Académique Documents
Professionnel Documents
Culture Documents
Edited by
Edward J. Amadeo
Pontificia Universidade Cat6lica
Departamento de Economia
Rio de Janeiro
Brazil
and
Susan Horton
Institute for Policy Analysis
University of Toronto
Canada
First published in Great Britain 1997 by
MACMILLAN PRESS LTD
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Companies and representatives throughout the world
A catalogue record for this book is available from the British Library.
ISBN 978-1-349-25979-3 ISBN 978-1-349-25977-9 (eBook)
DOI 10.1007/978-1-349-25977-9
Selection. editorial matter and Chapter I © Edward J. Amadeo and Susan Horton 1997
Other chapters © Macmillan Press Ltd 1997
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Contents
List of Figures and Tables vi
Acknowledgements xi
Notes on the Contributors xiii
Index 291
v
List of Figures and Tables
Figures
VI
List of Figures and Tables vii
7.5 Japan: effect of a 1 per cent increase in manufacturing
output on labour inputs 245
7.6 Japan: effect of a 1 per cent increase in GDP on
employment and per capita labour income 247
8.1 USA: real wage indices. 1960-93 260
8.2 USA: ISCs for one-digit industries at I, 5 and 10 year
intervals. 1900-92 265
8.3 USA: job reallocation in manufacturing. 1973-88 266
8.4 USA: ISCs for I-digit occupations over lO-year intervals
1910-80 267
8.5 USA: ISCs for I-digit occupations at 1.5 and 10 year
intervals. 1955-93 268
8.6 USA: ISCs across states over 10-year intervals.
1910-90 269
8.7 USA: ISCs across states over 1.5 and 10 year intervals.
1939-90 269
8.8 USA: median years with employer. by age, 1951-91 272
8.9 USA: ratio of group to total unemployment rate, by
years of schooling. men 25-64. 1970-91 277
8.10 USA: ratio of group to total unemployment rate, men.
1948-93 278
8.11 USA: ratio of group to total unemployment rate, by
gender, 1948-93 279
8.12 USA: ratio of group to total unemployment rate. by race.
men, 1948-93 279
Tables
xi
Notes on the Contributors
Steven G. Allen is Professor in the Department of Economics
and Business Management, North Carolina State University, and at the
National Bureau for Economic Research.
Xlii
xiv Notes on the Contributors
Cecilia Montero is Investigator. CIEPLAN (Corporaci6n de
Investigaciado Econ6micas para Latinoamerica). and CNRS (Centre
National de la Recherche Scientifique). France.
1.1 INTRODUCTION
1. The first is to evaluate the degree of labour market and labour input
flexibility in the countries where the research took place. To this end
researchers examined the data on the macroeconomic factors affecting
labour market flexibility - namely, wage and employment flexibility
1.
2 Labour Flexibility and Productivity
and labour mobility across sectors - and the information on institu-
tional factors, management practices and policy instruments affecting
labour input flexibility.
2. The second objective is to propose alternative policy instruments to
enhance flexibility and productivity growth in the countries studied.
These proposals are divided into two groups. The first group refers to
general recommendations based on the common denominators among
countries. The second group of policy proposals are country-specific
and result from the effort of the individual teams in focusing the
analysis on the distinctive aspects of the issue in each country.
Labour flexibility has become a major issue in debates over the efficiency
of stabilization plans and structural adjustments. The capacity of the
labour market to promote the adaptation of the labour force to new cir-
cumstances is rightly seen as a major factor in reducing the costs of
macroeconomic shocks and policies. In this connection, real wage flex-
ibility and employment flexibility (or the mobility of workers across
geographical regions and sectors of the economy) play pivotal roles.
In this book, we look at flexibility from a broad perspective. We do not
deny the importance of the more conventional notion of 'labour market
flexibility' based on wage and employment flexibility. On the contrary,
we will assess it from both the conceptual and the empirical points of
view. But we will emphasize other dimensions of labour flexibility.
Accordingly, we see the latter as the combination of labour market flex-
ibility and labour input flexibility as discussed in more detail in Section
1.3. Given the attributes of the labour market, labour as an input can be
more or less adaptable to different circumstances. Technological changes
or movements in the sectoral profile of demand will have different impacts
on the levels of employment and productivity depending on the extent to
which workers can accommodate changes in the environment.
The determinants of labour flexibility are strongly affected by institu-
tions, management practices and public policies. In trying to identify
alternative ways to enhance flexibility, we must attack these different
dimensions. In other words, it seems fruitless to treat flexibility only from
a macroeconomic perspective or through the workings of the labour
market. We must integrate into the analysis a discussion of the roles of the
institutional apparatus which regulates the labour market and capital-
labour relations, the attitudes of management and workers within the
enterprise and public policies which affect labour directly.
If the costs of dismissing workers are high, firms will be much more
careful when hiring new workers in order to avoid such costs in face of a
reduction in demand. The result will be that firms will increase their
labour force only when they are sure that the increase in demand is not
transitory. This will imply the misallocation of labour over the business
cycle.
If the costs for workers of moving from one job to another are high, the
rate of labour turn-over will be much lower, especially during expansions.
This will also reduce the degree of labour mobility with potential deleteri-
ous effects for efficiency.
input flexibility. The latter refers to the capacity of labour qua factor of
production to adapt to changes in the environment. The greater such ca-
pacity, the greater the ability of the economy to attain an optimal position
in face of a shock given the real wage and the level of employment (see
Figure 1.1)
Labour input flexibility depends on the degree of flexibility of the
human capital endowment of workers and the potential rate of growth of
labour productivity. If the human capital endowment is too specific, so
that it is impossible for workers to move from one occupation to another,
the system is rigid in the static sense. If, on the other hand, it is expensive
and time-consuming to change the human capital content, there is rigidity
in the dynamic sense. Hence, the more specific is the human capital
endowment of the labour force, the greater the degree of rigidity.
Human capital flexibility has to do with the costs and benefits affecting
the decisions of firms and workers over the content of human capital for-
mation. General or formative training enhances the capabilities of workers
to learn new tasks and therefore to have multiple abilities. Specific train-
ing, on the other hand, is directed towards special tasks. Depending on the
type of capital-labour relations, the incentives to workers and firms to
invest in one or other kind of training can be very different. We shall
argue in the following section that these incentives are not independent
from the degree to which job security is valued by workers and firms as a
result of cultural factors and legislative constraints.
