become More Flexible in Western Europe in the 1980s?

61

Table 3: France. Occupational Differentials in Net Annual Earnings. Private and SemiPublic Sectors. Females

Males

1. Higher managers 2. Middle managers 3. Supervisors 4. Clerical 5. Skilled manual 6. Semi-skilled 7. Unskilled manual 8. Other. All Occupations. Abs. Francs per year.

1980

1985

1980

1985

245.4 128.6 117.5 86.2 79.3 69.5 59.0 59.9 100.0 59,874

236.2 121.3 108.6 79.8 76.3 68.0 58.9 61.1 100.0 95,786

235.4 141.3 136.2 95.0 87.2 74.9 66.3 88.8 100.0 43,974

233.7 139.0 127.4 92.5 83.7 73.4 65.8 86.6 100.0 71,620

Source: Glaude, M. and Hernu, P. (1986).

might have been expected to cause an increase in skill differentials, was due, in part, to the indexation of the minimum wage to retail prices at a time when real wages were falling (Benveniste and Lollivier 1988). Another feature of the reduction in occupational differentials in France has been the long term growth in employment in the higher paid categories, concurrent with the decline in their relative pay. This movement is present in varying degrees in all four countries, but stronger in France than in Britain or West Germany. The reduction in average pay may be due in part to an increase in the proportion of younger people at the lower end of age-salary scales. In addition, a recent INSEE study of salary careers shows that the decline in relative average pay of the whole category of managerial and professional staff has been partly compensated by an upward movement of individuals within these categories owing to the action of promotion policies. Fournier (1988) calculated that this movement represented the equivalent of an annual rate of earnings increase of 2.5 — 2.9 per cent for managerial and professionals, against only 1.9 per cent for manual and clerical workers. This could have taken some of the sting out of reduced relative pay for those concerned. Of the four countries, West Germany stands alone in the absence of movement in occupational pay differentials during the latter 1970s and 1980s, and modest union moves to reduce skill differentials in industry minimum rates were reversed by plant level bargaining (Marsden 1980). Moreover, the differential remained steady in the face of considerable variations in output and in unemployment. Since 1980, weekly earnings of skilled manual males as a percent of all manual males, like those of white collar males just below general management (Grade II in the German classification) as a percent of all non-manual males have fluctuated within a band of less than two points, showing no tendency to increase or decrease. The same is true of women's earnings. Unlike in Italy and Britain, the position of skilled workers in West Germany did not undergo a major challenge during the 1970s and they maintained their position both in the industry unions, and especially in the works councils. This may have been easier than in either Britain or Italy on account

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David Marsden

Table 4: Dispersion of Earnings Within Occupational Groups. Great Britain. (Ratio of top decile to bottom decile weekly earnings). Occupation

2. Prof & related (mgt.) 3. Prof & related (educn.) 5. Engineers & techns. 6. Managers ( < gen. mgt.) 7. Clerical 8. Sales 9. Security All non-manual All manual

Males

Females

1980

1989

1980

1989

2.61 2.33 2.30 2.66 2.06 2.48 2.17 2.68 2.18

3.01 2.50 2.49 2.89 2.45 3.23 2.28 3.33 2.50

2.35 2.23 2.25 2.71 1.98 1.95 2.17 2.38 2.04

2.87 2.61 2.42 2.84 2.20 2.44 2.19 2.79 2.26

Note: full-time adult employees whose pay was not affected by absence, gross weekly earnings, all industries and services. Source: Department of Employment, New Earnings Survey

of the strong status of skilled and technical workers given to them by widely recognised training, and the fact that it is less exclusive, at least for teenagers. In Britain, the decline of apprenticeship, although making skilled workers more scarce in the short run, undermines their standing in the union movement as they become more exclusive and less numerous. Equally, in Italy, the dependency of skilled status upon a person's position and promotion within enterprise internal labour markets also makes for a weaker skilled status than in West Germany. The one notable variation in occupational differentials in West Germany during the period has been the fluctuation in the manual/non-manual differential in average weekly earnings owing to cyclical variations in hours worked by manual workers (Marsden 1989). As important as changes in the average earnings of different occupations are changes in the dispersion of earnings within occupations. In view of the broad occupational categories used above, some of this dispersion is due to differences between occupations within these broad groups, but some is also due to other factors, and changes in such dispersions will reflect any increased use of pay criteria which are independent of a person's occupation, such as "merit" payments, and "productivity payments". Of the four countries, data on dispersions of earnings within occupations during the 1980s are available for Britain only. The occupational groups shown in Table 4 are quite broad, and so show an upper limit on the likely impact of such changes on earnings: roughly a 10 per cent increase in the dispersion of earnings within manual occupations, and for non-manual women, and about 15 per cent for nonmanual men. However, data for France, using estimated dispersions of earnings, indicates an increase in that country also, which, taken in conjunction with the decline in occupational differentials, implies an increase in dispersions of pay within occupational categories (Benveniste and Hernu 1987).

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Merit Pay The underlying idea of merit pay is that individual effort and the quality of individual work is left unrewarded by standardised pay scales, such as are common in many parts of white collar work. In France, where the job and pay classifications systems are considerably more elaborate than for example in Britain, it is common for organisations to classify individual employees first by the index or grade (indice) to which they are allocated, and then by a further sub-grade (echelon). On top of this there may also be length of service or age increments, which means that an individual employee's pay is largely determined by his or her position within the classification system. Ability and effort may still be rewarded by promotion, but most promotion systems run their course fairly quickly, and consequently, pay is then not responsive to effort. Hence, the "individualisation" of wages and salaries (merit pay) has become quite an important issue. Because the allocation of employees' positions within the classification system has long been central to their pay, it is easy to see why moves towards merit pay should often be hotly contested. Indeed, it was one of the issues behind the SNCF rail strike of December—January 1986 — 87, in which M. Chirac's government, which had been pressing for such changes, was forced to climb down. The depth of feeling among the railway employees was such that the main unions were almost swept aside by the protest, and one saw the beginning of the movement of rank and file committees similar to those which have flourished in the Italian public sector, and which assumed considerable importance in the autumn 1988 strike wave in the French public services. Among the reasons reported by the French Ministry of Labour for firms using individualised pay in 1986 were the small margin they had for offering general pay increases, and the need to promote organisational change in an environment constrained by the elaborate job and pay classification systems, to reduce absenteeism, and to restore skill differentials 3 . Nevertheless, progress towards merit pay in France has been extensive in terms of numbers affected, but small in terms of the amounts awarded. A recent survey by the French Ministry of Labour (Bangoura 1987) revealed that 42 per cent of French employees had received some merit increases in 1985. However, the size of merit increase was small: of the 4.7 per cent increase in average pay in 1985 in the enterprises concerned, only 0.9 per cent was attributable to merit increases, the remaining 3.8 per cent being part of the general pay increase for all employees. Less than five per cent of employees received merit increases only, although the figure rose to just under 10 per cent for managers. The 1988 Bilan Annuel de la Negociation Collective indicates further increase in the number of agreements on individualisation in 1986 and 1987, but a slowing in 1988. One reason for this limited progress is that it has proved very difficult to to get agreement on clear and mutually acceptable criteria for employee appraisal 4 . Another, related, reason is that industry level collective agreements play an important part in determining the nature of job classification and pay grading systems. An analysis of the 1986 French wage structure survey suggests that workers covered by industry agreements are much more likely to have payment systems based exclusively on time rates than those not so covered, who are more likely to have other kinds of systems, notably time rates plus individual bonuses (Reynaud 1988).

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Finally, it is possible that in many plants a form of individualised pay already exists on account of the large number of different bonuses which have grown up over the years, and which are added on to the basic scales. Eyraud et al. (1988) found a considerable dispersion of earnings even within the finest job categories of the classification systems in their sample of French plants, and after controlling for length of service, to which many payments are related. Such individualised pay is most likely the fruit of fragmented concessions made by management over the years, and probably has the opposite effect to that sought by merit pay. It is easy to imagine that ad hoc introduction of merit pay could simply add to the complexity. In Britain, many employers have taken steps towards merit pay. An important prerequisite for merit pay is employee performance appraisal, defined in a recent Institute of Personnel Management survey (Long 1986) as a procedure that involves the regular use of recorded assessment of an individual's performance, and (sometimes) potential. The IPM study covered 300 organisations, and found that 82 per cent used performance appraisal for some categories of employees. It showed also a shift from appraisal with a view to promotion towards assessment of current performance, and an increase in its use for supervisory, clerical and secretarial employees. Appraisal of skilled manual workers had risen from two per cent of organisations in the IPM's 1977 survey to 24 per cent in 1986. A similar shift can be found in many parts of the British public sector, notably the civil service whose appraisal system shows a similar shift to assessment of employees' current performance. In contrast to France, the development of merit pay in Britain appears to have been somewhat more limited, despite the growth of appraisal. Nevertheless, in the 1984 Work-place Industrial Relations Survey (Millward and Stevens 1986 Tabs. 9.17, and 9.18), 16 per cent of establishments reported that their most recent pay settlement for non-manual workers relied either on merit increases or had been settled person-by-person. The corresponding figure for manual workers was eight per cent. The main growth areas of merit pay have been in the financial sector, and in white collar work. The increased competition within the financial sector is a prima facie reason for this development. As in France, it would seem that the actual amounts of money involved represent only a small fraction of employees' salaries for non-managerial staff. A survey of a small number of companies by the Industrial Relations Review and Report, (IRRR 398), indicated levels of between one and two per cent of annual earnings for manual workers. On the other hand, the scheme recently introduced into the National Health Service for its more senior managers in 1987 ( I R R R 380) would give those managers best fulfilling their short and long-term objectives up to four percent a year, which could be cumulated over five years to about 20 per cent of their gross salary. In Italy, a recent Ministry of Labour survey, reported in Industria e Sindacato (14/1988), revealed an increase in "merit" pay, but as the means by which the reward for skill and quality of work could be increased, suggesting therefore that the underlying concern was that of skill differentials rather than individualised payment. Thus, for all the rhetoric, "merit pay" is more accurately described as "merit bonuses", that is, marginal additions to existing pay scales. This is perhaps not so

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surprising when one thinks of what would be the cost to employers of renegotiating whole wage structures, and of establishing performance appraisal systems for fullblooded individual performance pay. Profit Related Pay and Employee Share-Ownership Schemes Although profit-related pay has recently become fashionable, it has a long history. A more radical view sees it as an alternative to orthodox capitalism (e. g. Weitzman 1984), but it also has a more modest objective of making employees more aware of the economic performance of their firm, and encouraging them to take a broader interest in its performance by giving them a share, albeit usually small 5 . In France, profit sharing benefits from special legal support, and there are two regimes: the 1967 executive order (ordonnance) on employee participation in profits, and the 1959 order on profit sharing, both of which were incorporated into, and extended by the 1986 order (Ordonnance 21. 10. 86) which also encouraged employee share ownership schemes. The first is the most widespread, and consists of employer contributions to a special fund once net profits exceed 5 per cent of its capital. The size of the contribution is fixed as half the product of the excess of net profits over 5 per cent and the share of wages and salaries in total value added. Precise details and the management of the funds are mostly fixed by agreement between the employer and the enterprise committee, and payment may be made after five years and is exempt from employer social contributions, and employee income tax. According to a study by the CERC (1986), the number of enterprises covered by the scheme has risen from 10,443 in 1973 to over 12,000 in 1984, although the number of employees covered has remained constant at about 4.7 million, about a quarter of the labour force. As with merit pay, however, the sums disbursed are limited in size: one per cent of gross average earnings, although this varies from sector to sector, highest in oil refining (3.5 per cent), water (2.4 per cent), chemicals (2.3 per cent) and insurance (2.6 per cent). The older scheme is more limited in coverage, and the law specifies that normal earnings in the enterprise should be at least equivalent to rates prevailing in the region, thus excluding Weitzman type schemes in which profit sharing is built upon a low level of basic pay. According to the CERC (1986) the scheme covered only 365,000 employees in 1985. In Britain, employee share ownership schemes have also increased in recent years. According to the 1984 WIRS (Millward and Stevens 1986), the proportion of workplaces whose parent company operated such a scheme increased from 13 per cent in 1980 to 23 per cent in 1984, these schemes being most widespread in financial services (69 per cent). These schemes have long existed for management staff, but the survey showed that, by 1984, 85 per cent of the schemes were open to nonmanagerial employees, possibly reflecting the encouragement of the 1980 legislation for schemes covering all a firm's employees. However, the rate of employee participation remains fairly low, at about 15 per cent. A survey by the Department of Employment (Smith 1986) showed that, in 1985, 21 per cent of companies (annual turnover > £ 0.75m.) had share ownership or profit schemes for all or most of their employees, ranging from 13 per cent in retail

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distribution, and 21 per cent in manufacturing, to 50 per cent in finance. Interviewed about their objectives, the companies reported that the schemes were intended to enhance employees' feeling they were part of the company, make them more committed, and more profit conscious. Productivity Related Pay The other major concern in promoting labour flexibility by means of changed pay systems has been that of productivity payments. The underlying idea is simple: that management should pay for changes in work organisation and methods which improve the organisation's performance, and thus such payments have commonly been associated with enterprise and plant level bargaining. In Italy, there is evidence of some increase in this kind of payment, although it has not been easy to introduce because of the need to alter existing pay systems, and because until recently the minimum rates negotiated at industry level, plus the indexation payments, accounted for a very large proportion of wages. Zappi (1987) reported increased interest among Italian employers, and that it was taking the form of enterprise level agreements, such as that at SIP (Tommasi 1988), in which the agreement envisaged payments being related to the overall performance of the enterprise and indices of improvement by individual groups of workers within SIP. The CGIL observatory, while not putting a figure on the overall volume of such agreements, reported a great variety of different arrangements (Sateriale 1988), which makes an overall assessment of their impact difficult. In Britain and France, productivity has been the subject of concession bargaining in recent years. Marsden and Thompson's (1990) survey of so-called "flexibility" agreements in Britain between 1980 and 1987 suggests that formal bargaining over productivity questions, although increased, is still of limited importance (they estimate the agreements they surveyed to cover about 10 per cent of manual workers in manufacturing), and Cahill and Ingram (1988), analysing the Confederation of British Industry's (CBI) pay settlements data bank, found that over the same period, 28 per cent of settlements involved some productivity enhancing concessions which usually involved increased pay. What is lacking is direct evidence on the effect of these concessions on productivity. In France, only a small percentage of enterprise agreements have productivity clauses, 6 per cent, (Eyraud, Marsden and Silvestre 1988), and these have usually taken the form of an increase in pay being made conditional upon the achievement of some global productivity targets, and so have not been linked to specific productivity concessions as has been the case in Britain. Nevertheless, they represent a fresh departure that could assume greater importance in the future.

The Composition of Earnings The likely impact of performance and productivity related pay appears modest if the amounts available are compared with the size of other recent changes in the composition of labour costs in the four countries. In industry in France, F R Germany and Britain, the importance of direct earnings, that is pay for work done

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Table 5: Structure of Monthly Labour Costs in Industry 1972-1984 Percentage of monthly labour costs a) France 1972

1978

FR Germany 1981

1984

1972

1978

1981

1984

Direct pay Periodic bonuses b) Pay for days not worked Pay in kind Total direct costs

60.2 3.5 8.3 1.2 73.3

56.2 5.3 8.1 1.0 70.6

55.6 5.2 8.1 1.1 70.0

52.5 5.0 9.4 1.2 68.1

66.4 4.0 10.6 0.4 81.4

59.4 8.0 10.5 0.2 78.1

57.6 8.5 11.3 0.2 77.6

56.5 8.6 11.4 0.2 76.7

Social security payments Statutory Voluntary/agreed Other

19.3 4.3 3.1

19.5 6.3 3.6

18.9 7.6 3.5

19.4 8.7 3.9

15.0 1.7 1.9

16.6 3.4 1.9

16.6 3.6 2.2

16.4 4.5 2.3

Total

100

100

100

100

Italy 1972

100

100

100

100

1981

1984

UK 1978

1981

1984

1972

1978

Direct pay Periodic bonuses b) Pay for days not worked Pay in kind Total direct costs

53.4 8.2 9.9 0.2 71.6

52.1 8.3 10.2 0.2 70.8

54.2 8.9 10.1 0.2 73.4

53.4 8.0 10.9 0.3 72.6

79.7 0.9 7.8 0.4 88.7

72.3 1.1 8.3 0.3 82.0

69.3 1.0 10.4 0.4 81.1

71.3 1.1 10.4 0.2 83.0

Social security payments Statutory c) Voluntary/agreed Other

25.7 0.5 2.2

26.2 1.5 1.5

23.3 1.6 1.7

24.1 1.3 1.2

5.4 4.0 1.9

8.9 6.3 2.8

9.4 6.8 2.7

7.6 7.0 2.6

Total

100

100

100

100

100

100

100

100

Notes: a) Establishments with 10 or more employees. Coverage: NACE 1—5, Industry and construction. b) Eurostat defines these as "bonuses and gratuities not paid regularly at each pay period". They include employee share ownership schemes. c) Italy, 1978, 1981, and 1984, reduced by the effect of subsidies, notably the effect of the Cassa Integrazione Guadagni, equivalent to about 8% of labour costs in 1984. Source: Eurostat Labour Cost Survey.

in the current period, has declined by between eight and ten percentage points during the last fifteen years (Table 5). There has been very little change in the share of direct earnings in Italy, but it was already low by comparison with the other three countries in the 1970s. The three growth categories have been social security payments, especially those agreed or paid unilaterally, payment for days not worked, which include the extension of paid sick leave and paid holidays especially for manual workers, and

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Table 6: Payment Systems in Britain 1974—89 Manual males

Manual females 1974

1980

1989

Make-up of average weekly earnings (all workers) Percent. Basic pay a) 71.5 73.8 73.5 Overtime 16.0 14.1 16.0 PBR etc. b) 9.8 8.7 7.1 2.4 Shift etc. premia 2.7 3.3

82.1 3.8 12.7 3.4

85.4 3.6 8.8 1.3

83.6 6.0 8.1 2.1

Percent of workers affected Overtime PBR etc. b) Shift etc. premia

19.6 34.3 23.1

17.0 32.2 8.4

26.7 31.2 11.5

1974

60.7 41.4 13.7

1980

54.3 42.3 19.9

1989

58.0 40.0 23.0

Non-manual men 1974 Make-up Basis pay Overtime PBR etc. Shift etc.