Labour productivity is also an important determinant of labour input
flexibility. As noted above, real wage flexibility is not a sufficient condi-
tion for flexibility. What matters is the relative movement of real wages
and labour productivity. In an economy in which productivity growth is
seen as part of the objectives of firms, and the potential growth of produc-
Edward J. Amadeo and Susan Horton 13
1.4 METHODOLOGY
N
22 Labour Flexibility and Productivity
labour market, results must be interpreted cautiously. We discuss below
the evidence from some indicators, first for the OEeD countries, and
secondly for the Latin countries.
Some existing studies use a common methodology to test an aspect of
flexibility across countries. The most common are studies of 'macro'
labour market flexibility - wage and (un)employment adjustment. Allen
and Freeman (Chapter 8 in this volume) summarize some previous results.
They discuss Layard et al.'s (1991) study estimating wage response to un-
employment using aggregate data (Phillips curves), in which Canada, the
USA and France exhibited an intermediate amount of wage flexibility,
wage rigidity was lowest in Italy, Japan and the EFTA countries, and was
highest in Australia, Spain, Germany and the UK. Studies of wage re-
sponse (Blanchflower and Oswald, 1994; also discussed in Allen and
Freeman, Chapter 8 in this volume) find that the elasticity of real wages to
unemployment rates is remarkably similar across a range of countries.
(Hoddinott, 1995, finds a similar response for one African country, Cote
d'Ivoire.) In other words, the casual observation that unemployment has
changed less in the USA than other countries in recent years may reflect
smaller shocks, not necessarily greater flexibility.
Studies based on historical data on labour market flexibility (wages and
unemployment), not controlling for the size of shocks, come to rather dif-
ferent conclusions. Such studies regard the rapid growth of employment in
the US in the 1980s - as compared to the ascent to double-digit unemploy-
ment in Europe - as evidence of greater labour market flexibility in the
USA (Klau and Mittelstadt, 1986). It seems fairly clear, however, that this
was accompanied by a much sharper increase in wage dispersion in the
USA than in Europe. The tradeoff between real wage growth and employ-
ment growth can be observed somewhat in data from Mazumdar (1994),
reproduced here in Table 1.3, although the fact that this is restricted to the
manufacturing sector alone (which has not been the main source of new
jobs) somewhat limits the scope of the analysis. In his decomposition
(using an identity) there is a tradeoff between growth in real wages and
growth in employment, for a given growth in output, conditioned also on
the changes in the domestic terms of trade (the relative price of consumer
goods relative to that of producer goods). For the two periods examined
(l971-80 and 1981-92), OECD countries as a group accepted falls in em-
ployment in exchanges for rising real wages. The two slower-growing
developing country regions experienced real wage cuts either in order to
mitigate employment losses (Latin America, where the terms of trade
effects were particularly adverse), or in exchange for increased employ-
ment (sub-Saharan Africa).
Table 1.3 Growth of real wages and employment, selected regions and countries, 1971-80 and 1981-92
1971-80
East Asia 5.32 11.46 5.77 -0.41
OECD 1.72 3.30 -0.23 -1.78
Latin America, Caribbean -2.13 1.89 -0.64 -4.60
Sub-Saharan Africa -3.40 1.19 4.39 -0.20
1981-92
East Asia 5.17 12.06 4.36 -2.53
OECD 1.35 3.77 40.31 -1.99
Latin America, Caribbean -3.13 1.83 -0.78 -5.68
Sub-Saharan Africa -4.36 4.44 4.07 -4.73
1971-80
Canada 1.67 2.97 1.12 -0.19
Japan 2.58 5.11 -0.99 -3.53
USA -0.09 2.78 1.00 -1.86
1981-90
Canada -0.04 2.29 1.49 -0.83
Japan 2.00 4.44 0.56 -1.87
USA 0.63 3.56 -0.36 -3.29
Source: Regional aggregates from Mazumdar (1994): country data from unpublished work by Mazumdar. Data used are
manufacturing wages (UNIDO). Column 1 equals column 2 minus column 3 plus column 4, with a small discrepancy due to the
method of calculation of the instantaneous growth rates. Domestic terms of trade (Tot) effect refers to the producer goods price tv
W
relative to the consumer goods price.
24 Labour Flexibility and Productivity
Mazumdar's analysis (based on unpublished results; see also Table 1.3)
also permits comparisons for individual countries. Individual OECD coun-
tries behaved differently. The USA and Canada accepted lower increases
in real wages than the OECD average in exchange for higher employment
growth over the period 1971-80, and the same is true for Canada in
1981-90. This is consistent with the assertion in the literature that greater
wage flexibility in Canada and the USA required less adjustment in the
form of unemployment. However the analysis cannot be carried too far in
the light of the quite large and unexplained variations in domestic terms of
trade movements in different countries.
A different measure of labour market flexibility is frequency and
duration of unemployment. Shorter duration of unemployment (even with
greater frequency) might be interpreted as greater flexibility. On this
measure, data from Bivar (cited in Camargo, Chapter 2 in this volume)
suggests that amongst the developed countries the USA and Canada have
the most flexible labour markets (average unemployment duration is three
months or less), with Japan also exhibiting flexibility, whereas unemploy-
ment durations in the EEC countries are much longer (10 months for the
UK, and up to 105 months for the case of Spain).
Regarding indicators of ability to reallocate labour across sectors, more
studies exist of wages than of employment shifts. Wage structures have
been studied fairly intensively in individual countries. ILO (1995) com-
ments that Austria - seen as a very corporatist country - has the highest
inter-industry wage spread in Western Europe. Japan also has relatively
large economy-wide earnings inequality although the spread within the
firm is narrow (differentials between firms of different sizes are quite
marked, ILO, 1995). Poorer countries were in the past thought to have
wider differentials by education and skill, related to the relatively lower
supply of educated and skilled labour (Psacharopoulos, 1985).
Recent evidence indicates that there have in some countries been quite
marked changes in wage structure, somewhat to the surprise of many ob-
servers. The USA has experienced a marked widening of differentials by
skill and education since the 1970s (Murphy and Welch, 1992; Goldin and
Margo, 1992, Katz and Murphy, 1992), in sharp contrast to the narrowing
which had occurred between 1940 and 1970 (termed by Goldin and
Margo, 1992, the 'great compression'). This same widening has been quite
marked in the UK (Lindley, 1996, Chapter 6 in this volume), but less
marked in other European countries and in Japan. This may indicate some-
thing about the flexibility of wage structures, but at the same time it is
clearly important to take into account supply and demand effects. The
USA experienced a greater deceleration in the supply of skilled labour
Edward J. Amadeo and Susan Horton 25
than in other OECD countries, according to ILO (1995), and Baker et at.,
(Chapter 5 in this volume) explains the greater wage polarization in the
USA as compared to Canada as partly due to differences in the relative
growth of supply of educated labour in the two countries. Katz and
Murphy (1992) have a methodology for separating out demand and supply
effects which concludes that demand effects predominate in explaining the
change in USA wage structure. However this does not directly infer any-
thing about labour market flexibility without additional information.
As regards indicators of employment flexibility across sectors, ISCs
(indices of structural change) are one measure of the amount of adjust-
ment undertaken in labour markets. Allen and Freeman (Chapter 8 in this
volume) cite the OECD's results for developed countries 1969-89, which
suggest that structural change for the USA (based on one-digit industry
calculations) is lower than that of other OECD countries. The same is true
for Canada-US comparisons by one-digit industry and one-digit occupa-
tion since 1971 and 1977 respectively, according to Baker et at. (Chapter 5
in this volume). However this need not imply lower flexibility, more likely
simply that due to the larger domestic market and lesser importance of
trade, the adjustment required was less in the USA. Allen and Freeman's
time series data for the US (Chapter 8 in this volume) indicate no trend
over time in the ISCs by industry, occupation or region, which could be
interpreted as no change in labour market flexibility.
Another indicator of quantitative flexibility is tenure with firm.
Although longer tenure might be taken as implying lower flexibility, it is
not clear this is necessarily the case. In Japan for example the much higher
degree of mobility expected of employees within the firm (both geographi-
cally and between different positions) may offset the effects of longer
tenure within the firm, as compared to the USA. Saavedra and Imaoka
(Chapter 7 in this volume) confirm that employee tenure with the firm is
indeed longer in Japan than the USA, for below the age of 55 employees.
How do the Latin American countries rate on these indicators of flex-
ibility? It is difficult to make direct comparisons to the industrialized coun-
tries due to many differences. The Latin countries have a more limited
coverage of unemployment insurance (and hence a difference in what un-
employment statistics reflect), much smaller and more open economies,
and experienced much larger external shocks. As regards trends in real
wages and unemployment, it is clear that much larger adjustments have
been required of the Latin countries. Chile had astonishingly high levels of
unemployment in the early 1980s which took almost a decade to return to
acceptable levels. At the same time, real wages also showed enormous
fluctuations, falling by 60 per cent between 1970 and 1972 and recovering
26 Labour Flexibility and Productivity
to the 1970 level by 1982, and falling again by 20 per cent in the 1980s
before again recovering (Romaguera et al., Chapter 3 in this volume).
Some observers have argued that the extremely high levels of unemploy-
ment in Chile in the 1970s (25 per cent or more) were an indicator of lack
of flexibility in the labour market: in view of the drastic falls in real
wages, this scarcely seems credible. Mexico's recession came later but
also involved sharp reductions in real wages (around 40 per cent in indus-
try and construction and more than 50 per cent in agriculture: Zapata,
Chapter 4 in this volume, Table 4.10). Open unemployment was however
smaller than in Chile. Finally Brazil also experienced changes in real
wages, albeit smaller than in Chile and Mexico (real wages were 20 per
cent lower in the worst years of the 1980s as compared to 1981 levels),
and fluctuations in the level of open unemployment were also much
smaller than in Chile. For Brazil a study of wage response using the
Blanchflower and Oswald (1994) methodology indicated that wage
response was markedly more flexible than in the USA and Canada: in the
least flexible sector (the formal sector) the wage response was at least as
flexible as in the USA and Canada, and the other sectors exhibited greater
flexibility.
For developing countries, open unemployment is not necessarily very
useful as an indicator of ability to adjust, since poor workers often cannot
afford to be openly unemployed. Often more adjustment is borne by shifts
of workers between sectors, in particular from the formal to the informal
sector. In the OECD countries a related distinction sometimes made is
'good jobs/bad jobs'. In developing countries, a large degree of segmen-
tation between the formal and informal sector is seen as a source of
rigidity, as well as inefficiency. One test of segmentation is if workers
with identical human capital receive different returns in the two different
sectors. Typically, however, not all characteristics are measurable (and
workers may sort themselves between sectors based on unmeasured
characteristics), and hence an earnings gap cannot prove segmentation.
Nevertheless, the larger the earnings gap (using earnings functions), the
more likely segmentation is to be of concern. Larger gaps which are
harder to explain are more likely to involve queueing or other kinds of
rationing of access.
The informal sector has played different roles in different Latin coun-
tries. In Chile, Romaguera et al. (Chapter 3 in this volume) argue that the
formal/informal gap is quite small (20 per cent in terms of monthly earn-
ings, 10 per cent in hourly). They argue that the informal sector did not
play the role of a 'buffer' during recessions, and in fact this sector shrank
along with the formal sector. The informal sector is in any case quite small
Edward J. Amadeo and Susan Horton 27
- 20-25 per cent of non-agricultural employment, and as discussed above,
shifts into open unemployment were extremely large. In this respect Chile
is more similar to the OECD countries.
In Brazil there seems to be a greater fluidity between the formal and
informal sectors. The formal sector, as denoted by the existence of a
'signed contract', comprises about 52 per cent of the urban labour force
(Camargo, Chapter 2 in this volume). Workers can and do readily change
sectors. Even in the formal sector according to Amadeo and Camargo
(1994), 28-40 per cent of workers changed jobs in a year. Shifts between
the sectors can be a source of some flexibility in wage costs, since non-
wage costs in the formal sector are as much as 100 per cent of formal
sector wages (Camargo, Chapter 2 in this volume).