1980

Non-manual women 1989

of average weekly earnings (all workers) Percent. a) 93.7 93.3 91.9 3.4 3.1 3.5 b) 2.7 2.6 4.0 premia 1.1 0.4 0.6

Percent of workers affected Overtime PBR etc. b) Shift etc. premia

18.8 7.9 10.1

19.6 12.0 4.4

21.9 16.9 5.7

1974

1980

1989

97.7 1.2 0.6 0.6

96.7 1.2 0.9 0.9

95.1 2.2 1.6 1.1

10.2 3.4 6.2

10.7 6.5 6.5

19.1 12.6 9.3

(Full-time workers on adult rates, pay not affected by absence, all industries and services) Notes: a) This category consists mostly of basic pay, but may include other allowances not specified above. b) PBR, payment by results, includes "all payments under peicework and other PBR systems, bonuses including profit-sharing, commission and other incentive payments". They also include allowance for periodic bonuses. Source: U K / N E S .

"periodic" bonuses not paid regularly in each pay period. This last category includes such items as profit sharing, employee share ownership contributions, and the "thirteenth month", but as can be seen, the big increase in this component was between 1972 and 1978. The first two of these enhanced elements in workers' total labour cost represent an increased importance of the non-wage elements of the employment contract, and thus driving a wedge between employee benefits and either individual or collective performance. The third, periodic bonuses, also drives a wedge between employees' immediate effort and their reward. These figures conceal possible differences in the patterns of change for different categories of employee. Analysis of the composition of weekly earnings in Britain,

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for manual workers, shows a marked decline in the share of earnings from PBR systems, although not in the percent of employees covered by such schemes, and for non-manual workers, there has been some increase in the amount of pay due to PBR, albeit from a very low base, and a big increase in the percentage of workers covered (New Earnings Survey). The developments in these four countries clearly raise the question as to whether the attempts to develop schemes relating pay to merit and to collective performance are in any sense new departures, or rather an attempt by management to redress the balance which they may feel has moved too far towards conventional elements in pay. The latter bear no reference to performance, but perhaps reflect more a philosophy of citizenship, that is of rights to a certain standard of living within a particular society. Theories of employee commitment embrace both principles, and do not give much guidance as to what the precise balance between them should be. Finally, the decline in the importance of direct pay represents an increase in the importance of the individual firm's relationship with its employees and a decline in that of direct pressures from local labour markets on employee behaviour.

Conclusion Despite the supposed contribution of merit and performance related payments, their small size as a proportion of employees' gross earnings, and the small amount of their increase in relation to that of other components of earnings make it hard to accept that they have contributed greatly to increased flexibility in reward systems, in employers' labour costs, or in calling forth greater flexibility of work practices or greater motivation. The conclusion of the INSEE study of wage and salary careers (Fournier 1988), that pay movements for whole categories were the key to income advancement for manual workers, means that French manual workers seeking to improve their position are likely to do so by collective action rather than by seeking to maximise their individual benefits from individual or collective performance schemes. For non-manual workers, the picture was different: individual career moves and greater use of service related pay were very influential and provided bigger increases than the average of performance pay schemes, even though the decline of occupational differentials in France has reduced the benefit of these career advancements. Thus for both manual and non-manual workers, behaviour geared to advancement within established norms of wage structure would seem to offer a better strategy for employees for increased pay than some of the new performance pay schemes. One likely reason for the limited headway of performance pay schemes for most workers is that unless employers are to use them as substitutes for existing payment systems they will require additions to existing pay levels, which rules them out in most cases. Adapting existing pay rules however is very difficult as many employees will resist what they fear may lead to a fall in their income, particularly if they are based on an apparently arbitrary appraisal system. They might also be concerned about changes that might make employment of other categories of labour more

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attractive, on the ground that this may lead to substitution. It is worth pursuing this line a bit further, as it casts some light on the difficulty of changing pay structures, and also on their insensitivity to labour market pressures. Most theories of wage differentials set off from the view that they correspond, in the long run at least, to some form of economic optimality, and if one follows the Hicks and Marshall view then divergences of wages and salaries from the levels dictated by supply and demand relations of competitive equilibrium will be eliminated in the economic long run. Reynolds (1951) and Lester (1952) referred to this degree of slack in the determination of observed wage differentials by market forces as a "margin of indeterminacy", so that competitive forces would establish wage levels within a certain range. However, this view neglects the behaviour of different groups of employees to defend their position. Elsewhere, I have argued that such action tends to destroy occupation labour markets and to undermine mobility between firms within occupational categories (Marsden 1986, ch. 8), one of the chief mechanisms through which competitive pressures can bring local deviations of pay back to the long-run competitive equilibrium level. The argument is simple, and can be illustrated as follows. In the ideal world training for transferable skills is financed by low trainee rates, such that the excess of the value of the trainee's output over training costs compensates the employer for any expenses incurred. In this world, the ratio of trainee to adult skilled employment costs is equal to the ratio of their marginal products, and there is no incentive for the employer to use trainees as cheap substitute labour. However, if the skilled workers succeed in bargaining up their pay, the employer then has an incentive to substitute other cheaper categories, trainees being the first in line because of their technical competence, especially late in their training. Skilled workers can respond by bargaining up trainee pay (Ryan 1987), which then means that employers bear part of the cost of training for transferable skills, as indeed they do for apprenticeship training in both Britain and West Germany to the equivalent of between one and two years gross pay of a skilled worker (IMS 1982, Noll et al. 1983). This then creates an incentive for some employers to reduce training and to try to recruit skilled workers trained at other employers' expense (to "poach" skilled labour), which can give rise to a vicious circle of skill shortages and further reductions in training for fear of such poaching. This had been one of the problems the 1964 Industrial Training Act attempted but failed to resolve. In such an environment, the most sensible thing for a firm to do is to attempt to tie skilled labour it has trained, for example, by rewarding length of service with promotion or better pay and conditions, and establishing an internal labour market. As such practices spread, the occupational market is gradually disolved, and skilled labour is no longer able easily to move between firms. This is one example of how a wage differential which does not compensate for differences in training and working conditions (a "non-compensating" differential) can engender behaviour which disrupts inter-firm labour markets for all but the least skilled labour. It is easy to imagine how the argument extends as other forms of non-compensating wage differential can stimulate similar kinds of action to protect those employees benefiting from actual or feared substitution. Other non-compensating differentials can arise by accident, or simply from wages not adjusting to shifts in labour demand.

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The struggle over substitution in such an environment can also characterise internal labour markets, making the rules governing these also become inflexible, and hard to change. This process, then, provides an important reason for the difficulty of altering wage structures in response to market, technical change, or organisational pressures, and helps account for the relatively small progress made by management in pressing for change.

References Dell'Aringa, C. (1976): Equalitarismo e sindacato, Milano: Vita e Pensiero. Dell'Aringa, C. and De Luca P. (1988): Wages and industrial relations. Report '87: Labour and employment policies in Italy, Ch. 4. pp. 135 — 156. Ministero del Lavoro e della Previdenza Sociale, Rome. Dell'Aringa, C. and Lucifora, C. (1988): Wage determination and union behaviour in Italy: and efficiency wage interpretation. Paper presented to the International Economic Association conference on Markets, Institutions and Cooperation, Venice, Oct. 20 — 22, 1988. ASAP (1987): Rapporto sui salari 1987, Milano: Franco Angeli. Bangoura, S. (1987): Les augmentations individualisees en 1985. Dossiers Statistiques du Travail et de l'Emploi, No. 30, avril, pp. 71 —73, Ministere du Travail: Paris. Benveniste, C. and Hernu, P. (1987): Progression de pouvoir d'achat pour toutes les categories de salaries. (Les salaires en 1986), Economie et Statistique, No. 199 — 200, mai — juin, pp. 13-23. Benveniste, C. and Lollivier, S. (1988): Les ecarts de salaire entre les hommes et les femmes continuent ä se reduire, Economie et Statistique, No. 210, mai, pp. 3 — 9. Brown, W. A. (1976): Incomes policy and pay differentials, Oxford Bulletin of Economics and Statistics, vol. 38, No. 1, February, pp. 27 — 56. Carter, S. B. (1988): The changing importance of lifetime jobs, 1892-1978. Industrial Relations. Vol. 27, No. 3, Fall, pp. 287-300. Centre d'Etude des Revenus et des Coüts (CERC) (1986): Les complements du salaire, Rapport No. 83, 4eme trimestre, La Documentation Franchise, Paris. Coppo (1977): Relazione della Commissione Parlamentare d'Inchiesta sulle Strutture, sulle Condizioni e sui Livelli dei Trattamenti Retributivi e Normativi, Camera dei Deputati — Senato della Repubblica, VII Legislatura, Doc. 23, no. 5. Rome. Eyraud, F., Jobert, Α., Rozenblatt, P., Tallard, M. (1988): Les classifications dans I'entreprise: production des hierarchies professionnelles et salariales, Laboratoire d'Economie et de Sociologie du Travail, Aix-en-Provence. Eyraud, F., Marsden, D.W. and Silvestre, J. J. (1988): Economic change and labour market regulation in France and Great Britain; is there convergence to a new pattern of regulation? (Mimeo), Laboratoire d'Economie et de Sociologie du Travail, Aix-en-Provence, forthcoming in International Review. Fournier, J. Y. (1988): Les salaires dans le secteur prive de 1968 ä 1982: des progressions surtout categorielles pour les manuels, surtout individuelles pour les cadres et les employes, Economie et Statistique, No. 210, mai, pp. 33—49. Glaude, M. and Hernu, P. (1986): Les salaires en 1985, Economie et Statistique, No. 184, janvier, pp. 3 — 22. Hall, Robert E. (1982): The importance of lifetime jobs in the US economy, American Economic Review, vol. 72, No. 4 pp. 716 — 24. Industria e Sindacato (14/1988): Verso une razionalitä retributiva, Industria e Sindacato, 15. 4. 88, No. 14, pp. 1 - 2 , Rome: Intersind. Industrial Relations Review and Report, Various issues, Two-weekly report published by Industrial Relations Services, London.

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IMS (1982): Evaluation of apprentice support awards, Institute of Manpower Studies, University of Sussex, Brighton. Lester, R. (1952): A range theory of wage differentials, Industrial and Labor Relations Review, Vol. 5, No. 4, July. pp. 4 8 3 - 5 0 0 . Long, P. (1986): Performance appraisal revisited, Institute of Personnel Management, London. Main, B. (1982): The length of a job in Great Britain, Economica, Vol. 49, pp. 3 2 5 - 3 3 3 , August. Marsden, D. W. (1986): The end of economic man? Custom and competition in labour markets, Brighton: Wheatsheaf. Marsden, D.W. (1988): Short-run wage flexibility and labour market adaptation in Western Europe, Labour, Vol. 2, No. 1, Spring, pp. 31 —54. Marsden, D.W. (1989): Occupational Pay: the Influence of Unemployment, wage structures in the European Community: convergence or divergence?, W. Molle and A. van Mouritz (eds), Limburg: Gower. Marsden, D.W. and Thompson, M. (1990): Flexibility agreements in Britain and their significance in the increase in productivity in British manufacturing since 1980, Work, Employment and Society. Vol. 4, No. 1, March, pp. 83 — 104. Millward, N. and Stevens, M. (1986): British workplace industrial relations 1980—1984: the DE/ESRC/PSI/ACAS surveys, Aldershot: Gower. Noll, I., Beicht, U., Boll, G., Malcher, W„ Wiederhold-Fritz, S. (1983): Nettokosten der betrieblichen Berufsausbildung, Berlin: Beuth Verlag. Reynaud, B. (1988): Work in progress at CEPREMAP, Paris. Presentation d'un modele de determination des regies salariales; le modele logit. Presented at a seminar at the LEST, December 1988. Reynolds, C. (1951): The structure of labor markets, New York: Harper and Brothers. Richardson, R. and Nejad, A. (1986): Employee share ownership schemes in the U K : an evaluation, British Journal of Industrial Relations, Vol. 24, no. 2, pp. 232 — 250, July. Routh, G. (1980): Occupation and pay in Britain 1906-1979, Cambridge: Cambridge University Press. Ryan, P. (1987): Trade unionism and the pay of young workers. In P. N. Junankar ed. From school to unemployment? The labour market for young people, London: Macmillan. Sateriale, G. (1988): Salario e produttivitä, Nuova Rassegna Sindacale, No. 37, 31. 10. 88, pp. 2 2 - 2 4 . Rome: CGIL. Saunders, С.T. and Marsden, D.W. (1981): Pay inequalities in the European Community, Sevenoaks, Kent: Butterworths. Saunders, C.T., Mukherjee, S., Marsden, D.W. and Donaldson, A. (1977): Winners and losers: pay patterns in the 1970s, PEP, Vol. XLIII, No. M570, Sept., London. Smith, G. R. (1986): Profit sharing and employee share ownership in Britain, Employment Gazette, Sept., pp. 3 8 0 - 3 8 5 . Tommasi, T. (1988): Produttivitä e salario: l'esperienza SIP. Industria e Sindacato. No. 16, 1. 6. 88, pp. 3 — 5, Rome: Intersind. Weitzman, M. (1984): The share economy: conquering stagflation, Cambridge, Mass.: Harvard University Press. Zappi, A. (1987): La produttivitä nella contrattazione aziendale, Industria e Sindacato. No. 18, 1. 5. 88, Rome: Intersind.

Notes 1 I should like to thank Benedicte Reynaud and Gerald Starr for valuable comments on an earlier draft. 2 This was based on a coefficient of variation calculated on 37 levels of work post.

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3 Bilan de la negotiation collective en 1988, Ministere des Affaires Sociales et de l'Emploi, Paris. 4 I am grateful to B. Reynaud for pointing this out to me. 5 Some empirical support for the effect of employee share ownership schemes on company performance is provided by Richardson and Nejad (1986), based on a survey of the U K retail sector (multiple stores). The authors found that firms with employee share ownership schemes had improved their stock market valuation more than that of those which did not over a period between 1978 and 1984.

Job Flexibility: International Comparisons and Research Propositions Greg J. Bamber

This essay outlines several critical analyses of fragmented work organisation. From eight types of contemporary employment flexibility (summarised in an appendix), it focuses on job flexibility, and argues that employers in an adversarial (Type I) industrial relations context tend to have less job (functional) flexibility but more numerical flexibility than those in a more consensual (Type II) context. Yet in Britain and Australia that can be characterised as traditionally providing an adversarial context, there have been recent moves towards greater job flexibility. In both countries, some such moves have been associated with Japanese influences and new styles of collective agreements. The essay includes four propositions that may guide future research. It proposes longitudinal research on job flexibility, using an audit of work organisation. Such an audit could be of benefit to practitioners and to those seeking to explain changing forms of work organisation.

Critics of Fragmented Work Organisation Pre-industrial craft work has often been idealised (e.g. Rousseau 1911, Mills 1951). Typical craft workers had considerable job flexibility (for definitions, see this essay's Appendix). They were skilled and their work was broadly defined. As romanticised, such craft work was satisfying; it provided workers with feelings of identity and control over their labour processes. Following industrialisation jobs were fragmented as illustrated by Adam Smith's classic analysis of pin making. He argued that increasing the division of labour (by process) led to higher labour productivity (1776: 110 — 114). Charles Babbage, Frederick Taylor and others identified managerial advantages from simplifying the division of labour. Under what became the Fordist approach, there was close supervision, jobs were deskilled, machine-paced and could have very short repeat cycles (Tolliday and Zeitlin 1987). In the English-speaking industrialised countries — especially in large and medium-scale manufacturing — such a fragmented division of labour not only became characteristic of much manual work, but also of much non-manual work. There has been a wide range of criticisms of such division of labour processes, from at least five perspectives. A Humanitarian Perspective Rigidly and narrowly defined jobs rarely make full use of an individual's talents, skills and potential. Such jobs limit the extent to which people can achieve job satisfaction and a good quality of working life (cf. Fox 1971).

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A Radical Perspective Most such narrowly defined jobs separate conception and execution. Marxists criticise not only such deskilling and degradation of work, but also the underlying drive for capital accumulation and control. But much of the early debate about deskilling neglected the institutional context of unions and other possible forms of worker resistance (cf. Braverman 1974). An Economics Perspective There was a renewed emphasis on the importance of markets in the 1980s, with significant moves in various countries towards deregulation and privatisation. In the quest for higher productivity, managers and public policy makers focused attention on reforming labour markets at a micro-economic level, which includes overcoming such institutionalised 'rigidities' as demarcation, possibly reinforced by unions (cf. Blandy et al. 1985). A Product Market Perspective Product markets are becoming more competitive internationally. The newly industrialising economies are providing increasingly tough competition for the older ones. Furthermore, several groups of countries are moving towards integrated markets by reducing internal tariff barriers, including the European Communities, the USA and Canada, Australia and New Zealand, and the Association of SouthEast Asian Nations, so that there is greater competition within and between such groups. In addition, technology is becoming more adaptable while product life cycles are getting shorter, and according to Piore and Sabel's (1984) thesis, there is a shift of emphasis from mass markets and mass production towards niche markets and smaller-scale batch production (flexible specialisation). Despite the obvious appeal of this thesis, Hyman (1988) argues that there has not been a general adoption of 'flexible specialisation' as a coherent management strategy. Nevertheless, insofar as such specialisation practices are being adopted, they have implications for work organisation, as methods of working may need to adapt quickly to cope with changing markets and products.