In Mexico, the informal sector also seems to be more important than in
Chile. Zapata (Chapter 4 in this volume) states that 45 per cent of the em-
ployed population is not covered by social security. The informal sector is
probably even larger than this, since it includes the self-employed. Zapata
argues that the informal sector did act as a buffer during restructuring and
recession, and also points out recent trends such as the informalization of
the service sector between 1979 and 1988, the feminization of employ-
ment, the shift out of public employment, and a decline in firm size
concentration. He likewise discusses the shift towards greenfield sites for
export, the increase in part-time work and the decrease in average hours
worked as part of a process of flexibilization of the labour force.
Of the indicators of sectoral labour reallocation, wage indicators are
more readily available than quantitative ones (ISCs - indices of structural
change, tenure with employer, etc.). The wage structure information is
interesting in that there is evidence of widening wage differentials in all
three countries. In Chile this is measured by a widening of skill and educa-
tion differentials (Robbins, 1994), in Mexico by a general widening in the
dispersion of wages (Berry, 1995), and in Brazil as a widening differential
between the formal and informal sectors, and the gap between formal
sector wages and the minimum wage. For Chile, use of Katz and
Murphy's (1992) methodology by Robbins (1994) indicates that as for the
USA, demand effects predominate.
The widening of wage differentials in developing countries is at first
sight surprising, in view of the simple predictions of the Heckscher-Ohlin
model combined with the Stolper-Samuelson theorem. However, this
widening is consistent with other theories of skill-augmenting trade and
endogenous growth, summarized in Robbins (1994). This would also be
consistent with the dismantling of labour market institutions in Chile after
1972, and with the trends towards informalization in Mexico discussed
28 Labour Flexibility and Productivity
above. These trends, paralleling US experience, may be taken perhaps as
undesirable aspects of flexibilization.
1.6 INSTITUTIONS
120
100
80
8
Ii'
on
60
00
~ 40
20
0
1970 72 74 76 78 80 82 84 86 88 90
Year
--- Brazil -+- Chile -+- Mexico
Source: UNIDO
Figure 1.3 Real output/worker, Canada, UK and USA, 1970-90, domestic cur-
rency, manufacturing, 1985 = 100
120
100
0
80
0
Ii'
on 60
00
~ 40
20
0
1970 72 74 76 78 80 82 84 86 88 90
Year
--- Canada -+- UK -+- USA
Source: UNIDO
Notes
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2 Brazil: Labour Market
Flexibility and Productivity,
with Many Poor Jobs
Jose Marcio Camargol
2.1 INTRODUCTION 2
37
38 Brazil
incentives created for agents and for organizations such as workers'
unions and employers' organizations, the degree and the cost of enforce-
ment of rules and contracts, all playa very important role in determining
the adjustment costs and thus the degree and dimensions of labour market
flexibility.
The objective of this chapter is to analyze labour market flexibility in
Brazil. We will show that real wages vary widely and the turnover rate is
very high in the Brazilian labour market. At the same time, the unemploy-
ment rate is relatively small and adjusts fast to changing economic condi-
tions, and the rate of job creation is high. These facts suggest that in the
real wage and firing and hiring workers dimensions, the Brazilian labour
market is very flexible.
We show that these results are a consequence of the labour market insti-
tutions which regulate the Brazilian labour market. These institutions
create incentives for short-run labour contracts and very weak links
between workers and employers in the employment working relationship.
Firing costs are relatively small and there is a monetary premium for the
worker when separation occurs. On the other hand, the fact that there is a
Labour Court which has the last word in all conflict resolution, at the
individual and collective levels, does not generate enough incentives for
negotiation and bargaining between firms and workers at all levels.
The incentives for short-run labour contracts and the disincentives to
negotiation also have negative consequences. The most important are the
low degree of investment in training at the firm and the resultant low degree
of qualification of the labour force and a tendency to a non-cooperative
capital-labour relation. On-the-job training is concentrated in very specific
and indispensable training, as the probability of separation is very high
and neither workers nor employers are willing to pay for more specific or
general training.
Also, given the incentives to non-compliance, enforcement is difficult
and costly. As most of the disputes end up at the Labour Court, millions of
demands have to be heard each year and the time needed for solving
labour disputes can run to years. All these together result in a picture of a
labour market which generates a large number of jobs, but of low quality
and low productivity and a low qualified labour force. Unions are import-
ant social actors, but most of their activity is directed to national politics
and conflict (although some change has occurred since 1974). As workers'
qualifications are low and very specific, flexibility in the sense of occupa-
tional changes to adapt the labour force to changing economic conditions,
mainly technology and demand, is very small.
Jose Marcio Camargo 39
The chapter is organized as follows. In Section, 2.2 we discuss the insti-
tutional structure which regulates Brazilian labour market. In Section 2.3,
we show how this structure generated the kind of labour market flexibility
described above and the results in terms of job creation, low unemploy-
ment rate, short-run labour contracts, low job quality, little investment in
training and low qualification of the labour force. In Section 2.4, we draw
our conclusions.
• maximum length of the work week (48 hours before 1988 and 44 hours
after 1988);
• maximum length of the work day (8 hours for normal shifts and
6 hours for uninterrupted shifts);
• maximum overtime hours (2 hours a day);
minimum wage;
• minimum remuneration for overtime work (after 1988,50 per cent of
regular wage, before 1988,20 per cent of regular wage);
• 30 days of paid vacation per year of work;
a vacation bonus of 1/3 of the regular wage (introduced in 1988);
• special conditions for night shifts;
• a l3 th wage (1/12 of the December wage times the number of months
the worker was employed in the firm during the year, or 1/12 the wage
of the month the worker was dismissed, if that happens during the
year, times the number of months worked in the firm in that year) paid
half when the worker takes his vacation and half in December of each
year, or when he is fired (introduced in 1962);
protection against dismissal for pregnant women;
• a 4 month maternity leave for the mother (3 months before 1988);
• a 5 days paternity leave for the father (introduced in 1988);
• a wage complement proportional to the number of children in the
family, calculated as a percentage of the minimum wage (family
allowance);
• I month previous notification of firing; during this month the worker
can take 2 hours a day from his work time to look for another job;
• the right to have the dismissal fund deposited by the firm, (created in
1966, 8 per cent of the monthly wage);
• a fine of 40 per cent of the dismissal fund, paid by the firm and appro-
priated by the worker, if the firing was for non-justified reasons;
unemployment insurance (introduced in 1986);
special conditions for child work;
special conditions for dangerous work.