An Organisational Behaviour Perspective Although Taylor and others assumed that efficiencies and economies were associated with increasing the division of labour, many inefficiencies and diseconomies have become apparent. As revealed by a growing volume of research, for example, by the socio-technical school (Trist et al. 1963) and others (Herzberg et al. 1959, Davis and Taylor 1972, Hackman and Oldham 1980, Kelly and Clegg 1982), fragmented work organisation often seems to be associated with such industrial ills as poor quality of output, apathy, high rates of absenteeism, labour turnover, sickness, injury, and other symptoms of industrial malaise. It is also argued that narrowly defined jobs tend to prevent the optimum use of a labour force, existing stock and new technologies; job demarcations tend to reinforce resistance to change and

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reduce motivation (Dunphy with Dick 1981). In a context of labour shortages, to facilitate recruitment and reduce absenteeism, some employers in Scandinavia, in particular, were prompted to introduce more team working and redesigned jobs. Some such innovations included fundamental changes to the traditional role of supervisors, with moves towards semi-autonomous work groups. For varying reasons, then, critics from several perspectives have advocated more job flexibility, though analysts from different perspectives tend to rely on different arguments. But it is not easy to restructure work organisation which has become institutionalised.

Unions and Work Organisation As unionism grew in the nineteenth and early twentieth centuries, it reflected the contemporary forms of work organisation. Consequently a pattern of occupationally structured unionism is evident to varying extents in many countries including Britain, Ireland, Canada, the USA, Australia and New Zealand. (Independent forms of occupationally based unionism were virtually destroyed in Germany and Japan in the 1930s.) Collective organisation was not confined to manual workers, but grew in the twentieth century among non-manual and even among some managerial employees (Bamber 1986). Rather than joining manual workers' unions, many of these groups joined occupational or professional associations, which adopted distinct approaches to job regulation. Nevertheless, such unions could still have the effect of reinforcing demarcations, between and within such groups. Fragmented forms of work organisation were institutionalised by job regulation (custom and practice, collective bargaining, arbitration, or professional codes). Industrial engineers and job evaluation experts further defined jobs and demarcations. Invariably, such jobs were rigidly defined; there was relatively little job flexibility. Untrained workers could be hired and fired as there were changes in models, demand or technology. This essay is mainly concerned with job flexibility among so-called 'core' employees. However, there are other important types of labour flexibility, and several attempts to conceptualise these are summarised in Appendix 1. The development of such job flexibility in internal labour markets is closely related to other kinds of flexibilities, for example, skill formation flexibility (see Appendix para. 6) and numerical flexibility (Appendix para. 3) that involve employers interacting with the external labour market. The potential for developing such types of labour flexibility may reflect the type of industrial relations context. A Comparative Typology The above-mentioned English-speaking countries can be characterised as having an adversarial — Type I — industrial relations context. By contrast, some other countries can be characterised as currently having a more consensual approach — Type II — for example, Scandinavia, West Germany and Austria (where there was little pre-capitalist industry, as they were primarily agrarian societies and the industrial workforce was recruited rapidly from peasants).

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Many employers in Type I countries have had the scope to achieve greater numerical (external) flexibility than those in Type II countries, which in the post1945 period have usually had more legal and/or institutional constraints on dismissals. Other things being equal, employees in Type II countries currently tend to have more job flexibility than those in Type I countries. In the Type I syndrome, skill formation has not generally been accorded a high priority, as the employers have traditionally tried to buy (poach) the required skilled labour on the external labour market, which may be an international one. Australia and New Zealand for instance, have long relied on recruiting skilled labour overseas.

New Technologies There has been much scope for technological change since the 1970s. In spite of the argument that technological change is generally accompanied by deskilling, technological change can be associated with reskilling and a demand for new skills (Lansbury and Bamber 1989). Depending on the choice of work organisation, flexible automation may provide operators with opportunities to use a wider range of skills than traditional machine tools (Sorge et al. 1983, Wilkinson 1983, Child 1984). New technologies may provide possibilities for technicians to use mechanical and electronic engineering skills — horizontal j o b flexibility — and, to some extent, for operators to programme and maintain their machines, and supervise themselves — upward job flexibility (on the distinction between horizontal and upward job flexibility, see Appendix para. 2). Furthermore, people seem less likely to resist workplace change associated with the introduction of new technologies than when it is seen merely as a reorganisation (Daniel 1987). Technological change, then, can offer considerable potential for accommodating job redesign that may meet some of the above criticisms of fragmented work organisation. But the realisation of this potential depends on managerial (and union) strategies and on the broader context. In most of the countries characterised as Type II, there have been substantial public policy initiatives emphasising industrial democracy, employee participation, work humanisation and novel forms of work organisation. Such initiatives have been complemented by a high priority devoted to education, training and skill formation. There is less likelihood of flexible specialisation being successfully implemented in Britain, Australia, New Zealand, C a n a d a and the USA than in some of the continental European countries, where there have been more constructive moves away from Taylorism, in the context of public policies that aim to improve the working environment. It has become fashionable to discuss changing forms of work organisation in Type I countries too. However, it is too soon to judge whether or not such fashions are heralding a real change in these countries. In such countries, the long legacy of adversarialism and emphasis on managerial prerogatives and short-term financial returns has made some analysts sceptical that the full potential of new technologies can easily be realised (e.g. Jones 1987). Nevertheless, increasing legal, social and/ or union constraints on dismissals and redundancy (e. g. Taylor and Yerbury 1985) have made numerical flexibility seem less easily available. Hence employers have been showing a heightened interest in job flexibility, for example, when they initiate award restructuring or productivity bargaining.

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Productivity Bargaining and Work Practices Traditionally, in most forms of industrial arbitration and bargaining, workers and their unions have initiated claims. Employers have therefore usually appeared to play a reactive role. In productivity bargaining, by contrast, employers play an overtly proactive role; they establish their own bargaining objectives and accordingly initiate 'claims' to be negotiated with employee representatives. Employers' objectives are typically couched in terms of changing work practices they see as 'restrictive'; for instance, working methods, time and speeds, demarcation, quantity of output, and prohibitions of certain equipment (cf. MTIA 1986). In one sense job flexibility is the reciprocal of restrictive work practices. This type of flexibility promises much scope for productivity improvements. If agreement can be reached on changing work practices that determine how work is organised, the type of equipment, and the rate of process and product innovation, it appears that large gains in competitiveness can be achieved (McDonald 1988). Such arguments have been advanced in many countries, including Britain and Australia.

Britain Productivity bargaining focusing mainly on restrictive practices was analysed in Flanders' (1964) classic study of the Esso refinery at Fawley, in Southern England. Under the Labour governments in the 1960s, productivity bargaining was officially promoted as an element of the prices and incomes policies (Fels 1972, McKersie and Hunter 1973). Adaptations of these policies were included in the Labour government's Social Contract with the Trades Union Congress (TUC) in the mid1970s (Palmer 1983). Each of these 1960s' and 1970s' policies disintegrated after about three years, in the context of the devolved locus of power in British industrial relations, with weak central organisations of unions and employers. Although productivity agreements were prescribed at national level, many managers, employees and union representatives at local level had neither the motivation nor expertise to implement and maintain them. Many of these agreements were merely facades to show to coordinators of the national incomes policies. Agreements in writing were rarely translated into lasting changes in behaviour. Since the 1979 advent of the Conservative government under Margaret Thatcher, there have been major changes in British industrial relations, led by government action. Her government specifically rejected nationally orchestrated notions of productivity bargaining, incomes policies, or most other forms of negotiations with unions, whose national role was severely curtailed. Her aim was to shift the balance of industrial power away from unions and to set 'managers free to manage'. There was further devolution of power in industrial relations, with an emphasis on enterprise-level initiatives and an erosion of industry-level collective bargaining. In the 1980s the general printing industry (England and Wales) was the only one in which formal industry-wide flexibility agreements had been concluded (IDS 1988: 25). They were signed in 1986 against the turbulent background of increasing product market competition from firms (including non-union ones) using new technologies, and the dispute at Wapping between Rupert Murdoch's News Inter-

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national and the print unions. These 1986 agreements include provisions on training and the relaxation of demarcation. But such enabling agreements are still subject to negotiations and implementation at enterprise and establishment level, hence real moves towards job flexibility have been slow and uneven in printing, as in most other industries. There have been some other central initiatives. Talks about an industry-wide flexibility agreement continued for four years between the Engineering Employers' Federation and the Confederation of Shipbuilding and Engineering Unions. This attempt involved trying to agree a trade-off between a cut in the working week (e. g. of 90 minutes) in exchange for more flexible working time, new procedures and less demarcation. These talks collapsed in 1987. There was determined shopfloor opposition to the employers' demand that 'unions would not object to the use of tools and equipment associated with the job by supervisors or technicians where necessary and appropriate'. Thus the issue of demarcation across the traditional manual/non-manual distinction was more contentious than the issue of demarcations between skilled workers. The unions were divided and several of them opposed the proposed agreement; also some employers were not committed to it. Japanisation Certain employers have initiated new styles of enterprise agreement. The most innovative tended to be at new (greenfield) establishments, especially Japanese ones. In so far as unions were involved, the most receptive were two ex-craft unions: the Electrical, Electronic, Telecommunication and Plumbing Union (EETPU) and the Amalgamated Engineering Union (AEU). Several other unions signed similar agreements, but so far such agreements apply to only a small proportion of employees. Aspects of these procedures are attracting much interest in the personnel and industrial relations community, though there is generally more scepticism among the unions than among employers. (The single-union and strike-avoidance aspects are specially controversial.) A prominent example of these agreements is at Nissan's greenfield plant in Northern England, but similar agreements were implemented at a range of other firms including NSK Bearings, Toshiba, Komatsu and Continental Can. Although their agreements include several novel aspects, we focus on job flexibility. In view of the high levels of unemployment, national and local governments and British unions generally welcomed the prospect of inward investment which would create new jobs. Nissan, then, had a strong negotiating hand in relation to the local and national government authorities, the unions and the external labour market. As one of its conditions for investing in Britain, Nissan insisted on recognising only one union. Before starting production, it made a formal agreement with the AEU, which illustrated, among other things, a rejection of the Fordist reliance on fragmented tasks and unskilled (or 'semiskilled') workers. To ensure the fullest use of facilities and manpower, there will be complete flexibility and mobility of employees ... employees will undertake and/or undertake training for all work as required by the Company. All employees will train other employees as required (Wickens 1987: 4 3 - 4 4 ) .

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Nissan does not move people rapidly between sections (job rotation), for that detracts from team working. Rather, flexibility means "expanding all jobs as much as possible and ... developing the capabilities of all employees (job enrichment) to the greatest extent compatible with efficiency and effectiveness" (1987: 44). Nissan aimed to minimise its number of job titles and so maximise job flexibility. When designing job classifications, Nissan specified only two manual job titles: manufacturing staff and technicians. Furthermore, it had "no job descriptions which serve only to limit what people do rather than expand their level of flexibility and capability" (1987: 44). Manufacturing staff are responsible for checking their own quality, cleaning and painting their work area, and to an extent for helping to maintain their machines. Such job flexibility is not unusual in Japan, but in Britain (and Australia) these three elements of work would typically have been allocated to different people. Nissan also aimed to recruit technicians who were multiskilled, or who could be trained to be so. It placed great emphasis on the supervisors, as well-trained people-managers. Such firms aimed to win and retain employee commitment, not by using formal approaches to industrial democracy as found in some continental European countries, but by using sophisticated selection, training and performance appraisal techniques, various other forms of employee participation and management-employee communications programmes. For instance, Nissan adapted the Japanese notion of kaizen (continuous improvement). Employees met regularly in small groups to generate ideas to improve quality, safety and productivity. In addition, these firms devised comprehensive negotiating arrangements — procedural flexibility (see Appendix, para. 7). With the intention of avoiding industrial disputes, the last stage may be pendulum (final offer) arbitration. An independent arbitrator has to make an either/or choice between the claims/offers of each party. The rationale is that the threat of such arbitration will induce the parties to bargain realistically to achieve a voluntary settlement. There is a strong incentive for the parties to try to agree, because the alternative is binding arbitration, where the arbitrator has to choose between each side's final position (i.e. one side wins and the other loses). Therefore, both parties are encouraged to moderate their positions and appear to the arbitrator as the most reasonable one. A few critics saw Nissan as a Trojan horse in terms of its personnel policies. The most pointed criticisms however were not concerned with its procedural or job flexibilities per se, rather that, although Nissan had agreed to recognise the AEU, less than 15 per cent of employees were unionised and in practice the union seemed to have little influence or role (CAITS 1986). Also, some of the established car manufacturers protested that the unions had allowed Nissan to enjoy more flexibilities than themselves, even though they had been providing jobs in Britain for many years. To improve their productivity and quality, in the face of increasing competition from Nissan and from importers, the other vehicle manufacturers also tried to introduce various types of labour flexibilities. Ford aimed to buy multiskilling among and between its production operatives, and mechanical and electrical craftworkers, but it encountered resistance from the shop floor (more than from union officials) and was challenged by industrial action. (One striker's slogan in 1988 was 'We're Brits not Nips'.) Nevertheless, Ford succeeded in reducing its 18 different categories of material handling jobs to one

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material handler category. In total, it cut its 516 different manual job titles to 52. Its 1988 strike settlement included an agreement in principle to the introduction of team working, the employment of skilled workers on production processes, and various local initiatives such as quality circles. More generally, the Institute of Manpower Studies argues that there has been a strong trend towards greater labour flexibility in the 1980s, with 90 per cent of manufacturers surveyed claiming to have increased the job flexibility of their employees (ImS 1986). However, Poliert (1988) counters that such arguments are exaggerated, not least because the IMS sample was selected to exemplify the 'leading edge'. In a survey by the Advisory, Conciliation and Arbitration Service, a quarter of employers claim to have succeeded in introducing one or more kinds of flexibility in crafts and skills in the 1984 — 87 period; while a third claim to have relaxed demarcations so that production workers can do routine maintenance (ACAS 1988). But these data should be interpreted with care, for this too was not a random survey, and in any event, it is doubtful whether all of these employers will have succeeded fully in maintaining such innovations. Although managers may claim to have introduced multiskilling, a close examination often finds that a more accurate description of the results would be 'dual skilling'. Hitherto, much job flexibility seems to be confined to the production/maintenance boundary (Cross 1988).

Australia In comparison with Britain, industrial relations power is less devolved in Australia; central initiatives therefore tend to be more important. When formulating its new strategies for the 1980s and beyond, the Australian Council of Trade Unions (ACTU) specifically aimed to learn from the failures of the British Social Contract. The ACTU also aimed to learn from the apparent successes of Sweden, Norway, West Germany and Austria (cf. ACTU/TDC 1987, Frenkel 1987, Niland 1987). The post-1983 Accord between the ACTU and the Australian Labor Party undoubtedly contributed to the latter winning an unprecedented three successive federal elections in the 1980s. In 1986, the ACTU signed a joint statement with two central organisations of employers on the need for improved efficiency and productivity and for cooperative approaches to achieve this at industry and enterprise levels (BCA/CAI/ACTU 1986). Reflecting such a change of attitude among the leaders of the industrial parties (especially the unions), the Australian Conciliation and Arbitration Commission (ACAC) in 1987 made a landmark National Wage decision to introduce a 'second-tier' of negotiations (the restructuring and efficiency principle). The decision encouraged a reorientation away from the doctrine of 'comparative wage justice' (Isaac 1986) towards a form of productivity bargaining. In exchange for agreeing to reform management and work practices, employees were entitled to pay increases. In some firms and industries, however, it was not easy to trade-off work reorganisation for cash. In addition, most Australian employers and unions had become dependent on the centralised arbitration machinery. Hence most of them experi-

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enced considerable difficulty with the 1987 approach to productivity bargaining, which demanded a high degree of commitment and competence to implement at the micro level. In these circumstances, the Commission adopted a different approach when making its 1988 National Wage decision. This initiated a fundamental revision of Australia's out-dated structure of demarcation within and between its many arbitrated awards ('the structural efficiency principle'). This decision reflected the ACTU's case for a pay increase, which had included claims for the restructuring of awards to encourage the acquisition of skill, multiskilling, and the provision of career paths (ACAC 1988: 2). The Commission's 1987 and 1988 National Wage decisions have wide implications that can be illustrated by considering two broad yet quite different sectors: metals and vehicles, and hospitality and tourism. Metals and Vehicles As in Britain and other countries, in Australia the metals industry has invariably been a pace-setter in terms of industrial relations. Following an ACTU initiative, in 1986 the Metal Trades Industry Association (MTIA) of Employers proposed an industry-level Compact with the unions, to make the industry more competitive and attractive to potential investors and employees. The Metal Trades Federation of Unions agreed with most of the MTIA proposals in principle. Such consensus appeared to be a turning point for an industry which had generally been seen as having conflictual rather than cooperative industrial relations. The Compact's main elements were that: • there should be a new award — the Metal and Engineering (Federal) Award; • it should contain a minimum number of job classifications, reflecting broadbanding of existing skills and provision for skills required to work with new processes and technologies; • the career structure should incorporate multiskilling and crosstrade training, and there should be provision for adult apprenticeships and traineeships; • there should be ... job security ... appropriate consultation and information sharing, and provisions for further education and training (Strutynski 1988: 10).

Previously, there had been over 350 different job classifications. The new award would reduce this to 14 skill levels. Some changes were agreed before the new award was finalised. Agencies such as the Heavy Engineering Board facilitated change. It offered financial assistance for buying capital equipment, developing business plans, and implementing new processes and training; the Commission cited the experience of a Queensland engineering firm, Tulk Goninan, as a model (NLCC 1988: 44). But, among other conditions, such firms had to demonstrate that they were increasing managerial efficiency, enhancing the mobility and skills of the workforce, and that there was agreement between management and workforce representatives on "positive significant changes" (Curtain 1987: 25). Earlier forms of industry assistance in Australia had depended on erecting tariff barriers, which fostered inefficient management and work practices. This new form of assistance not only encouraged job flexibility among manual workers, but also targeted management practices. Work reorganisation was further encouraged by the reports from two tripartite missions sent overseas in 1988 to study the process of workplace reform. One focused on metals, the other on the vehicle-manufacturing industry.

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The major vehicle manufacturers are concentrated in the southern Australian states. They all initiated reforms. They reduced the number of job classifications and launched various employee participation programmes under such names as Employee Involvement (Ford); Quality of Worklife (General Motors-Holden's); Industrial Democracy (Nissan); and Employee Development (Toyota). Such programmes represented an attempt to change from an autocratic management style towards a more participative one (though not to institutionalised forms of codetermination, as found in continental Europe). The new approaches in vehicle manufacturing were facilitated by the A C T U and the national context of the Accord, the 1987 and 1988 National Wage decisions, and the government's Passenger Motor Vehicle Manufacturing Plan, which aimed to rationalise production and reduce tariff protection. Nevertheless, none of these manufacturers were establishing a greenfield plant and none were as innovative as Nissan in Britain. Other innovations can be found by looking towards northern Australia (Queensland) in a contrasting sector.

Hospitality and Tourism For much of the 1980s this tertiary-sector industry was in a growth phase in Australia (albeit from a relatively low base). Yet employer interests argue that its growth in Australia has been hampered by demarcation boundaries between narrowly defined jobs and restrictions on working hours. If Australian resorts are not seen as competitive, customers can go elsewhere, especially as the real cost of air fares is falling. Consequently, there have been several new agreements and awards in Queensland, which has led the development of Australia's tourist industry. Queensland attracts 45 per cent of Australia's international visitors and much of the investment in tourist resorts and other facilities. It hosted World Expo '88 and pioneered the flexibility agreements for this sector. Unusually for Australia, the Expo industrial agreement included common conditions across all classifications of work (which provided for job flexibility), as well as flexible working hours. It also abolished overtime 'penalties' for weekend and evening shift working, in exchange for a higher than normal flat pay rate, which applied for seven days a week and 17 hours a day. Such large projects in Australia (and other Type I countries) are often subject to industrial disputes. But in spite of the tight deadlines, there were no significant disputes at Expo, either during its construction or operation, not least because of the agreement's procedural flexibility. This new agreement was established between five unions, the Queensland Trades and Labor Council, and the quasi-public sector Expo Authority. Subsequent flexibility agreements and awards in Queensland were in the private sector, for instance, at the Great Barrier Reef Offshore Island Resorts and the Sanctuary Cove Resort on the Gold Coast. Soon after the latter award, its Australian owner sold this huge development to a Japanese company. Many such tourist resorts in Queensland now have a significant degree of Japanese ownership. Partly in consequence, the industrial agreements and awards include many features which are relatively new in Australia. In terms of job flexibility, however, the significant innovations include the following:

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• Broadbanding Work is defined widely, so that at Sanctuary Cove almost 70 separate classifications were merged into only nine wide job categories; • Interchangeability Employees specialise in a particular area of employment but, depending on demand, may be drawn into any of the other areas of employment; • Common award The terms and conditions of employment apply to a wide range of jobs that are represented by several different unions (though the Offshore Islands Agreement is with only one: the Australian Workers' Union); • Non-pecuniary benefits Long-term employees are offered contributory pensions, training, career development, better work environments and more job security; • Union membership Although many employers in this sector seek to avoid unionism, these Queensland cases provide for preference of employment to be given to members of the relevant unions, or if none are available, to those who undertake to join. Inevitably, there have been criticisms of these innovations, for instance, from the Liquor Trades Union. It was concerned about the lack of job definitions and about what it alleged would be an erosion of job security, insufficient scope for training and career development, and a lowering of workers' total pay and conditions at Sanctuary Cove. None the less, such agreements have generally been welcomed by the unions (which see them as heralding more jobs with better conditions) and by the government and employers (which see them as boosting their international competitiveness).

Conclusions Fragmented work organisation has been strongly criticised from several perspectives. Although maximising the division of labour processes was prescribed among others by Adam Smith, it should not be forgotten that when he was writing technology was much less adaptable and employees less educated than they are now. He also argued that the wealthiest nations would be those with workforces which were advanced in terms of "skill, dexterity, and judgement" (1776: 104—5). Yet fragmented tasks tend to be accompanied by too little priority being given to training and skill formation. After two centuries of fundamental changes in terms of technology and employees' education and aspirations, the industrial parties and public-policy makers in Britain and Australia are increasingly emphasising skill formation. Their relatively new priority was reflected in Britain by some of the programmes of the former tripartite Manpower Services Commission and by its successors. In the 1980s numerous attempts to improve publicly funded training were devised and publicised, against the background of relatively high levels of unemployment (e.g. Youth Training Scheme; Professional, Industrial and Commercial Updating Programme; Employment Training) but some such programmes were later discarded as circumstances (and government policy) changed. Also there was insufficient support from employers and increasing opposition from unions. Even though unemployment was lower in Australia (about 8 per cent in the mid1980s, but about 11 per cent in Britain, according to the OECD), there was also a

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series of programmes there. Both countries experienced some demarcation and coordination difficulties, however, between their various governmental agencies, for example, those associated primarily with trade, industry, employment and education. This is one reason why, in 1987, Australia provided scope for a more coordinated public policy by restructuring its federal government departments to create some 'super ministries', including the Department of Employment, Education and Training (DEET). In addition, in the 1980s there were several tripartite initiatives to encourage work reorganisation in Britain by ACAS and its Work Research Unit. There were more such initiatives in Australia. These were led by the Federal Department of Industrial Relations and its counterparts in some of the States, which have established new local Workplace Resource Centres. In both countries, then, there have been recent attempts to increase the degree of j o b flexibility. The governments of both countries supported these attempts by fostering more generic skill formation, based on competencies, rather than traditional time-based apprenticeships. There appears to have been more general acceptance of such policies in Australia than in Britain. Mrs Thatcher is a politician, who dislikes tripartitism and consensus, whereas when M r Hawke became Prime Minister consensus was his password. The Hawke Labor government and the unions tried to shift Australia's employment relationships away from adversarialism towards more consensus and quasi-corporatism. But the Federal government has limited powers of direct implementation in such fields as industrial relations (and education). In some respects, the State governments have more powers and have taken more initiatives than the Federal government (Deery and Plowman 1985: 150 ff). Nevertheless, the Australian Accord has had a longer life than any of the post-war British attempts to introduce quasi-corporatist incomes policies. The Commission facilitated the Accord, whereas Britain has not had such a powerful central institution; its ACAS has a relatively marginal role (Bamber 1987) compared with the Australian Conciliation and Arbitration Commission, and its successor the Australian Industrial Relations Commission. When embarking on successive new incomes policies, Britain has had to devise new regulatory agencies (e. g. the Prices and Incomes Board, and the Pay Board). The national political and institutional context in Britain and Australia may seem to be different but there are also many similarities. These English-speaking countries share a legacy of adversarial employer-union relations, occupationally based unions and relatively high numerical flexibility (with a low degree of job security). Historically, in comparison with Type II countries, Britain and Australia have neglected education and training, not only of operatives, but also of managers and engineers. At present these countries are aiming to redress that neglect. Such recent initiatives in these countries have been induced by their admiration of the economic success of industry in other countries, especially West Germany and Japan, and the contributory role of their well-trained workers and managers (e. g. the German Meister, a type of technician/trainer/supervisor). These countries have also been influenced by other international factors, including, increasingly, the strong competition from the newly industrialising economies, and the encouragement of such international agencies as the Organisation for Economic Co-operation and Development and the International Labour Organisation.

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In both Britain and Australia, since the 1970s the metals and vehicles industries have introduced many new technologies and have experienced uncertain economic environments. There has been an upsurge in foreign competition, especially from countries which have given a higher priority to j o b redesign and skill formation more consistently and for much longer. It is no coincidence that many of the manufacturers from Type II countries have established a good reputation for quality and reliability (e. g. Volvo, Saab, Daimler-Benz, BMW and of course the Japanese who in some respects are similar to our Type II category). This competitive imperative spurred the British and Australian manufacturers themselves to promote greater job flexibility. In Britain this became especially evident in the 1980s following the start of the campaign to promote the Single European Market (scheduled by 1992); this induced the establishment of Nissan and other such overseas-owned companies. It became evident in Australia, following the increasingly widespread view in the 1980s that Australia could no longer rely on its commodities, but that it should revitalise other industries, including metals, vehicles, hospitality and tourism. Interestingly, there are some similarities between the British Nissan-type agreements and the new ones in Queensland. Both were designed to cope with growing international competition and were influenced by Japanese ideas. Both involved employers at new sites in the context of conservative governments (in Britain and the State of Queensland). Both in Britain and Queensland the unions were on the defensive in the 1980s. By Anglo-Australian standards, both types of agreements set the scene for innovative job design and have been introduced relatively peacefully, by employers seeking to cooperate with (or even co-opt) some of the unions, rather than confronting them. At least initially, neither the Japanese firms in Britain nor the above-mentioned Queensland sites experienced any significant industrial stoppages as they introduced increased job flexibility. N o n e the less, the British and Australian cases cited are relatively rare examples of a comprehensive attempt to introduce job flexibility in these countries. Following this and the earlier discussion of differing industrial contexts, Proposition 1 is that the potential for designing more flexible jobs is more likely to be realised in an industrial relations context of consensus (Type II) rather than in an adversarial one (Type I). Three more propositions may be helpful in guiding future research and practice. Environmental Turbulence In terms of j o b flexibility, some argue that manufacturing (the secondary sector) in Britain is innovating ahead of segments of the tertiary sector such as retail distribution and financial services (IMS 1986, ACAS 1988). At least in the private sector, there has previously been more task fragmentation in secondary industries than in most tertiary ones, and such fragmentation in the secondary sector has been more institutionalised by unionism and collective bargaining than in the tertiary sector. Hence managers in some parts of the tertiary sector say they have less need to change, because they already have j o b flexibility. However, the secondary sector has another reason to innovate; manufacturing has been exposed to greater international competition for longer than most of the

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tertiary sector. Moves towards more job flexibility in the secondary sector have taken place against the background of more competitive environments. Besides the cases mentioned earlier, there are other significant examples of moves towards more job flexibility in both Britain and Australia in such secondary industries as steel, chemicals, food and drink manufacturing. These industries are also experiencing increasingly turbulent markets. By contrast, many of the public services have been monopolies and relatively insulated from competition. In this environment, it is often argued that many rigidities have developed in such services as public administration, health, education, and railways, in Britain and Australia. Nevertheless, since the 1970s, many public services have experienced increasingly turbulent environments, especially in view of the attempts to reduce taxes (and government expenditure) and to deregulate, corporatise and privatise parts of the public sector. Accordingly, there have been strong political and industrial attacks on job rigidities, and moves to introduce more flexibility in parts of the public sector too. Therefore, Proposition 2 is that countries, sectors and employing organisations which face turbulent environments will be more likely to innovate with job flexibility than those with relatively stable environments. Job flexibility has been exemplified in this essay primarily by changes in the work organisation of manual workers. In parallel, many employers are introducing greater job flexibility among their managerial cadres too. Flatter and leaner management hierarchies are probably more suitable in organisations with highly skilled and polyvalent manual workers who may seek greater autonomy than their less skilled and univalent counterparts. Perhaps such 'unskilled' workers can effectively be managed by Theory X approaches of 'direct control', but typically the highly skilled are more appropriately managed by a Theory Y strategy of 'responsible autonomy' (cf. McGregor 1960, Friedman 1977). Transformations have been taking place in the management hierarchies of employing organisations. Some are aiming to be less bureaucratic and to share information horizontally as well as vertically. As Burns and Stalker (1961) found, such flexible (organic) organisational structures are more appropriate than bureaucratic (mechanistic) ones in organisations which face turbulent environments (see also Lawrence and Lorsch 1967). Managerial Commitment and Competence It is easier for representatives of the industrial parties to announce a policy or sign an agreement than to implement flexibility and to maintain it consistently. All too often such arrangements have been announced without adequate preparation in terms of training and dialogue to win the commitment of managers as well as of rank-and-file employees and their representatives. In comparison with the norm in Type II countries, most British and Australian first-line managers (supervisors) have not been educated, selected or trained with the demands of fostering job flexibility in mind. Supervisors tend to be marginal managers. Not only are they neglected by their superiors, but may be abused by their subordinates and union representatives (Thurley and Wirdenius 1973, Child and Partridge 1982, Gilmour and Lansbury 1984). Yet supervisors invariably carry much of the burden of implementing and especially maintaining job flexibility at workplace level. At the same

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time they may feel most threatened by it, if for instance it aims to give employee teams some responsibility for supervising themselves. Without enthusiastic commitment by supervisors, in particular, such policies and agreements are unlikely to be translated into practice and then to be maintained. Hence Proposition 3 is that job flexibility is more likely to be implemented and maintained where there are competent first-line managers who are well-educated, selected, trained and involved in designing the changes, and well supported by their workgroups and superiors (i. e. the supervisors are part of the managerial team). Management Style In the 1980s, employers in the mining industry, for example, have attempted to impose more job flexibility. The management style of British Coal and PekoWallsend (Australia) was autocratic and confrontational (while the unions in this industry could be characterised as militant). Such management styles may seem to precipitate more job flexibility, at least in the short-term, but possibly at the longerterm cost of considerable resentment and low-trust employment relationships. Usually it is the subordinate employees and workgroups who have most knowledge about their own work organisation. If they are well informed and motivated to change, they are better able to design the most suitable forms of work organisation. Furthermore, employees will be most likely to implement and willingly maintain job flexibilities to which they feel committed. Their commitment generally seems to be enhanced if they are involved in making decisions about changes to work organisation (and if, as appropriate, their union representatives are also involved) within a climate of relatively high-trust employment relationships (cf. Fox 1974). Such a climate seems to be more prevalent in a context of participative management styles, which is associated with our so-called Type II countries. Thus, Proposition 4 is that, in the long term, the implementation and maintenance of job flexibilities in organisations which have a high degree of employee (and union) involvement, with a participative management style, will be more successful than in those characterised by a more autocratic management style. A Proposal to Audit Work Organisation To what extent will management policies and/or agreements to promote flexibility yield lasting changes in industrial behaviour? This question is worthy of detailed investigation. In Britain and Australia there are many anecdotes about job flexibility being renegotiated after a few years, when the work practices are once again modified in another trade-off for cash. Furthermore, in spite of all the discussion about strategic human resource management (e. g. Collins 1988), most workplace change proceeds by fits and starts. For every successful and continuing implementation, there are many which do not proceed much beyond the rhetoric, or are forgotten soon afterwards. Consequently, our current research agenda includes devising appropriate measures to be the basis for an audit of work organisation, which could be used to help the parties prepare themselves for introducing greater job flexibility. Such an audit could usefully be repeated soon after implementation, and again after a year or

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two to give a valuable longitudinal perspective. It could help to evaluate, for instance, the extent that multiskilling is really being introduced, rather than merely blurring the boundaries of some j o b demarcations, or creating dilettante generalists. In addition, it could be used to assess who benefits from such workplace change, to what extent people are satisfied with j o b redesign and whether the associated education and training is adequate. Such a practical research tool could also be invaluable in the important process of generating theories to explain the dynamics of work organisation. Many of the recent debates have been insufficiently analytical. In closing, it is worth noting that while economists have provided much of the impetus to recent debates about labour flexibility, such debates should also be informed by social scientists from other backgrounds as well as by lawyers and technologists (cf. Clark et al. 1988). Many inter-disciplinary specialists in organisational studies have researched various aspects of j o b design and related aspects of work organisation. It is desirable to blend insights from economists, personnel and industrial relations specialists with those from engineers and behavioural scientists. Moreover, when focusing on job flexibility, analysts should not ignore the wider context of work, which includes historical, social, political, legal and cultural dimensions. References ACAS (1988): Labour flexibility in Britain: the 1987 ACAS Survey, London: Advisory, Conciliation and Arbitration Service. Atkinson, J. (1984): Emerging UK work patterns, Brighton: Institute of Manpower Studies. ACAC (1987): National wage case decision, Melbourne: Australian Conciliation and Arbitration Commission/Canberra: Australian Government Publishing Service (Print G6800). ACAC (1988): National wage case decision, Melbourne: Australian Conciliation and Arbitration Commission/Canberra: Australian Government Publishing Service (Print H4000). ACTU/TDC (1987): Australia reconstructed: ACTU/TDC mission to Western Europe, Canberra: Australian Government Publishing Service (for the Australian Council of Trade Unions/Trade Development Council). Bamber, G. J. (1986): Militant Managers?, Aldershot: Gower. Bamber, G. J. (1987): 'Conciliation, Arbitration and Human Resource Management' Human Resource Management Australia, Vol. 25, No. 2, 18 — 33. Bamber, G . J . and Lansbury, R. D. (eds) (1987): International and Comparative Industrial Relations: A Study of Developed Market Economies, London: Allen and Unwin. Blandy, R. et al. (1985): Structured chaos: the process of productivity advance, Adelaide: National Institute of Labour Studies, Flinders University of South Australia. Braverman, H. (1974): Labor and monopoly capital, New York: Monthly Review Press. Bray, M. and Littler, C. R. (1988): 'The labour process and industrial relations: review of the literature', Labour and Industry 1/3: 551 —587. Burns, T. and Stalker, G. M. (1961): The management of innovation, London: Tavistock. BCA/CAI/ACTU (1986): Issues related to productivity improvement: a joint statement, Melbourne: Business Council of Australia/Confederation of Australian Industry/Australian Council of Trade Unions. CAITS (1986): Flexibility: who needs it? London: Centre for Alternative Social and Technological Systems, Polytechnic of North London. Child, J. and Partridge, B. (1982): Lost managers: supervisors in industry and society, Cambridge: Cambridge University Press.