Table 2.1 Brazil: number of formal workers fired and % of these workers
receiving unemployment benefit,
monthly averages, 1990-93
contracts are binding for all workers of the respective occupational cate-
gory, regardless of whether or not they are affiliated to a union. Collective
contracts are negotiated in a non-synchronized way, by occupation at the
city level, on an annual basis.
As the unions are financed through a 1 day per year tax on wages and
the collective contracts negotiated by unions are binding independent of
affiliation by the worker, there are few incentives for workers to affiliate to
unions and for union officials to get rank and file support. Until 1964
unions were mainly a political agent on the national political scene. This
scenario changed with the military coup of 1964 and the anti-labour
government that followed.
As unions lost their space in the political arena, they turned to rank and
file mobilization to retain some power, although there was strong repres-
sion of the labour movement during this period. This was an underground
process, which exploded in the second half of the 1970s with the begin-
ning of the re-democratization process in the country. A new workers'
movement developed, which became known as the 'new unionism'. The
main characteristics of this movement is the independence of unions from
the State and support from rank and file mobilization.
As the degree of protection was reduced with the introduction of the
FGTS in 1966, conditions of work deteriorated and were turned into an
important issue in collective bargaining 5 The promulgation of a wage law
by the military Government, which stipulated the nominal rate of adjust-
ment of all wages in the economy in 1966, combined with the repression
of collected bargaining, created a de facto centralization of the wage deter-
mination process in the country. This law was intensively used by the
Government in the period 1964-74 as an anti-inflationary instrument,
reducing real wages of those workers whose wages were dependent on
collective bargaining, mainly blue collar workers. All this combined to
generate a very combative and conflictive labour movement.
Given the importance of the Labour Court, and thus of legislation, in the
capital-labour relation, the same social groups which were active in
the new union movement decided, in 1981, to constitute a political party
(the Partido dos Trabalhadores or PT) to represent their demands at the
Legislature. In 1983, a Central Union (Central Unica dos Trabalhadores or
CUT) was created, with national coverage. The growth of the Central
Union was rapid. In 1984, at the first CUT congress, it had 937 affiliated
unions and in 1988 1157. All sectors (the public sector, industry, services,
and rural unions) were represented in the Central.
As with individual contracts, all collective bargaining disputes end up
in the Labour Courts. This also creates a situation where the weaker side
Jose Marcia Camargo 49
in the dispute can always ask the Court to intervene in the process from
the start, preventing development of effective collective bargaining. On
the other hand, as unions are organized at the occupational level and by
city, and collective bargaining is non-synchronized over the year, each
occupational category having its negotiation in a given month of the year,
macroeconomic coordination of this process is very difficult. As the em-
ployment policy by firms is entirely decided by management, each union
will try to get the highest wage adjustment possible, to avoid losing
income in case the other unions bargaining later get better nominal and
real wage terms. As the incentive to negotiate is very small, all disputes
end-up in conflict, before the Courts can even be called to intervene. The
result has been an intense period of labour disputes.
Although the changes in the labour movement were very important,
with the changing international economic conditions in the second half of
the 1980s and beginning of the 1990s and the adverse incentives created
by the institutional structure discussed above, the growth of this labour
movement slowed and it is going through a difficult process of re-
structuring and adaptation. But it is still growing and is the most import-
ant, the most active and organized voice of labour in the country.
Finally, as individual working conditions are very much defined in the
law, and the law can only be negotiated at the Labour Court, most of the
collective bargaining is related to nominal wage adjustment, although
some changes have occurred after 1975, with the 'new unionism'. All
these create incentives to non-cooperative capital-labour relations, and
few incentives for productivity growth.
Notes: Rate a/Growth a/GNP - Percentage average annual rate, per period.
Rate 0/ Inflation - Percentage average annual rate, per period.
Trade baLance (goods) - US$ billion, annual average per period.
Current Account (balance a/payments) - US$ billions, annual average per period.
Real Exchange Rate - 1980 = 100.
Source: Urani (1994), pp. 7-8.
Ul
52 Brazil
Table 2.4 Brazil: open unemployment rate, 1981-9, %
Year Rateo!
Unemployment
1981 6.63
1982 5.82
1983 7.55
1984 6.73
1985 5.10
1986 3.89
1987 5.06
1988 4.98
1989 4.13
Source: PNAD/IBGE.
ployed for more the 12 months was never above 18 per cent, and in 1990,
this percentage was 17.5 per cent. Thus, long-run unemployment is not a
very important characteristic of the Brazilian labour market.
The length of the labour contract is also an indication of flexibility.
Actually, in Section 2.2 we showed that Brazilian labour market institu-
tions tended to create incentives for very short-run labour contracts.
Table 2.6 shows the average duration of the legal, signed contract, jobs in
Brazil, in 1991. Table 2.6 shows the data for the economy as a whole and
for the industrial sector, which is the sector with the highest percentage of
signed labour contracts and the most unionized. For the economy as a
whole, 24.4 per cent of the labour contracts were for less than 6 months, in
1991, 38.3 per cent were for less than 1 year and 52.8 per cent less than
2 years' duration. For the industrial sector, the corresponding numbers
were 23.5 per cent, 37.8 per cent and 53.1 per cent. Thus, not only is the
Jose Marcio Camargo 53
Table 2.6 Brazil: duration of jobs, whole economy and industrial sector, 1991,
%
were estimated, where w is the real wage, U the rate of unemployment and
Q and c are estimated parameters. The value of Q gives the elasticity of the
real wage to changes in the rate of unemployment. Wage curves of this
kind were estimated for the six Metropolitan regions (Sao Paulo, Rio de
Janeiro, Belo Horizonte, Recife, Salvador and Porto Alegre), for different
educational and age groups and for workers with and without signed con-
Jose Marcio Camargo 55
tracts and for self-employed workers. (see de Barros and Mendon~a,
1994)9.
These estimations show that, for the market as a whole, the estimated
value of a is -5. It is higher for the period 1985-7 (-8) and lower for the
periods 1987-9 and 1991-4 (-2). For the period 1982-94, the value of the
parameter varies between -3 and -5 for all educational and age groups,
except for the 35-49 age group with 5 to 8 and 9 and more years of
schooling, for which the value of the parameter is between -8 and -13,
respecti vely. Finally, the estimates of the slope of the wage curve for self-
employed workers vary between -4 and -6, for workers without signed
contracts between -1 and -4 and for workers with signed contract from
-1 to -2.
What these data show is a relatively high degree of real wage flexibility
in the Brazilian labour market, if compared to the international standard.
The segment with the smallest degree of flexibility, as measured by the
value of this coefficient, is as flexible as the American and Canadian
labour markets.
A more direct, although theoretically less rigorous, way to get evidence
of real wage flexibility is to look at the behaviour of the real wage. If we
observe the evolution of the real wage in Brazil, we cim see that it varies
widely through time. All segments of the labour market had relatively high
variations in real wages during the 1980s (Table 2.8). The wages of signed
contract workers declined by 22.7 per cent between 1982 and 1984 and
Table 2.8 Brazil: real labour income, by labour market segments, 1981-90
(1981 = 100)
Source: PNAD/IBGE.
56 Brazil
then increased by between 1984 and 1986. The non-signed contract
workers' wages declined by 18.7 per cent during the recession period
between 1981-3 and then grew by 70.6 per cent from 1983 to 1986.
Finally, the self-employed workers' incomes were reduced by 15.5 per
cent between 1981 and 1984 and increased sharply by 82.0 per cent
between 1984 and 1986. The variations after 1986 are relatively smaller,
probably because the economy was relatively more stable during this
period, but still very substantial.
The data presented so far show the high degree of flexibility of the
Brazilian labour market in the employment and real wage dimensions.
Although these are necessary conditions for labour market flexibility, they
are not sufficient. A segmented labour market can have low unemploy-
ment rate and still be rigid, in the sense that it is possible to increase
productivity and output just by transferring workers from one segment to
the other. Thus, flexibility is also related to lack of segmentation. The
question we should turn to now is how segmented is the Brazilian labour
market and if it is segmented, why it is so, if real wages and employment
are so flexible.
The above sections have presented a picture of a labour market where real
wages very widely in relation to the rate of unemployment, labour con-
tracts are of short duration and unemployment rates are very small. All
these suggest that the cost of firing and hiring, for workers and employers,
is quite low in the Brazilian economy. Actually, we showed that in certain
economic circumstances (when the economy is growing), there is a
premium for the workers in being fired.
One result of these characteristics is an increase in the cost of on-the-job
training and qualification, be it formal or informal, since the probability of
losing the investment made is very high due to the high probability of
separations. This is true for workers and employers. If training costs are
high, investment in training will be small. Firms will invest only what is
strictly necessary for the workers to do their task and workers will not be
willing to invest in technical training related to the firms' technology and
production.
The low level of investment in training would tend to reduce the inter-
nal flexibility, the degree of adaptability of workers and firms to changing
economic conditions and technology through changes in occupations
inside the firm and in the structure of production. This dimension of flex-
ibility is directly related to the volume of human capital investment
through training and qualification made by firms and workers on the job.
Based on the analysis of the previous sections, we should expect very
little flexibility on this dimension. But this would also mean a low degree
of qualification of the labour force, low productivity and low wages. Valle
(1994) analyzes this aspect of labour relations in Brazil. He did a survey of
the biggest 1000 firms in the country. He sent questionnaires to these 1000
firms, looking for information on different aspects of the working relation
which relates to the degree of labour input flexibility and human capital in-
vestment. From these 1000 firms, 254 answered the questionnaire. He then
visited a sub-sample of the firms and asked more specific questions on the
more relevant issues. Some important results can be reported from this
survey.
More than half (55.5 per cent) of the firms in the sample sold their
production to both the internal and the external markets, and 2.4 per cent
only to the external market. Also, 24.8 per cent of the firms produced only
for the internal market, but intended to export a share of production in the
near future. This is a sign that the sample is mainly composed of relatively
modern and large firms, since about 81 per cent of them had international
business links.
Jose Marcio Camargo 59
The required level of education and training was very small. For
57.1 per cent of these firms, the workers' minimum educational require-
ment is 4 years of formal education, 33.9 per cent declared that no techni-
cal knowledge was demanded from the workers and 31.1 per cent declared
that only very specific technical knowledge was demanded. Although the
requirements were relatively low, 63 per cent of the firms declared that it
was difficult to find the desired professionals in the market. Turnover rates
were considered small by the firms, but in the interviews, it became clear
that 'small' represented a 11.6 per cent turnover rate over the year. In
other words, the firms considered that to rotate 11.6 per cent of all its
workers in the period of one year was a good ma~power policy.
The research tries to characterize the relative importance of four differ-
ent dimensions of competitiveness for the firms: quality of the product,
price of the product, degree of innovation carried by the firms and degree
of flexibility of the production line. The results are interesting. For the
firms whose production is directed exclusively to the internal market, the
price dimension is the most important, while for the firms which have
some link to the international market, the quality dimension is dominant.
On the other hand, the more firms are directed to the international market,
the more they value the four competitive dimensions presented to them.
Innovation and flexibility are the two least important dimensions for all
types of firms.
The degree of insertion in the international market is a very important
variable in determining the way firms relate to their employees. Firms
which are linked to the international market prefer to reallocate their own
worker when a new vacancy appears (74 per cent of the firms analyzed)
rather than looking at a new worker in the outside market, while a smaller
share of those firms which produce only for the internal market have this
preference (65 per cent).3
Of those firms which produce for the external market, 7.3 per cent do
not provide any training to their labour force (as compared to 11.4 per
cent for the entire sample) and 29.1 per cent provide only very specific
training (as compared to 34.3 per cent for the entire sample). The share of
these firms which offer both specific and broad technical training to their
labour force reaches 53 per cent (as compared to 43 per cent for the entire
sample). Thus, firms which export a share of their output tend to give a
higher value to training than those firms which sell only to the internal
market. This is to be expected since the international market tends to be
more demanding in terms of quality and costs.