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Child, J. (1984): Organization: a guide to problems and practice, London: Harper and Row. Clark, J. et al. (1988): The process of technological change, Cambridge: Cambridge University Press. Collins, R. R. (1988): 'The strategic contributions of the personnel function', in: Australian personnel management: a reader, Palmer, G. (ed.), 34 — 49. Melbourne: Macmillan. Cross, M. (1988): 'Changes in working practices in U K manufacturing 1981 —88', Industrial Relations Review and Report, 415: 2—10. Curtain, R. (1987): 'Work practices agreements in heavy engineering: potential and limitations', Work and People, 12/3: 2 5 - 3 0 . Daniel, W. W. (1987): Workplace industrial relations and technical change, London: Frances Pinter. Davis, L. E. and Taylor, J. C. (eds) (1972): Design of jobs: selected readings, London: Penguin. Deery, S. and Plowman, D. (1985): Australian industrial relations, Sydney: McGraw Hill. Dunphy, D. with Dick, R. (1981): Organizational change by choice, Sydney: McGraw Hill. Fels, A. (1972): The British prices and incomes board, Cambridge: Cambridge University Press. Flanders, A. (1964): The Fawley productivity agreements: a case study of management and collective bargaining, London: Faber. Fox, A. (1971): A Sociology of Work in Industry, London: Collier Macmillan. Fox, A. (1974): Beyond contract: work, power and trust relations, London: Faber. Frenkel, S. J. (ed.) (1987): Union strategy and industrial change, Sydney: University of New South Wales Press. Friedman, A. (1977): Industry and labour, London: Macmillan. Gilmour, P. and Lansbury, R. D. (1984): Marginal manager: the changing role of supervisors in Australia, Brisbane: University of Queensland Press. Hackman, J. R. and Oldham, G. R. (1980): Work redesign, Reading, Massachusetts: AddisonWesley. Herzberg, F. et al. (1959): The motivation to work, New York: Wiley. Hyman, R. (1988): 'Flexible specialisation: miracle or myth?', in: New technology and industrial relations, Hyman, R. and Streeck, W. (eds.), Oxford: Blackwell, pp. 48 — 60. IDS (1988): 'Flexible working.' IDS Study 403, London: Incomes Data Services. IMS (1986): Changing work patterns: how companies achieve flexibility to meet new needs, Brighton: Institute of Manpower Studies/London: National Economic Development Office. Isaac, J. E. (1986): 'The meaning and significance of comparative wage justice', in: Wage fixation in Australia, Niland, J. R. (ed.), 84 — 104, Sydney: Allen & Unwin. Jones, B. (1987): 'Flexible automation in Britain: societal conditions and social consequences' Paper for the Conference on the social problems of the introduction of flexible automation, Turin: International Centre for Advanced Technical and Vocational Training. Kelly, J. E. and Clegg, C.W. (eds) (1982): Autonomy and control at the workplace: contexts for job redesign, London: Croom Helm. Kuwahara, Y. (1987): 'Japanese industrial relations', in: Bamber and Lansbury, op. cit., 211-31. Lane, C. (1988): 'Industrial change in Europe: the pursuit of flexible specialisation in Britain and West Germany', Work, Employment and Society, 2/2: 141 —68. Lansbury, R. D. and Bamber, G . J . (1989): 'Technological change, industrial relations and human resource management' in: New technology: international perspectives on human resources and industrial relations, Bamber, G. J. and Lansbury, R. D. (eds), London: Unwin Hyman: 3 - 39. Lawrence, P. R. and Lorsch, J. W. (1967): Organization and environment, Cambridge: Harvard University Press.

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McDonald, D. (1988): 'Labour flexibility, industrial relations and productivity.' Working Paper No. 2, Sydney: Centre for Industrial Relations Research University of Sydney; Melbourne/Labour Studies Programme, University of Melbourne (June). McGregor, D. (1960): The human side of enterprise, New York: McGraw Hill. McKersie, R. B. and Hunter, L. C. (1973): Productivity and collective bargaining, London: Macmillan. MTIA (1986): MTIA proposals for a compact with the metal unions, Sydney: Metal Trades Industry Association. Mills, C. Wright (1951): White collar: the American middle classes, New York: Galaxy. NLCC (1988): Wages policy and productivity improvement, Canberra: National Labour Consultative Council/Australian Government Publishing Service. Niland, J. R. (1987): 'Gaining against the tide: Australian unionism in the 1980s', Bulletin of Comparative Labour Relations, 16: 129—150. OECD (1986): Labour market flexibility: report of high-level group of experts (Dahrendorf Report), Paris: Organisation for Economic Cooperation and Development. Palmer, G. (1983): British industrial relations, London: Allen & Unwin. Piore, M. J. and Sabel, C. F. (1984): The second industrial divide, New York: Basic Books. Poliert, A. (1988): 'The flexible firm: fixation or fact?', Work, Employment and Society, 2/3: 281-316. Rimmer, M. and Zappala, J. (1988): 'Labour market flexibility and the second tier', Australian Bulletin of Labour, 14/4: 564-591. Rousseau, P. (1911): Emile, London: Everyman. Smith, A. (1776): The wealth of nations: books 1 — 111, London: Penguin (edition 1970). Sorge, Α. et al. (1983): Microelectronics and manpower in manufacturing: applications of computer numerical control in Great Britain and West Germany, Berlin: International Institute of Management/Aldershot: Gower. Streeck, W. (1988): 'Change in industrial relations', Paper presented at the 30th anniversary international symposium: searching for a new system in industrial relations, (September) 1 — 16. Tokyo: Japan Institute of Labour. Strutynski, P. (1988): 'The metal industry: pacesetter for change', Workplace Change, 1: 8-10.

Taylor, V. and Yerbury, D. (1985): 'Australia', in: Managing workforce reduction: an international survey, Cross, M. (ed.), London: Croom Helm, pp. 130 — 165. Thurley, К. E. and Wirdenius, M. (1973): Supervision: a reappraisal, London: Heinemann. Tolliday, S. and Zeitlin, J. (eds.) (1987): The automobile industry and its workers: between Fordism and flexibility, New York: St Martins Press. Trist, Ε. et al. (1963): Organisational choice, London: Tavistock. Wickens, P. D. (1987): The road to Nissan: flexibility, quality, teamwork, London: Macmillan. Wilkinson, B. (1983): The shopfloor politics of new technology, London: Heinemann. Wills, N. (1988): Report on "The Nissan Way", Nelson; Nelson Polytechnic (cited in the National Business Review, 18 November 1988, w 17).

Appendix Job Flexibility and Other Types of Labour Flexibility

This Appendix tries to define job flexibility and put it into context as one of about eight related and overlapping types of labour flexibility. 1. Pay flexibility, which includes: a) a d j u s t i n g the general level of e c o n o m i c rewards in response to

macro-economic

changes (inflation and productivity) and external shocks (terms of trade);

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b) adjusting the level of rewards in response to micro-economic changes (supply and demand, and/or the performance of an individual, team, department, division, or company); and c) adjusting the composition of the total reward package depending on individual or group preferences (e.g. changing the mix between, pensions, hours, holidays, cars and other non-pay rewards). 2. Job (functional or task) flexibility which includes reversing the division of labour and the fragmentation of work organisation particularly in the 'core' of undertakings by extending the range of tasks involved in a job; this may include extension: a) horizontally (e. g. if a mechanic also undertakes skilled electronic tasks); b) upwards (e.g. if an operator also undertakes maintenance or supervisory responsibilities); and c) downwards (e. g. if a skilled machine setter also undertakes less skilled tasks of operating the machines). 3. Numerical (or external) flexibility, which is particularly found around the 'periphery' of undertakings, and includes: a) adjusting the number of employees by hiring and firing in response to changes in demand or technology; and b) various other forms of externalisation (e. g. using temporaries, out-workers, sub-contracting, distancing and just-in-time methods of supply). 4. Mobility, which is distinct from, though related to, job and numerical flexibility and includes: a) internal mobility, involving changes of jobs and/or career progression with one employer; and b) external mobility, involving a change of employer. Both of these types of flexibility may or may not involve geographical mobility. 5. Working-time flexibility, which includes the adaptation of work schedules and the reorganisation of working time (e.g. normal or maximum weekly, monthly, yearly or lifetime hours of work). 6. Skill formation flexibility, which involves the content and process of education and training, is a cornerstone of job flexibility. Education and training shape the attitudes and behaviour of managers and other employees. As the Dahrendorf report observed, 'the rigidities of the educational system and the constraints of public finance are, if anything, greater obstacles to change than the rigidities of labour markets' (OECD 1986: para 42). 7. Procedural flexibility, which involves the process of introducing the various substantive types of flexibility: a) the scope of procedures may be broad (e. g. a general disputes procedure) or focused on specific issues (e. g. technological change); b) procedures may be permanent (e. g. if broad in focus) or temporary (e. g. if focused on one issue); c) the power of procedures may be weak (consultation) or strong (decision making). From the establishment of such agreed procedures, we can infer that the industrial relations parties have some commitment to jointly administering labour flexibility, in contrast to those who rely on unilateral regulation by management (or workgroups), or external regulation (e. g. by the state).

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8. Regulatory flexibility, which usually involves encouraging the establishment, expansion or relocation of enterprises. To such ends, public policies may be relaxed; for instance, the enforcement of tax, health, safety, planning, environmental and labour laws (e. g. fully or partially exempting employers from complying with laws or codes on pollution, discrimination and dismissal). Sources:

Derived from numerous sources including IMS 1986, OECD 1986, Rimmer and Zappaela 1988.

Job Protection and Flexibility in Western Europe Willem Dercksen

Introduction Job protection is just one of several factors affecting the flexibility of labour markets. At the macro-level a trade-off between the complete set of regulations regarding labour market flexibility and unemployment exists. Job protection (job security) has to be distinguished from employment protection. The first only refers to specific jobs, while the latter also refer to other employment opportunities. An active labour market policy may be a functional alternative to job protection. The creation of new job opportunities by means of an active labour market policy contributes to employment security. Taking into account the distinction between individual dismissals, collective dismissals and temporary lay-offs, the essay briefly describes the relevant ECregulation as well as the systems of job protection in Sweden, Belgium, United Kingdom, Federal Republic of Germany and the Netherlands. In a subsequent section attention is given to recent developments in the Dutch system of job protection. The latter can be seen as a good example of the trade-off between labour market flexibility and unemployment in practice. In the context of the internal European market, to be realised in 1992, a nation's system of job protection might become a national selling point to attract investment from abroad and hence new jobs. This might lead to a certain harmonisation of law, or otherwise a deregulation of legal provisions, and consequently more scope for private regulation. Both possibilities will be discussed in more detail. In a final section conclusions are drawn.

Job Protection and the Trade-Off Between Flexibility and Unemployment To a certain degree job protection and labour market flexibility are opposites. Public and private labour regulation in general and job protection in particular prevent labour from being merely a commodity that has to sell itself continuously on the labour market. Labour legislation has been developed to regulate the integration of workers into the economic process. Labour regulation, including job protection, can take precedence over economic forces This is its strength. On the other hand, job protection sets limits to processes of adjustment and/or innovation of firms. It sometimes deters employers from hiring new workers or from giving them permanent appointments. Fixed term employment, which is in many European countries also regulated, can be a way out for employers to avoid

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job protection. In the 1980s secondary labour markets became more voluminous in most, if not in all Western European countries. Job protection and labour market flexibility are not opposites in every respect. This makes it difficult to weigh the pros and cons of job protection, or of a relaxation of job protection. A relaxation of job protection might simplify processes of economic adjustment and stimulate technical innovation. It also might encourage ("core") workers to improve their labour market qualifications. In this way the external flexibility of firms and the external mobility of employees could be increased. On the other hand job protection increases the devotion of employees to the firm and provides greater encouragement for firms to invest in human resources, because of the opportunity costs of dismissals redundancy payments and/or procedural burdens. In this way, job protection increases the internal flexibility of firms and the internal mobility of employees. The functions of external and internal flexibility are somewhat similiar. Existing regulations also contain an element of employer protection, because they require periods of notice from employees as well as employers. Job protection also contributes to a certain degree of solidarity between employers and employees. This makes for economies based on highly developed human capital. Unfortunately, empirical evidence on the impact of job protection is fragmentary at best 1 . This is another reason why it is difficult to weigh the pros and cons of a relaxation of job protection. In Europe, job protection is institutionalised in law as well as in collective agreements. In contrast, in the United States job protection is only provided by collective agreements; workers in the non-unionised sector are not normally protected. In the United States there is only one legal restriction to the termination of employment, resulting from the 1988 legislation. Advance notice of large lay offs and plant closings is required 2 . In Europe the regulations as well as the extent of job protection vary considerably between countries. A minimum standard was recommended by the ILO in 1963 (ILO Recommendation No. 119). This has now been superseded by ILO Convention No. 158 of 1982: "the employment of a worker shall not be terminated unless there is a valid reason ... connected with the capacity of conduct of the worker or based on the operational requirements of the undertaking, establishment or service". Legislation and practices on dismissals generally draw a distinction between disciplinary dismissals, i. e. on grounds of the conduct or capacity of the employee, and redundancy — workforce reductions for economic, technical or organisational reasons. Procedures and terms of notification differ considerably between countries. Summary dismissal — the loss of the right to notice — is a specific kind of disciplinary dismissal; when the employee is guilty of serious fault or fundamental breach of contract. In some countries (e.g. Federal Republic of Germany, the Netherlands) the test is whether it would be unreasonable to expect the relationship to be maintained for the duration of the notice period. This is also the standard prescribed in ILO Convention No. 158. Finally, a number of European countries have temporary lay-off regulations. Almost all European countries have "repressive" systems of job protection. This means that the worker can only appeal to a court after the dismissal if he considers his dismissal to be unjust. A "preventive" system, as in Holland, consists of a

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preliminary procedure to be followed; an employer is only allowed to give notice with the prior approval of the director of the regional employment office. In Austria, such a procedure may take no more than five days; it is rather the opening of a possible appeal rather than preventive protection. In Sweden, the employer must inform the employee in advance and notify the employee's union in case of dismissals based on the employee's personal circumstances or in case of termination of a long-established fixed term engagement. Job protection is just one of several factors affecting the flexibility of labour markets. A report on labour market flexibility published by the OECD groups the flexibility factors into six categories 3 : — conditions of employment, including job protection, and types of labour contract, — labour costs, including the general level of wages, wage differentials, and nonwage labour costs, — work practices and work patterns, including arrangements for working time and the environment and organisation of work, — rules and regulations relating to the labour market, including general rules, taxation, and regulations concerning small businesses, — mobility, including both external and internal mobility, — education and training. All these factors directly or indirectly affect different socio-economic objectives, such as economic adjustment, technological innovation and the reduction of unemployment. In particular, there is a trade-off between the complete set of regulations regarding labour market flexibility and unemployment. However, as noted in the OECD-report, labour market flexibility is not a panacea for all social and economic ills. It is but one — and not the most important — factor affecting economic and social progress and has to be seen in the context of general economic and social trends. A weak system of job protection may contribute to a well-functioning labour market. This argument, however, is only valid — in economic as well as in a social/ moral sense — when employers do not abuse the system at the expense of the social security system or individual workers. Moreover, a weak system of job protection can only contribute to a well-functioning labour market when dismissed workers can find other jobs or can find alternative avenues to qualify for jobs for which a demand in the labour market exists. Thus, under specific conditions, a relaxation of job protection can contribute to the capacity of a society for economic adjustment, technical/organisational innovation and reduction/prevention of unemployment. Labour market policy seems an important intermediary variable in the general trade-off between labour market flexibility and unemployment, as well as in the specific trade-off between job protection and unemployment. The performance of Sweden during the 1980's with regard to unemployment is a strong argument for the thesis that a really active and effective labour market policy is a better safeguard against unemployment then a fully developed system of job protection. Instruments such as vocational training, job creation, wage subsidies, and measures aimed at a reduction of the supply of labour are to a certain degree an alternative for job protection. Vocational training as well as the creation of fixed-term jobs for

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unemployed may help the participants to qualify for (steady) jobs for which a demand on the labour market exists. Wage subsidies may also enhance their chances for a job. A reduction of the supply of labour may contribute to the availability of jobs for unemployed. Labour market policies can roughly be classified as active labour market policies, as in Sweden, and rather passive labour market policies, as in most European countries, including Belgium, United Kingdom, Federal Republic of Germany and Holland. In Sweden, six to seven per cent of the state budget, corresponding to between two and three per cent of the GNP, is utilised for labour market policy purposes (in 1983). Of the total expenditures for labour market policy, 70 per cent goes to active programmes, while 30 per cent goes to cash assistance (passive labour market policy). In such other European countries as the Federal Republic Germany, United Kingdom and Holland only about one-third of expenditure is utilised for active programmes; moreover, the total amount of labour market expenditure (as a percentage of GNP) is less than in Sweden 4 . Swedish active labour market policy seems the main explanation for the low unemployment rate in the 1980s5. Nevertheless the Swedish system of job protection is at least as protective as the German, the U K and the Dutch systems of job protection. In Belgium the legal system of job protection is comparatively weak. Based only on these countries, there is no empirical evidence that an active labour market policy provides a substitute for a developed system of job protection. However, this empirical state of affairs is no argument against the thesis that an active and effective labour market policy is a better safeguard against unemployment then a highly protective system of job security. Probably a country is better off with an active labour market policy than with a highly developed system of job protection, because in the long run employment protection makes more sense than job protection. The internal European market, to be realised in 1992, might be (another) future circumstance provoking a weakening of national systems of job protection. Before considering this, certain divergent national systems of job protection, as well as the existing EC-regulations, will be described.