Technology is also an important factor in determining attitudes and
labour relations. For those firms where labour is the main cost of production,
60 Brazil
turnover is higher and investment in training is smaller. Among these
firms, 19.5 per cent never invested in a training programme (as compared
to 11.4 per cent for the entire sample), while 11.4 per cent offered only
very specific training (as compared to 9.8 per cent for the sample). Also,
70.5 per cent of these firms were planning less training in the future than
in the past (as compared to 61.0 per cent for the sample).
Workers' attitude toward training, at least as perceived by managers,
depends also on technology. In firms where labour is the main cost of pro-
duction, 48.8 per cent of the managers said their workers had very little
interest on training of any kind, as compared to 26.4 per cent for the entire
sample, and 7.3 per cent declared workers had no interest at all (as
compared to 2.8 per cent for the sample). According to these managers
41.5 per cent of their workers had a high interest in being trained (as
compared to 70.5 per cent for the sample).
The same behaviour is observed regarding to formal education. For the
managers of these firms, 17.1 per cent of their workers did not have any
interest in basic education (as against 2.8 per cent for the sample), 68.3 per
cent showed little interest (as compared to 45.3 per cent for the sample)
and 12.2 per cent showed high interest on formal education (as compared
to 51.6 per cent for the sample).
Valle also shows that there is a close correlation between firms which
prefer their own employees to fill new vacancies and those firms which
provide technical training, as opposed to firms which prefer to look for
new employees in the external market and do not provide (or provide only
very specific) training programmes to workers.
Valle concludes from these findings that, for most firms, 'the turnover
rate is so high that it is difficult for them to find workers with even the
smallest specific human capital in the labour market. This forces them to
provide very simple and specific training to their own labour force'
(p. 34). This explains the fact that 11.4 per cent of the firms do not provide
any training programme for their labour force, 34.4 per cent provide only
very specific training programmes 43.0 per cent have both specific and
more general training programme, and 65 per cent of the firms declared
that no training or only very specific training is required by them.
Based on these results, partial as they may be, it can be concluded that,
even among the biggest Brazilian enterprises, on-the-job training is not
considered an important factor. Very specific and simple training is the
main human capital investment on the job and broad training or knowl-
edge is not a very valuable characteristic. The data also show that to be
linked to the external market (exports) and to have a less labour-intensive
technology creates incentives for the firms to invest in their labour force
Jose Marcio Camargo 61
and for the labour force to be more interested on training. But even these
firms invest relatively little on training in the Brazilian economy.
As training is very limited, the worker tends to leave the job as soon as
another employment opportunity appears in the market. Thus, high turn-
over rate generates a high degree of workers' dissatisfaction, low invest-
ment in training and low productivity (Valle, 1994, p. 34).
2.4 CONCLUSIONS
Notes
I. This chapter was originally written for the project Labour Flexibility,
Productivity and Adjustment, financed by IORC. The author acknowledge
the financial support of this institution. The author is also grateful to the
very helpful comments to an original version of the paper made by the
participants of the project workshop held at the University of Toronto. In
particular, E. Amadeo, A. Berry, A. Handa, M. Gunderson, S. Horton,
G. Indart, G. McMahon and F. Zapata provided very important suggestions
during the discussion and in written form. Their suggestions greatly im-
proved the quality of the chapter. Any errors that persist in the analysis are
not in any way their fault.
2. This chapter is based on the articles: Amadeo and Camargo (1994), de
Barros and Mendon~a (1994), Urani (1994) and Valle (1994); all these
papers were written for the project Labour Flexibility, Productivity and
Adjustment, financed by lORe.
3. This section is based on Amadeo and Camargo (1995).
4. See Antonio Alvares da Silva, 'Projeto de reforma constitucional (II),
Institui 0 juizado Especial de causes trabalhistas', 7° Congresso Brasileiro
de Direito Processual do Trabalho 24-27 July 1995, Congressos LTr (1995).
5. See L. Abramo L, '0 Resgate da Dignidade', MA dissertation, FEAlUSP
(1986).
6. This section is based on Barros and Mendon~a (1994), Valle (1994) and
Urani (1994).
7. See Urani (1994), pp. 12-18.
8. See Amadeo et at. (1994).
9. The definition of the unemployment rate for worker with and without signed
labour contracts is based on the origin of the worker in his/her last employ-
ment. The non-signed contract unemployment rate, for example, is the un-
Jose Marcio Camargo 63
employment rate of those workers whose last employment was a non-signed
contract job.
10. The share of non-signed contract jobs in total employment grew from
13.4 per cent in 1987 to 15.4 per cent is 1991, the share of the self-
employed increased from 18.7 per cent in 1987 to 22.8 per cent in 1991 and
the share of the signed contract jobs declined in the same period from
56.3 per cent to 51.6 per cent of the total employment.
II. For a complete list of the workers legal rights, see Amadeo and Camargo
( 1995).
References
Amadeo, E. and Camargo, J.M. (1992) 'The Brazilian labor market in an era of
adjustment', in S. Horton et al., Labor Markets in an Era 0/ Adjustment,
Washington DC, Economic Development Institute, World Bank.
Amadeo, E. and Camargo, J.M. (1993) 'Labor flexibility, productivity and adjust-
ment', PUC-Rio (mimeo)
Amadeo, E. and Camargo, lM. (1994) 'Institui~oes e 0 mercado de trabalho no
Brasil', PUC-Rio (mimeo)
Amadeo, E., and Camargo, J.M. (1995) 'Regulation and flexibility of the labour
market in Brazil', Department of Economics, PUC-Rio, Discussion Paper 335.
Amadeo, E., Camargo, J.M., Gonzaga, G., de Barros, R.P. and Mendon~a, R.
(1994) 'A natureza e 0 funcionamento do mercado de trabalho Brasileiro desde
1980' IPEA, Discussion Paper, 353.
Barros, R.P. de and Mendon~a R. (1994) 'Flexibilidade do mercado de trabalho
Brasileiro: Uma avalia~iio empfrica' mimeo.
Barros, R.P. de, Mello, R., Pero, V.L. and Ramos, L. (1992) 'Informal labor rela-
tions: a solution or a problem?', IPEA (mimeo)
Bivar, W. (1993) 'Estimativas da dura~ao media do desemprego do Brasil',
Pesquisa e Planejamento Economico, 2 (August)
Blanchflower, D.C. and Oswald, AJ. (1994) The Wage Curve, Cambridge MA,
MIT Press.