Job Protection in European Countries EC-Regulations Two EC Directives directly deal with security of employment. Directive No. 75/129 of 17 February 1975, on the harmonisation of the regulations of the member states on mass dismissals, contains the obligation of the employer to consult the representatives of the employees in order to reach agreement on either the prevention of mass dismissal, the number of employees involved, or measures to mitigate the consequences of the dismissals. The directive also contains the obligation of the employer to inform the competent state authority about an intended mass dismissal. National legislation must provide that a mass dismissal can not take effect before 30 days from the receipt of the information by the relevant authority. This period must be used by the authority to look for a resolution of the employment problems caused by the intended mass dismissal.

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Directive No. 77/187 of 14 February 1977, regards the harmonisation of the regulations of the member states on the protection of workers' claims in the case of the transfer of enterprises, factories, or parts of factories. At the centre of this directive is the idea that transfer as such is no reason for dismissal. Schnorr has observed that as most of the member states already had similar regulations, this directive is more a factor of legal stability than an innovation at the European level6. Sweden In Sweden general legislation establishing safeguards against unfair dismissals — "without objective grounds" — was passed for the first time in 1974. The Security of Employment Act also restricts the hiring of employees for fixed-term periods 7 . As a general rule contracts of employment are to be of indefinite duration. Contracts for a fixed term may only be concluded in particular cases, e.g. for seasonal work, work for a specified task or for peak periods. Probationary periods for up to six months are also allowed. If a fixed-term contract is established in a situation where it is not sanctioned by law, the court can declare the contract to be for an indefinite period. Employers bound by a collective agreement must notify the relevant union in case of hiring workers for a limited period. This rule gives unions the opportunity to intervene if there is reason to challenge the legality of the engagement. One of the Act's fundamental provisions is that dismissal must be based on objective grounds. Such grounds will not be deemed to exist where it would be reasonable for the employer to transfer the employee to another job. Dismissals with notice may be occasioned by redundancy or by the employee's personal circumstances (e. g. lack of competence). An employer resorting to retrenchments is required to establish that there really is a shortage of work. However, it is his own commercial assessment that decides the issue. In the case of redundancy, the dismissed employees have (during a one-year period) a priority of re-employment with the employer. A dismissal without notice may take place only if the employee has grossly neglected his obligations to the employer. Employees otherwise are entitled to one to six months' notice, depending on age. In the case of redundancy the procedure is that the employer, in consultation with the unions, has to draw up a list showing the order of employees to be let go. The main rule is "first in, last out". In case of a dismissal based on personal circumstances or termination of a long-established fixed-term contract, the employer must inform the employee in advance and notify the employees' union. The employee and his union are then entitled to discuss the matter before the employer gives notice. The 1974 Promotion of Employment Act requires that employers notify the public employment service in advance of cutbacks affecting five or more employees. This provision is designed to give the service a chance of finding new jobs for the employees affected. In disputes concerning dismissals in which the parties involved are bound by a collective agreement, the Swedish Labour Court is the first and only instance of challenge or appeal. In other cases, or when an employee does not have the support

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of his union, the settlement of the dispute goes first to a district court, whose decisions are subject to appeal to the Labour Court as a second and final instance. Since 1985 an employee temporarily laid off from work due to redundancy is entitled to receive full pay from his employer. For this purpose, the employer receives a grant financed through employers' and state contributions. Belgium In Belgium civil law and labour law (Law on Contracts of Employment) contain provisions concerning termination of the employment contract 8 . As a rule, both employer and employee have the right to give notice. Neither of them can be obliged to continue the employment relationship. In case of unjustified dismissals the only remedy in law as well as in practice is financial compensation. However, the law forbids premature termination of contracts of employment concluded for a definite duration or a specific task, except when both parties agree or in case of an urgent reason. In practice, special provisions are much more important than the general ones. — Clauses providing for termination of contract on the grounds of marriage, maternity or having reached the statutory or electively agreed age of retirement are invalid. — Indefinite labour contracts can be terminated by means of notice. — Giving notice to wage earners (as opposed to salaried employees) on arbitrary grounds can be sanctioned by way of a financial compensation of the wage earner. Such a provision does not exist for salaried employees because of their longer terms of notice. Both parties can terminate the contract without notice for serious reasons. Serious reason is defined as any serious fault which makes any work relationship between employer and employee instantly and definitely impossible. In such cases the judge takes the final decision. The period of notice for wage earners is, when the worker has less than 20 years' service in the same company, 28 days if the employer terminates the contract and 14 days when the worker terminates the contract. When the worker has more than 20 years' service these periods are doubled. The period of notice for salaried employees depends on income and on length of service; if the employer terminates the contract, there is a minimum period of notice of 3 months. Besides legislation, collective agreements are an important source of job security. In Belgium national as well as sectoral collective agreements exist. The bipartite National Labour Council has the power to conclude national collective agreements. These agreements are generally made legally binding by Royal Decree and are thus regulations which are applicable to all employers and all employees without the legislative powers having to be called on 9 . In Belgian labour law collective dismissals in private companies with at least 20 workers require notice to the works council as well as to the state authorities. Furthermore, the employees in question are entitled to financial compensation in addition to their unemployment insurance. Compensation for short-time working is simply an extension of state unemployment benefits 10 .

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United Kingdom In the United Kingdom, the Industrial Relations Act, 1971 introduced for the first time the right of legal redress for what it defined in law as "unfair dismissal". This Act was replaced by the 1975 Employment Protection Act and, subsequently, by the 1978 Employment Protection (Consolidation) Act, amended by the Employment Acts of 1980 and 1982. Despite a number of changes, however, much of the central corpus of the legislation has remained unaltered. In particular, the definition of the reasons for which it is fair to dismiss an employee, the access via a conciliation process to a hearing at an industrial tribunal, and the Code of Practice on disciplinary practice and procedures approved by Parliament in 1977 have been maintained 11. The Code gives "practical guidance on how to draw up disciplinary rules and how to prepare them effectively". The United Kingdom legislation on unfair dismissal entitles employees who have been dismissed to complain. Dismissal is defined as: termination of the employee's contract by the employer; non-renewal by the employer of a fixed-term contract on expiry; and termination by the employee in circumstances where the employer's conduct entitles the employee to do so, that is, the employer commits a fundamental breach of contract (constructive dismissal). There is a maximum period of continuous employment required before an employee is entitled to protection. Fairness of dismissal is determined by the industrial tribunal under a twofold test. There must be a potentially fair reason for dismissal and the employer must have acted reasonably in treating that reason as a sufficient cause for dismissal. Certain reasons render dismissal automatically unfair, e.g. pregnancy (with an exception), maternity absence (with exceptions), unlawful race or sex discrimination and trade union membership. The law also provides reasons which could justify dismissal, e. g. redundancy, the employee's capability, qualifications or conduct and non-union members in companies with a valid union security agreement subject to certain exceptions. There are three remedies available to the unfairly dismissed employee: re-instatement and re-engagement (collectively called re-employment) and compensation. Tribunals can only order reemployment if the complainant wishes such. If so, tribunals are required to consider re-employment as the primary remedy. Where re-employment is ordered and it is practicable for the employer to comply and yet he has refused to do so, additional compensation can be awarded to the employee. The Employment Protection (Consolidation) Act and the Wages Act of 1986 entitle workers dismissed as redundant to a tax-free lump sum payment from their employer. A fundamental qualifying condition is at least two years' continuous service. There is a Redundancy Fund used to pay a redundancy payment rebate to small employers and make redundancy payments direct to redundant workers, when the employer is in financial difficulty or insolvent. Works councils have the right to be informed and consulted about workforce reductions. In case of mass dismissals employers are required to give advance notification to union representatives, as well as to engage in consultation at the earliest opportunity. They are also required to give advance notification to the labour authorities. The notification period is at least 30 days before dismissal of ten or more employees, or 90 days if a hundred or more employees are affected 1 2 .

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Federal Republic Germany In Germany the Civil Code, the Protection against Dismissal Act and the Employment Promotion Act contain provisions concerning termination of the labour contract 1 3 . The Civil Code covers mainly fundamental aspects of employer-employee relationships, such as equal treatment of men and women, periods of notice and the substantive right of summary dismissal. The Protection against Dismissal Act provides job protection for wage and salary earners (with a minimum of six months of service) in companies whose regular workforce numbers more than five. The law considers dismissals unfair if there is no reason arising from the nature or behaviour of the employee involved or from the urgent requirements of the company. Urgent company requirements include company closure or lasting shortages of raw materials. In selecting employees who are to be made redundant, the employer has to take social circumstances into consideration. If the employer does not sufficiently consider these social aspects, the dismissal will be void despite urgent company requirements. However, this does not apply if technical, economic or any other justified company requirements make it necessary to maintain one or more specific workers in employment, thereby preventing selection based on social aspects. What matters is to decide which worker has the least need of keeping his job. The onus of proving the facts on which the dismissal was based rests upon the employer. However, if the dismissal arises from urgent company requirements, the employee will have to make out his case that social considerations did not justify his dismissal. Appeals against socially unjustifiable dismissals can be made to the labour court. Although reinstatement is provided for as a remedy, when the parties to a dismissal dispute are on such bad terms that meaningful collaboration is no longer possible, the law authorises the judge, on request and under specific conditions, to terminate the employment relationship with payment of compensation by the employer. If a works council exists in a company, it must be consulted before any dismissal. For the consultation to be effective, the employer must indicate the reason for dismissal. The information must be given in good time to enable the works council to consider the case and to give its opinion. Without such a hearing the dismissal is void. If the works council has objections to a routine dismissal, it must notify the employer in writing within a weak giving its reasons; in case of exceptional dismissals the works council has to notify the employer within three days 14 . In case of a mass dismissal, the regional employment office must be notified of the number, reasons and timetable. The date of dismissal may be postponed by up to two months 1 5 . Under the provisions of the Employment Promotion Act, and until 1990, fixedterm contracts may be concluded for a period of 18 months (24 months in the case of new companies) when an employee is taken on for a new appointment, or when a vocational trainee/apprentice is employed on a temporary basis immediately after vocational training in case there are no posts available for permanent employment. This act also prescribes for equal treatment of full-time and part-time workers. Short-time allowances are payable when a significant reduction in the volume of work arises from economic causes during a continuous period of at least four weeks

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and where a minimum of one-third of the workers are idle for more than 10 per cent of their regular working time. The short-time allowance — provided by a central fund administered by the Bundesanstalt für Arbeit (The Federal Employment Services) — is equal to a proportion of unemployment benefit for the wholly unemployed. It is usually paid for a maximum of six months but this can be extended to 24 months by the Federal Ministry of Labour and Social Affairs. The Netherlands In Holland, the Civil Code, the 1945 Special Labour Relations Regulation (BBA 1945) and the 1976 Notification of Collective Dismissals Act contain provisions concerning termination of the labour contract 16 . Fundamental aspects of employeremployee relationships are primarily governed by the Civil Code (articles 1637 — 1639). The regulations are very complex. Every employer and employee has the right to terminate the employment relation by notice; however, if one party does so, the other party can claim compensation for the damage done. There is an exemption for fixed-term contracts: interim termination by the employer is, in principle, not allowed. When a fixed-term contract is extended, it is considered as a contract of indefinite duration. The Civil Code covers such fundamental aspects of employment relations as periods of notice (in case of dismissals and based on seniority and age) and compensation. Termination of contract is forbidden in case of, e.g., marriage, ill-health and pregnancy. The Dutch preventive system of job protection was introduced by the BBA 1945. Under this regulation employers and employees are not allowed to terminate an existing labour contract without the prior authorisation of the director of the regional employment office. According to the regulation, the director of the regional employment office acts autonomously. He takes the relevant internal regulations of the Department of Social Affairs into consideration. The legal validity of the director's authorisation of the dismissal cannot be disputed; the decision is final (no administrative appeal is possible). The director, on the other hand, is bound to make sure that a dismissal is not unreasonable (in case of redundancy) or unjust. Authorisation of a termination of a labour contract is not necessary in case both employer and employee agree or in case of justified summary dismissals. A civil proceeding is an alternative to prior authorisation. Research has shown that 15 per cent of the civil proceedings concern cases in which the director of the regional employment office did not approve the termination of the labour contract. And, in 12 per cent of the cases in which the director of the regional employment office did not authorise the termination of the labour contract, the court indeed terminated the labour contract. In a civil proceeding one of the parties can claim compensation for the damage done. It is not quite clear why employers or employees choose between one or another of the alternative routes of terminating a labour contract. 17 In addition to individual dismissals in the Notification of Collective Dismissals Act, attention is given to collective redundancy. Any employer intending to dismiss at least twenty workers within three months is required to give written notice of this to the relevant trade-unions and to the director of the regional employment office. The latter will, in principle, rule on authorisation only one month after

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receipt. Time is thereby reserved for negotiations between the unions, the firm and possibly the governmental authorities concerning the proposed redundancies. The subsequent redundancy procedure is very similar to that of individual dismissals. In executing his duties the director of the regional employment office is assisted by an advisory commission. In Holland works councils are also entitled to advise on collective redundancies. The short-time working regulation enables firms in temporary economic difficulties to maintain their labour force. The Minister of Social Affairs (and Employment) may exonerate an employer from the prohibition to curtail the normal working week of employees. During the hours not worked, the employee is considered to be involuntarily unemployed, which means that he is eligible for unemployment benefit up to 70 per cent of the regular wage for those hours. In a number of collective agreements the obligation is included for the employer to make up the wage to 100 per cent.

Recent Developments in the Dutch System of Job Protection At present the Dutch "licensing approach" provides the best example of a preventive system of job protection. Until 1986, in France employers also had a legal duty to seek prior approval by the authorities in case of dismissals. This requirement was abolished by law and more flexible procedures were agreed by trade unions and employers in October 198618. In the Netherlands the preventive system has survived a recent reconsideration of the system of job protection. Especially since the strong rise in unemployment in the 1980s, the Dutch system of job protection has been under discussion. In 1984 a Deregulation Commission advocated abolition of the Dutch preventive licensing approach. This commission preferred a (repressive) system in which employees have a right of appeal to the court. A less complicated and more liberal system of job protection could increase the flexibility of the Dutch labour market and contribute to a growth of employment opportunities. However, the commission was aware of the strong (union) support for the preventive system. For this reason the commission actually recommended only simplification of rules and significant reductions in the duration of procedures. In 1985 the Dutch government asked the (tripartite) Social and Economic Council (SER) for advice concerning a reconsideration of the legislation relating to dismissals. In 1988, this council made several proposals on this subject, however, without presenting a consistent (new) view with regard to the system of job protection. The set of proposals is a compromise; in fact, employers as well as unions each had (and still have) different preferences. The main proposals are 19 : — A reduction to two months of the time allowed for appeal in case there is no consent for the dismissal by the director of the regional employment office. — A simplification of the periods of notice. In case of notice by the employer, the minimum would be one month and the maximum would be four months, depending on seniority.

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— In case of collective dismissals, the one-month waiting period may expire when the unions agree. — Under certain conditions, an extension of a fixed-term contract will be possible without entitling the employee to job protection; the extension must be written and the period may not exceed six months. It is expected that the proposals of the SER will soon be included in law. As early as 1987, the (independent) Scientific Council for Government Policy (WRR), in its report "An active labour market policy", proposed that the official scope for temporary employment be widened. In particular, the W R R proposed that it should be made possible for a fixed-term contract to be extended twice without the employee in question obtaining a right to protection against dismissal. This relaxation of the regulations could be expected to have a positive effect on employment, with particular benefit to the unemployed and re-entrants. This proposal is also socially acceptable since empirical research had shown that a high proportion of temporary appointments have been converted into permanent positions. In reviewing legal protection against dismissal, allowance will have to be made for the fact that the existence of "casual", often temporary, jobs is important in operational terms and for mobility in the labour market. When it comes to redundancies, these posts and individuals should not necessarily be the first to go, according to the WRR 2 0 . The W R R proposal concerning fixed-term contracts is less restrictive than the (later) SER proposal. Nevertheless it is of interest that the tripartite SER, possibly influenced by the W R R Report, unanimously proposes a wider scope for fixedterm contracts. For unions, appointments for unlimited duration no longer are the sole standard. In particular, this point demonstrates the trade-off between labour market flexibility and unemployment. Not only employers, but also unions opted for more labour market flexibility. In Holland, this choice partly consists of approving and facilitating the already voluminous secondary labour market. About 11 per cent (October 1986) of the Dutch labour force is in the secondary labour market 21 : 6.5 per cent of the labour force has a fixed-term contract (the percentage of workers on a fixed-term contract is about the same as in Germany and the United Kingdom 22 ); 1.2 per cent are agency workers; 0.6 per cent are apprentices; 1.4 per cent have an "on call" contract and 1.7 per cent have other forms of flexible contracts. Young people and women are over-represented in the secondary labour market. The extent and acceptance of the secondary labour market are connected with the extensive and partly long-term unemployment situation. It also is related to a reappraisal of flexible employment contracts. The use of institutionally authorised flexible employment contracts is expected to have a positive effect on employment, with particular benefit to the unemployed and re-entrants 23 . Furthermore, a considerable number of "flexible workers" — from about 10 per cent of the workers with a fixed term contract to about 25 per cent of the agency workers — prefer their employment status to that of a permanent position. Finally, empirical research has shown that permanent positions are offered to a high proportion of "flexible workers" 24 . The secondary labour market, which offers much less job protection than the "primary labour market", is becoming more and more socially acceptable in Holland.

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The Impact of the Internal European Market Systems of job protection differ considerably in Europe. Most systems are of a "repressive" nature. Holland (and until recently, also France) has a "preventive" system. The right not to be unfairly dismissed is a common feature of all systems described in this essay, as well as of systems in other West European countries. However, there are considerable differences regarding remedies in case of unfair dismissals, procedures of consultation, periods of notice, rules of notification, redundancy payments, temporary lay-off regulations and regulations concerning mass dismissals. After the economic recession of the 1980s, the internal European market, which is to be realised in 1992, might be the next phenomenon giving rise to modifications in national systems of job protection. At the end of 1992, twelve national markets should be forged into one. This new, large European market is expected to generate co-operation and mergers of firms and also a greater mobility of companies or their component parts. A nation's system of job protection might become one of the national selling points to attract investment from outside the country and hence jobs. This might give rise to two opposite reactions. The first is a (further) harmonisation of law. The second is a (further) deregulation of prescriptions in national law. Both reactions might facilitate transnational entrepreneurship. The two possible reactions will be discussed below. Of course, they directly concern ECcountries, but are also indirectly significant for non EC-countries. The first possible reaction is harmonisation of law. The means for this are directives and regulations. Both are obligatory. Directives indicate the aims to be achieved and oblige member states to adopt the necessary legislative measures. Regulations are binding in full upon individuals living within the common market. In labour law, the possibilities of harmonisation by directives are greater than the possibilities of harmonising through regulations 25 . Harmonising job protection on the level of the most protective systems will be politically impossible. For most countries further harmonisation of job protection (by directives) still will imply a minimum level of protection, because their established national systems are more developed. If job protection in Europe is actually further harmonised, the situation will be more or less comparable to the present situation in which national legal job protection is complemented by private regulations (collective agreements). Harmonising job protection on the European level does not prohibit countries from maintaining more protective legal systems. At the same time, harmonisation does not guarantee against a certain degree of social retrogression in countries with relatively developed systems of job protection. Social retrogression with regard to job protection will occur when countries deregulate their system (to the level required by the EC) in order to attract investment from abroad. The second possible reaction to the "1992 market" is a further deregulation of legal job protection in the various countries. This may give rise to a process of nations underbidding each other with regard to the level of job protection. Social retrogression will result in the non-unionised sector, and also in the unionised sector when unions do not succeed in agreeing on functional equivalents in collective bargaining.

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A strong argument for private regulation is that it suits the company better than general legislation. However, there are also disadvantages: — employees in the non-unionised sector will not be affected by private regulation; — private regulation is not always more simple or adequate than regulations in law; moreover a mixture of private and legal rules may be very complex. The two reactions as outlined above are not mutually exclusive. For instance, when countries start outbidding each other in deregulating job protection, this can give rise to framing directives on the EC-level. At the same time, collective agreements may become more important with regard to job protection. The latter could be the case in countries with strong trade unions. Private regulations may also become important when unions succeed in agreeing on European collective agreements with "trans-European enterprises". The latter agreements would aim at private harmonisation of the terms of employment, and could include non-material aspects such as job protection.

Conclusions — The rationale of a system of job protection is in preventing labour from being merely a commodity. — Regulations embodying job protection are only one factor with regard to the trade-off between labour market flexibility and unemployment. Differences between countries in job protection can hardly explain differences in economic performance. — In many countries the secondary labour market is the functional equivalent for a deregulation of the system of job protection. — A weak system of job protection, in connection with an active labour market policy, provides workers more protection against the capriciousness of the labour market than a high degree of job protection coupled with a passive labour market policy. On the other hand, the stimulus to deregulate job protection diminishes as active labour market policies are increasingly effective. — National labour laws, as well as European labour law, only provide minimum standards for job protection. For this reason collective bargaining is and will remain an important source of job protection. — In Europe, most systems of job protection are of a "repressive" nature; Holland has a "preventive" system. A further comparison of the systems of job protection in Sweden, Belgium, Federal Republic of Germany, United Kingdom and the Netherlands shows how diversified the legal regulations are. — The European integration process might lead to further harmonisation of job protection (the first regulation of the EC concerning collective dismissals dates from 1975), as well as deregulation of job protection in national law. The latter also gives scope to private regulation. Harmonisation on the EC level is a partial solution for a possible process of nations underbidding each other with regard to the level of job protection. "European collective agreements" with trans-European enterprises are a possibility — already advocated by trade

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unions — for complementary private regulation on the European level, possibly including job protection. However, the main disadvantage of private regulation is that it does not apply to the non-unionised sector. Notes I want to thank Mr. K. van den Bosch, Mr. P. Brannen and Prof. R. Meidner for their help in providing information about the systems of job protection in Belgium, United Kingdom and Sweden. 1 See also: OECD (1986): Flexibility in the labour market; the current debate, Paris. 2 See the essays of Kassalow and Wheeler in this volume. 3 O E C D (1986): Labour market flexibility, Report by a High-Level Group of Experts to the Secretary-General, Paris, May. 4 Schmid, G., B. Reissert, G. Bruche (1987): Arbeitslosenversicherung und aktive Arbeitsmarktpolitik; Finanzierungssysteme im internationalen Vergleich, Berlin: Ed. Sigma. Boot, P. A. (1987): De Spiegel aan de wand; een vergelijking van Werkgelegenheid en werkloosheid in Scandinavie en Oostenrijk met de ontwikkeling in Nederland, Ministerie van Sociale Zaken en Werkgelegenheid, Den Haag. 5 See also: Therborn, G. (1986): Why some peoples are more unemployed than others, London, Verso. 6 Schnorr, G. (1987): "European Communities", in: R. Blanpain, Comparative labour law and industrial relations, Deventer, Kluwer (third edition). 7 This section is based on: Ministry of Labour (Arbetsmarknadsdepartementet) (1985): The Swedish Act on Security of Employment; The Swedish Act on Redundancy Pay Compensation, Stockholm. Edlund, S., B. Nyström (1988): Developments in Swedish Labour Law, Stockholm. The Swedish Institute. 8 This section is based on: Stroobant, M., J. van Langendonck (ed.), Het sociaal recht in de praktijk, Antwerpen, Kluser (losbladig). Commission of the European Communities (1986): Mutual information system on employment policies, Belgium; institutions, procedures and measures, Maastricht. 9 Auer, P., G. Bruche, J. Kühl (1987): Chronik zur Arbeitsmarktpolitik, Nürnberg, blz. 587. 10 Hepple, B. (1987): "Security of Employment", in: R. Blanpain (ed.), Comparative Labour Law and Industrial Relations, Deventer, Kluwer (third edition), p. 482/483. II This section is based on: Evans, S., J. Goodman, L. Hargreaves (1985): Unfair dismissal law and employment practice in the 1980s, London, Department of Employment. Commission of the European Communities (1988): Mutual information system on employment policies, United Kingdom; institutions, procedures and measures, Maastricht. 12 Flexibility in the labour market; the current debate, op. cit. 13 Commission of the European Communities (1987): Mutual information system on employment policies, Germany; institutions, procedures and measures, Maastricht. 14 The Federal Minister of Labour and Social Affairs (1980): Co-determination in the Federal Republic of Germany, Bonn. 15 Flexibility in the labour market; the current debate, op. cit. 16 Commission of the European Communities (1987): Mutual information system on employment policies, The Netherlands; institutions, procedures and measures', Maastricht. Bakels, Η. L. (1987): Schets van het Nederlands arbeidsrecht, Deventer. 17 Knegt, R., A. C. J. M. Wilthagen (1988): Samenvattende rapportage van toetsing en ontslag; De werkwijze van arbeidsbureau, kantonrechter en bedrijfsvereniging·, Ministerie van Sociale Zaken en Werkgelegenheid, 's-Gravenhage. 18 Despax, M., J. Rojot (1987): Labour law and industrial relations in France, Deventer, Kluwer, p. 1 3 1 - 1 3 3 .

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19 Sociaal-Economische Raad (1988): Advies herziening ontslagrecht; SER, Den Haag. 20 Netherlands Scientific Council for Government Policy (1988): An Active Labour Market Policy; Summary of the Thirty-third Report to the Government, The Hague. Wetenschappelijke Raad voor het Regeringsbeleid (1987): Activerend arbeidsmarktbeleid, Rapport aan de Regering nr. 33, Staatsuitgeverij, Den Haag. 21 Organisatie voor Strategisch Arbeidsmarktonderzoek, OSA-Trendrapport 1987, Den Haag 1987. According to a survey of May 1985, 12% of the Dutch labour force was in the secondary labour market. 22 Casey, В., R. Dragendorf, W. Heering, G. John (1989): "Temporary employment in Great Britain and the Federal Republic of Germany. An overview", International Labour Review, Volume 128, Number 4. 23 Activerend arbeidsmarktbeleid, op. cit. 24 OSA-Trendrapport 1987, op. cit. 25 Schnorr, G. op. cit.

Labour Market Flexibility in Japan Kazutoshi

Koshiro

Introduction As the OECD (Dahrendorf) report pointed out, requirements for structural adjustment of the economy, technological innovation, wage moderation, and new forms of labour contracts have increased in member countries under the changed international environment since the 1971 dollar shock and the 1973 oil shock in order to bring about full employment without inflation. Fortunately, Japan seems to have responded to these challenges rather successfully in the face of increased oil prices and a successive appreciation of the exchange rate. Was that just because of a windfall, or an inevitable consequence of an historical, cultural, and institutional heritage, or a result of effective implementation of appropriate policies? Or was that attributable to the greater flexibility of Japan's labour markets? Perhaps the answer is all of the above. In this essay, the author will try to clarify this point through examining the key issues of labour market flexibility contained in the Dahrendorf report.

Historical Background In order to catch up, late-comers in economic development are necessarily under strong pressure to carry out innovations in social institutions, as well as changes in people's attitudes. For them, the individual and societal ability to change is indispensable. Japan has not been an exception in this respect. In addition to its historical and cultural heritage prior to industrialisation since the 1860s, both a national crisis consciousness and scarcity consciousness, generated by scarcity of arable land and national resources, have become imprinted in people's minds in Japan. Moreover, social reforms enforced by the occupation forces after the Second World War (land reforms, labour emancipation, and the breaking of Zaibatsu groups) gave additional impetus for economic and social dynamism. National enthusiasm for economic recovery and growth to get rid of starvation and war devastation enhanced that process. When the first oil crisis occurred, Japan was still in the continuing process of such economic development. In that sense, her flexible adjustment to changes after the oil crisis was a natural course of events. The crisis and scarcity consciousness of the population which had been evaporating to some extent during the period of high economic growth of the 1960s, was reinforced considerably. Changed social ideas were also infiltrating into the area of industrial relations. Wage increases have been moderated, without an incomes policy, since 1975. Job security under the

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"lifetime employment" practice has been considerably modified. The core of permanent employment shrank considerably, whereas part-time workers and other peripheral workforce increased. Managerial ability to achieve flexibility to diversify business activities was enhanced by the necessity to maintain "lifetime employment" as far as possible. The Government also responded by adopting contractive policies. This stimulated the export drive, which intensified trade conflicts with other countries on the one hand but, on the other hand, accelerated the appreciation of the exchange rate since the fall of 1985. The yen has appreciated by almost 50 per cent during the three years 1985 — 1988. This again required dramatic structural changes and adjustment throughout the economy and society. During this adjustment process, the rate of unemployment had increased to 3.1 per cent by May 1987, but after that it began to decline and stood at 2.4 per cent in October 1988 which was taken as being very close to the full employment level. On the other hand, the inflation rate has continued to decrease since 1975 due to (a) tight monetary and contractive fiscal policies until the middle of the 1980s, (b) wage moderation since 1975, and (c) high appreciation of the yen since the fall of 1985. Throughout these developments, it is obvious that labour market flexibility has been an important, but not the single most important, factor in achieving noninflationary economic growth and other social goals. But it is also evident that labour market flexibility has been indispensable for bringing about these objectives.

Declining Union Density Labour union influence is limited to only a small portion of Japan's labour market. This fact in itself tends to imply that the labour market is less subject to union regulations and thus more flexible than in highly organised countries. In Japan, union density has been declining since 1970 and decreased to 27.6 per cent of all employees by 1987. The author estimates that it will further decline to about 20 per cent by 2000. If we take only the private sector, it has already declined to 19 per cent. The majority of private workers are subject to individual labour contracts, apart from statutory regulation by minimum wages and other provisions of the Labour Standard Law. About half of organised labour merged into a new national labour centre (Rengo) in 1987 in the hope of enhancing labour's social and political interests. But there is no sign of strengthening centralised collective bargaining. Enterprise-wide collective bargaining, supplemented by nation-wide co-ordination, will persist in the future.

Method of Wage-Fixing and Wage Flexibility Downward Shift of the Phillips Curve After a 50 per cent increase in 1973 — 74, the rate of negotiated wage increases has continued to decline to one digit. The trade-off relationship between the rate of wage increase and the unemployment rate has been ameliorated significantly as

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period: ( 1 ) 1962 - 86 (2) 1975 - 86

Figure 1: The Phillips Curve in Japan (Manufacturing Wages) Observation Period: (1) 1 9 6 2 - 8 6 ; (2) 1 9 7 5 - 8 6 Source: For w, Ministry of Labor, Monthly Labor Statistics; for u, Prime Minister's Office, Labor Force Survey.

shown in figure 1. Several factors contributed to this desirable change: (a) enterprise unions of major private firms, particularly those of the metal industries, responded sensitively to changed business conditions. They put priority on employment security when faced with a dramatic reduction of their workforce since 1975. Union leaders of those industries understood the necessity of wage moderation in the face of deteriorating trade conditions; (b) the "core" workforce of the major 880 private firms was reduced by 11 per cent between 1975 and 1980 (a reduction from 3.8 million to 3.38 million). These companies once employed about 11 per cent of all employees in 1970 but only 8 per cent in 1986. Such a dramatic reduction of permanent employees intensified workers' consciousness of the scarcity of good job opportunities. A mentality of "save our own company to protect our jobs" forced them to accept wage moderation; (c) in the economy as a whole, the demand and supply conditions of the labour market slackened. The ratio of job offers to jobseekers in the general labour market (excluding new school-leavers) once climbed up to 1.76 in 1973 but dropped to 0.56 by 1977 and stood at the level of about 0.6

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until 1987; (d) the rate of increase of consumer prices once reached 21 per cent in 1974 but decreased to one digit since 1976 until zero inflation was achieved in 1986; (e) the Government pursued a tough policy to beat down militant unions in the public sector which had succeeded until the middle of the 1970s in organising a strategic coalition with private railway workers. In 1975 it defeated a one-week strike of unions of public corporations and national enterprises and in the 1980s succeeded in privatising National Railways, Telephone and Telegram, and the Tobacco Monopoly. Of utmost importance was the disorganisation of the militant National Railway Workers' Union in 1987. This symbolised the end of a "classstruggle oriented" labour movement, although a small minority group in the labour movement is still under the influence of the Communist Party. Responsiveness of Wages and Bonus Payments to Changed Proßtability Wages in Japan are usually believed to be more flexible than in most other advanced countries. OECD (1983) data support this idea. Similar views are supported by many foreign scholars who pay serious attention to the role of bonus payments. Hashimoto (1979), Gordon (1982), and Weitzman (1984) are most representative of these views. Among Japanese scholars, Ono (1985) and Mizuno (1985) admit the flexibility of wages and bonus payments but they are sceptical about overemphasising the flexibility of bonus payments. On the other hand, Muramatsu (1985), Ohtake (1986), and Brunello and Ohtake (1987) have opposite views, emphasising the flexibility of employment and rigidity of real wages in Japan. These conflicting views result from different methods of measuring wage and/or bonus payments. There are various ways of measuring wage flexibility: for example, the Phillips curve, the real wage rigidity used by the OECD, variance of wages with respect to changes in production, and disequilibrium analysis. Another convincing way is to measure the responsiveness of wages to changes in corporate profitability. The author (Koshiro, 1986) applied this method to both basic wages and bonus payments of major private firms in Japan which were organised by labour unions. Table 1 shows (1) the elasticity of bonus payments (in terms of both the average level (B) and the average amount of changes compared with the previous year (ΔΒ)) to changes of the average ordinary profit per employee (π/L) and (2) the elasticity of basic wages (again in terms of the average wage level (w) and the average wage increase (Aw)). The result shows that (a) both bonus payments and basic wages are responsive to corporate profit, (b) bonus payments are more elastic to corporate profit than basic wages, but (c) the profit elasticity of the average level of bonus payments was rather limited to 0.39, and (d) the elasticity value of w was only 0.23 in 1973 — 85 and has been rising slightly in recent years. These findings indicate that pay in Japan incorporates an element of profitsharing as suggested by Hashimoto and Weitzman. Moreover, the fact that the elasticity values of both "B" and "w" respectively are far less than unity means that labour's share tends to decline in the major private firms when profit increases. A few reservations might be necessary concerning the nature of bonus payments. (1) In some industries such as private railways or electric power, changes in the level of bonus payments "B" cannot be explained well by changed profitability.

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Table 1: The Elasticity of Bonus Payments and of Basic Wages With Respect to Corporate Profit Category

Bonus Payments Basic Wages

Elasticity to (π/L)

The Average Level after Negotiated Increase a)

The Average Amount of Negotiated Increase b)

В ... 0.3879 w ... 0.3024

ΔΒ ... 1.3482 Aw ... 0.229

Source: Koshiro (1986 b), Tables 3, 8 and 9. Note: a) Measured in terms of the long-run elasticity based on the following regression results: В = 178.85 + 0.0583 (π/L) + 0 . 7 4 2 B _ , (4.77) (2.14) (9.59) R 2 = 0.972 D.W. = 2.84 Durbin h = - 1 . 5 1 w = 341.54 + 0.0701 (π/L) + 0.8438w_, (7.90) (2.10) (22.46) R 2 = 0.994 D.W. = 2.52 Durbinh = - 0 . 9 4 The observation period for В is 1973 — 84 and for w, 1973 — 85. b) Based on the following regression results: ΔΒ = 178.87 + 0.0583 (π/L) - 0.2579 B_, (4.77) (2.14) (-3.33) R 2 = 0.4778 D . W . = 2.84 Aw = 548.05 + 693.15 PC + 5299.44UYS + 2073.39 (π/L)^, (0.40) (10.3) (4.93) (3.42) R 2 = 0.956 D. W. = 3.07 where PC indicates the rate of increase of consumer prices and U Y S the ratio of job offers to job seekers.

Instead, they can be explained better by changes of physical labour productivity (per capita man-kilometres of transportation or per capita KWH of generated electricity). This is because the tariffs of these industries (and therefore profit) are regulated by the Government. (2) Bonus payments, as well as basic wages, have a considerable degree of downward rigidity. This reflects the historical origin of bonus payments in post-war Japan. Labour unions were obliged to demand biannual compensation for increased costs of living in the form of bonus payments during the period of high inflation until the 1950s. This practice was maintained in the following decades. Wage Differentials by Size of Firm In Japan, small- and medium-sized firms are largely unorganised. 1 Collective bargaining agreements are usually confined within each enterprise and cannot be extended to the unorganised workers except in a few cases. At the same time, a network of subcontracting is widespread in many industries. Large firms can take advantage of low labour costs of small firms. However, quite a few suppliers in such industries as automobile and electric appliances grew fast and became inde-

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Kazutoshi Koshiro

Figure 2: The Differentials of Total Hourly Earnings in all Industries by Size of Firm (1970 — 84) (The average hourly earnings of workers in large firms employing 500 and over = 100) Source: The Ministry of Labor. Monthly Labor Statistics.

pendent of the control of any single customer. The wage differentials by size of firm have expanded since 1970 (Figure 2). This reflects widening differentials of labour productivity and capital intensiveness by size of firm. It is economically reasonable for wage differentials to correspond to productivity differentials in the sense that small businesses can get rid of a profit squeeze and may have greater opportunity to expand employment. However, overly extensive wage differentials are not compatible with social equality.

Employment Security and New Employment Patterns Legal Protection for Employment Security The practice of "lifetime employment" has been established in Japanese firms, particularly among large firms, since the end of the Second World War, although labour historians argue whether its origin can be traced back to the 1920s. By

Labour Market Flexibility in Japan

117

statute, any employer has freedom to terminate an employment contract of an indefinite period, with two weeks' notice, under Civil Law (article 627). But after the war, the Labour Standards Law (article 20) extended the period of notice up to 30 days although the period can be reduced by paying an equivalent amount of wages. In fact, employment was made more secure by the tendency for Japanese employment contracts to follow certain "rules of employment" whereby any discharge in violation of these rules is invalid. Among others, the Japanese courts developed a general theory of legal restrictions on employers who wanted to discharge employees. Employers are required to provide enough evidence of "just cause" for dismissal. Also employees began using the injunctions to temporarily block an employer's attempt to discharge them. The granting of such an order gave the signal to the employer that the court would uphold the employee's plea of illegal discharge. However, since the order could not be enforced unless the employer voluntarily complied with it, there was a tendency for the effect to be limited to improving communication between employer and employee (Hanami (1979); Matsuda (1986)). In the case of collective dismissals, the courts often decide that there has been an abuse of the employer's right to dismiss when they find that the possibility existed of solving a problem of redundancy by transfer (either in-plant or interplant) before dismissing workers. The courts seem to require employers to prove (before dismissal) (1) the necessity of redundancy dismissals; (2) endeavours to avoid dismissals; (3) objective standards of selecting who is to be dismissed and; (4) negotiation or consultation with the unions. In fact, there have been very few cases since the oil crisis where the courts declared the act of redundancy dismissal null and void (Yasueda and Nishimura (1984); Yamaguchi (1984)). In any event, to dismiss redundant workers has become more expensive for employers because of large-scale disputes protesting collective dismissals in the 1950s. Those companies that had to dismiss redundant workers against the unions' opposition suffered not only from financial losses but also from damage to their reputations which was difficult to restore. Additional Regulations Since the 1960s The Employment Policy Law of 1966 requires employers to give notice of largescale dismissals to the public employment office (article 21). Here, "large-scale" means "more than 30 permanent regular employees within a month". After the oil crisis, in 1975, the Employment Adjustment Subsidy was introduced under the extended system of unemployment insurance to help certain employers who are heavily hit by a falling off of business or industrial transformation. This subsidy is also available to their subsidiaries or subcontractors. In order to receive this subsidy, the employer has to make a written agreement with the union representing the majority of his employees (or in cases of non-existence of such a union, with the representative of the majority of his employees) concerning the period of suspension (or retraining or detachment), the number of employees concerned, and the standard of suspension allowance or its equivalent. Moreover, the Law on the Temporary Measures for Workers Separating from Specifically Depressed Industries of 1977 requires those employers who are going

118

Kazutoshi Koshiro

to reduce considerably the workforce in an establishment in any of the specified depressed industries, to prepare a plan to help workers to obtain alternative employment. The employer is also required to solicit the opinions of the representative union or employee representatives on the proposed plan and has to submit it with the details of the workforce reduction to the public employment office. The head of the office may request a revision of the proposed plan if he thinks that the assistance in obtaining alternative employment is inadequate. This law was consolidated into a new law with another temporary measures law concerning depressed areas in July 1983. Employment Adjustment Since the Oil Crisis Despite increased legal regulations for employment security, Japanese employers were not prevented from dismissing their redundant workforce after the first oil crisis in 1973. Among three instances of redundancy in the post-oil-crisis period, the largest one was that of 1974 — 76 (Figure 3). In the first oil crisis; (a) production of mining and manufacturing fell sharply by 20.2 per cent during 15 months (January 1974 —March 1975); (b) whereas regular employment decreased by 11.6 per cent during five consecutive years (May 1974 —April 1979); (c) on the other hand, total labour input (regular employment times hours worked) fell more sharply, corresponding to decreased production, by 18.6 per cent during 19 months (October 1973 — April 1975); (d) the rate of unemployment also increased from 1.11 per cent in October 1973 to 2.12 per cent in December 1975; (e) the ratio of job offers to jobseekers in the general labour market dropped from 1.9 times in November 1973 to 0.55 times by August 1975. Interestingly, production and employment continued to increase in the case of the second oil crisis in the fall of 1978. But the world depression after that affected the Japanese economy as well: (a) between February 1980 and May 1981 production declined slightly by 4.8 per cent; (b) whereas labour input decreased by 3.2 per cent between February and September 1980; (c) while regular employment in manufacturing increased from 1.87 per cent in February 1980 to 2.33 per cent in May 1981 and; (d) the job offers/jobseekers ratio declined from 0.77 in May 1980 to 0.58 in July 1983. Employment suffered more from the appreciation of the yen since September 1985: (a) production in mining and manufacturing declined by only 2.7 per cent between October 1985 and August 1986; (b) but regular employment decreased by 2.0 per cent between September 1986 and August 1987; (c) labour input decreased by 4.1 per cent between September 1985 and April 1987; (d) moreover, the rate of unemployment increased from 2.55 per cent in August 1985 to 3.1 per cent in May 1987, which was the worst record since the economic recovery of the 1950s; (e) the job offers/jobseekers ratio also declined from 0.70 in January 1985 to 0.61 in January 1987. But fortunately as a result of fiscal and monetary stimuli as well as positive effects of the yen appreciation (reduced prices of oil and other imported goods), the economy began to expand in the middle of 1987. Throughout the period after the first oil crisis, employment adjustment in Japan can be characterised as follows: (a) the rate of unemployment has increased step by step in each crisis which is understood as reflecting the increasing natural rate

Labour Market Flexibility in Japan

119

of unemployment or structural mismatch due to industrial reorganisation, technological changes, the ageing of the labour force, increasing numbers of female workers, and decreasing propensity for regional migration, etc.; (b) in the first instance, regular employment was considerably reduced, but in later instances employment has been adjusted more through hours worked. The changed employment adjustment behaviour is illustrated in table 2. While industrial production increased by 30 per cent between March 1975 and October 1978, regular employment still continued to decrease by 6.5 per cent but labour input increased by 7.3 per cent. This means production increased solely through longer hours of work and productivity increases; (c) while regular employment in the manufacturing industry increased only slightly (2 per cent between March 1975 and September 1985), the total number of employed persons in all industries increased by 21.3 per cent between January 1975 and December 1987. Real G N P also increased by 4 per cent per year during the same period. This means that employment expansion in the tertiary industries was considerable. Thus, it is evident that labour market flexibility should be examined not only with respect to the manufacturing industry, but also with respect to other industries from the viewpoint of structural reform of the total economy. However, in order to understand the nature of labour market flexibility in Japan, we must clarify more the quantitative aspect of employment adjustment in the manufacturing industry. Speed of Employment Adjustment On the occasion of each crisis, employment responded to decreased production with a few months' lag and with less magnitude. This was partly because of adjustment through work-hours and partly because of rigidity of employment by its nature. Several studies were conducted to quantify the speed of employment adjustment. The pioneering work by Shinozuka and Ishihara (1977) found that the speed of employment adjustment of manufacturing establishments employing more than 30 workers in Japan was 0.09 per month between November 1973 and March 1976 which was considerably lower than the 0.24 in the United States. But they also found that the speed of adjustment of total labour input including hours of work was almost the same in both countries (Japan 0.39 v. United States 0.43). For the purpose of comparison with other studies using quarterly or annual data, the monthly speed of adjustment should be converted into the annual value. Using a mathematical formula for this purpose, 2 the speed measured by Shinozuka and Ishihara is equivalent to an annual speed of 0.678 which means that it takes about 6 years for employment to be adjusted to the optimum level. However, in terms of the labour input including hours of work, the speed of employment adjustment in Japan goes up to 0.39 (monthly) or 0.9973 annually, by which the optimum level of employment can be achieved almost within one year. Therefore, the freedom of dismissal which has been considerably circumscribed by legal regulation in Japan is highly compensated by flexible hours of work, mostly by changes in overtime. Of course, there is a legal maximum (150 hours a year) of overtime work in Japan for female workers and minors but adult male workers are only subject to

Kazutoshi Koshiro

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Labour Market Flexibility in Japan

121

Figure 3(1): Changes in the Indexes of Regular Employment, Hours Worked, Labour Input and Industrial Production, 1973-1978 Figure 3(2): Changes in the Indexes of Regular Employment, Hours Worked, Labour Input and Industrial Production, 1979-1984 Figure 3(3): Changes in the Indexes of Regular Employment, Hours Worked, Labour Input and Industrial Production, 1984-1987 Note: Q stands for index of industrial production. L for regular employment of manufacturing industry. Η for the average hours worked in the manufacturing industry. LH for labor input in the manufacturing industry. Source: Japanese Government. Economic Planning Agency, Anual Report on Business Cycle Indicators, September 1988.

122

Kazutoshi Koshiro

Table 2: Changed Employment Adjustment Behaviour in the Phase of Increasing Production (1975-85) (Index 1985 = 100)

March October September Total change

1975 1978 1985

Q

L

LH

59.0 76.7 ( + 30%) 99.2 ( + 29.3%)

98.3 91.9 ( - 6 . 5 % ) 100.3 ( + 9.1%)

84.5 90.7 ( + 7.3%) 100.0 ( + 1 0 . 3 % )

( + 68.1%)

( + 2.0%)

(+18.3%)

Note: Q is the index of industrial production, mining and manufacturing. L is the index of regular workers employment, manufacturing. LH is the index of labor input, manufacturing. See figure 3. Source: Japanese Government, Economic Planning Agency, Annual Report on Business Cycle Indicators, September 1988.

collective agreements which usually allow 50 hours or more of overtime work per month. The legal premium rate is limited to 25 per cent (but 50 per cent for midnight work and Sunday or holiday work). In effect, the actual premium rate is lower because bonus payments are not included in the base rate for overtime premium. According to a study by the Ministry of Labour, overtime work is less expensive than new hiring unless the overtime premium is increased to 63 per cent. 3 After the second oil crisis, the Ministry of Labour (1983) conducted a similar study covering the period between the first quarter of 1974 and the fourth quarter of 1982. It found that the quarterly speed of employment adjustment of establishments employing 30 or more workers in the manufacturing industry was 0.106 (equivalent to an annual speed of 0.361). But when it took all workers into account, including smaller establishments as well as other industries, the quarterly speed went up to 0.39 (equivalent to an annual speed of 0.862). This latter figure again indicates that employment flexibility in Japanese labour markets becomes greater if small firms are included. There are so many other studies on employment adjustment that we cannot make a comprehensive survey of them here. To list only major studies, Muramatsu (1980), Shimada (1981), Yamamoto (1982), Seike (1986), and Ohtake (1988) 4 are worth mentioning. The author himself (Koshiro 1983) measured the speed of employment adjustment of 580 major manufacturing companies between 1972 and 1981 based on their financial reports (compiled by the Japan Economic Newspaper's N E E D S data bank). Their annual speed of employment adjustment was only 0.14 which clearly reflected the effect of "lifetime employment" practices in these large companies. In other words, it theoretically takes more than 30 years for these representative major firms to get to the optimum level of employment. Finally, it would be desirable to add a result of quantitative analysis of employment adjustment in the manufacturing industry during the whole period shown in figure 3. Q indicates industrial production, L is for regular employment in the

123

Labour Market Flexibility in Japan

manufacturing industry, w for the average nominal wage level of manufacturing workers, ρ for the wholesale price index, and Η for hours worked. The Solow type employment adjustment function 5 between January 1973 and December 1987 is measured as follows: 1„L = 0.00096 -\- 0.0183 l n Q (0.06)

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The result (1) is not perfectly satisfactory, but it shows that the monthly speed of employment adjustment is 0.0178 which is considerably lower than the findings by Shinozuka and Ishihara. In terms of annual speed, it is equivalent to 0.1939 by which the optimum level of employment can only be achieved in more than 20 years. On the other hand, result (2) is much better than (1), showing that the adjustment speed of labour input (LH) is 0.1877 which is equivalent to the annual speed of 0.9175. Although the annual speed of labour input adjustment here is lower than that found by Shinozuka and Ishihara, the optimum level can still be achieved almost (99.3 per cent) in two years.

New Employment Patterns Decreasing Core Workforce The Japanese economy had to go through critical reorganisations and the entire economy had to be restructured because of the two oil crises and then the soaring appreciation of the yen. The fast expansion of employment opportunities during the rapid economic growth over the period 1955 — 73 gave the impression that lifetime employment by industries was here to stay. The trend, however, started to fluctuate after paring down became necessary because of the oil crises and the economic restructuring resulting from the appreciation of the yen. For example the ratio of employees of 892 selected principal corporations listed on the Tokyo Stock Exchange to the total number of non-agricultural employees in Japan was as high as 11 per cent at its peak. However, the relative ratio of employees of these companies has dwindled to only 8 per cent now (Table 3). While the rate of employment by small and medium companies has expanded, the recent trend of these principal corporations is to rely on workforces not covered by regular lifetime employment such as part-timers and temporary workers dispatched from employment agencies to cope with temporary increases of production capacity. At the same time these companies are dispatching redundant older workers of their own to subsidiaries or even urging them to take early retirement in their early fifties with some additional severance pay.

Kazutoshi Koshiro

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countries, Norway and Austria, have also been at consistently low unemployment rates of 3 and 4 per cent over the past few decades. Equally important, the US record cannot be judged only by its performance in the most recent years. As the same table 3 indicates, in 1978 — 80 the US (along with Canada) had one of the highest unemployment rates, and in the early 1980s that rate was still higher than in most West European countries. Whether the US rate represents "lasting" superiority in labour market performance remains to be seen. It was, after all, common for analysts to compare US unemployment rates unfavourably with Western Europe in the 1960s and 1970s. US Productivity Rate Lags Behind Other Countries A few more macro-economic comparisons also are in order, in judging the US adjustment experience in this past decade. We recall that the OECD, the standard bearer in much of this flexibility discussion, points out that labour market flexibility is only one element in the larger quest for general economic efficiency. Economic efficiency has several dimensions, but surely productivity performance is one of its important economic measures, especially over a period of time. Here the US record is on the mediocre side. From 1979 to 1987 real gross domestic product (output) per employed person in the US according to the US Bureau of Labor Statistics grew at a rate of 0.8 per cent per year. Comparable data for Japan, France, Germany, Sweden and the United Kingdom show annual gains of 2.8,1.9, 1.5,1.5 and 1.8 percent respectively. (See table 4.) In all cases this rate was down from comparable country annual averages in the 1960s and early 1970s, but the US performance lagged behind that of others in recent years. OECD data show a comparable lag in the US productivity performance, although US productivity in manufacturing over these same years has been somewhat better than overall productivity, ahead of some European countries, though lagging well behind Japan. 15 Stagnation in service productivity has pulled down the overall U.S. productivity rate. Real Compensation Lags in the US Inasmuch as this is an industrial relations volume, and the OECD and others stress that the broad effectiveness of the economic adjustment process should be judged in terms of the way in which it can "serve industrial welfare" and "social progress", it is also useful to compare the trends in real compensation in the US and other OECD countries. Taking 1977 as a base-point, table 5 indicates that real hourly compensation in manufacturing (real compensation here includes wages plus other employer outlays on behalf of employees, e.g. vacations, pensions, insurance, etc., — what are sometimes called fringe benefits in the US — adjusted for changes in each country's own consumer price index (CPI)) has been virtually unchanged in the US through 1987, while it has advanced substantially in Japan (almost 20 per cent), France (26 per cent), Germany (32 per cent), the United Kingdom (35 per cent) and only slowly in Sweden (around 8 per cent). (Comparative real hourly compensation data for other than the manufacturing sector are more difficult to compute and not available.)

Labour Market Flexibility: The US Case in a Comparative Framework 4-1

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