Blinder, A. (1991) 'Maintaining competitiveness with high wages', International
Center/or Economic Growth, Occasional Paper, 26.
Camargo, J.M. and Barros, R.P. (1991) 'As causas da pobreza no Brasil: porca
miseria', Perspectivas da Economia Brasileira, IPEA.
Emerson, M. (1988) 'Regulation or deregulation of the labor market?', European
Ecollomic Review, 32, pp. 775-817.
Klau, F. and Mittelstadt, A. (1986) 'Labor market flexibility', OECD Economic
Studies, 6. Ministry of Labour, Law 4923. PNADIIBGE (various numbers).
RAIS (1991).
Ramos, C.A. (1992) 'Flexibilidade e mercado de trabalho: modelos e te6ricos e a
experiencia dos pafses centrais durante os anos 80', IPEA, Discussion Paper, 271.
Shapiro, C. and Stiglitz, J. (1984) 'Equilibrium unemployment as a discipline
device', American Economic Review, 74, pp. 433-44.
Silva, A.A. (1995) 'Projeto de reforma constitucional (II): Institui 0 juizado espe-
cial de causas trabalhistas', 7° Congresso Brasileiro de Direito Processual do
Trabalho (24-27 July), Congressos LTr.
64 Brazil
Tachibanaki, T. (1987) 'Labor market flexibility in Japan in comparison with
Europe and the US', European Economic Review, 31, pp. 647-84.
Urani, A. (1994) 'Ajuste macroecon(\mico e flexibilidade do mercado de trabalho
no Brasil, 1981-1992' (Mimeo).
Valle, R. (1994) 'As empresas industriais Brasileiras diante de suas necessidades
de mao de obra' (Mimeo).
3 Labour Flexibility: The
Case of Chile l
Pilar Romaguera, Pablo Gonzalez,
Alejandra Mizala and Cecilia Montero
3.1 INTRODUCTION
65
66 Chile
this market caused by the current economic growth. We emphasize flex-
ibility in employment and wages, and find that employment fluctuations
have been a major element of labour market flexibility during the 1970s
and 1980s, when the economy had to absorb two strong shocks and
the ensuing recessions. Wage flexibility also played a role, especially
during the second period, when wage behaviour was less regulated by
government rules.
Section 3.3 begins a deeper analysis on the issue of sectoral mobility. It
has been a traditional hypothesis in Latin American that the informal
sector has acted as a employment buffer during recessions; however the
Chilean experience does not support this view; i.e. the informal sector has
more of a structural character, and wage differentials (after controlling for
human capital) are small. Additionally, we examine the historical growth
of the labour supply and its current level of elasticity, which could be an
important factor in potential employment growth. This is more a concern
for the future than for the past, i.e. for expansion than for recessions, and
wage elasticities seem significant specially for the female labour force.
Institutional and legislative characteristics are important determinants
of flexibility, and Section 3.4 deals in detail with the norms and regula-
tions which exist in Chile, and the changes they have undergone in recent
decades. Section 3.5 gives details of one of the institutional aspects which
should influence both labour productivity and the ability to acquire new
skills; namely the training systems which exist in Chile. In spite of the
strong adjustments that the economy underwent, unemployment insurance
and retraining programmes - labour policies very close to labour flex-
ibility aspects - are of recent concern.
Section 3.6 takes the analysis further to the level of the firm and its
strategies for increasing flexibility; for this purpose the chapter makes use
of a case study centred on dynamic firms in the non-traditional exports
sector. So, finally our concern turns to the labour input flexibility compo-
nent; a component that does not seem important in the past, but that
appears as an incipient worry from the 1990s on, when competitiveness
and economic growth required labour flexibility.
During the 1970s important reforms were carried out in the Chilean
economy including deregulation of domestic markets, liberalization of
foreign trade and opening up the capital account of the balance of pay-
ments, as well as fiscal reforms and a liberalization of the domestic
financial market. 2 Furthermore, in 1975 an anti-inflationary policy was put
into effect which produced a significant reduction in aggregate demand as
a result of restrictive monetary and fiscal policies. This policy implied a
fall in GOP of 12.9 per cent together with a rise in unemployment to
14.9 per cent that year (see Table 3.1).
The liberalization and stabilization policies carried out during the period
1975-82, implied drastic changes in economic relationships with the rest
of the world and in the role played by the market, and culminated in the
second biggest crisis in Chile's recent economic history. In 1982 GOP fell
by 14.1 per cent and open unemployment increased to 19.6 per cent. The
1982 crisis is basically explained by the seriollsness of the macroeconomic
68 Chile
Table 3.1 Chile: economic indicators, 1970-94
-+-
Agric. and fishing Mining -+-
22,'::======--' 3.5 r---.!======~---'
20
" 3
I::
;'
~ 2.5
~ 2
14
12 +.-..............................-..............................-.......-1
1966 687072 74 76 7880 82848688 90 92 69 72 75 78 81 84 87 90 93
Year Year
1966 69 72 75 78 81 84 87 90 93 1966 69 72 75 78 81 84 87 90 93
Year Year
Finan. -+-
5~==========~--~
serv. I-+- Social and commun. serv.1
40
5.5
::. 5 a 36
~ 4.5
~ 4
~ 3.5
3
J 32
28
2.5
2-4<.......H++-H......-++<>-+++++++++H 24+H+H+H+H+H+H~~H+~
1966 69 72 75 78 81 84 87 90 93 1966 69 72 75 78 81 84 87 90 93
Year Year
140
120
100
80
...... General
60 -0- Public sector
40
,...
0
a.
,... ,...'<t ,...v;;
N 00
r--
0
00
N
00
"'I:t
00
'-0
00
00
00
0
0'0
Note: MCO estimates; Rt: public sector wage adjustment at time t; Pt-I:
accumulated inflation lagged by one quarter; UNt : unemployment at time t.
Equation(3) was estimated using CORC method, Rho = -0.488 (-3.58). T ratios
are given in parentheses.
The labour market adjustments in the Chilean case involved not only
changes in employment levels, but also changes in the composition of em-
ployment between sectors, particularly a decrease in industry and an
increase in services (see Figure 3.1). Section 3.3 analyses two more
specific aspects of labour mobility that are important in the Chilean expe-
rience: labour supply response to the demands of economic growth, and
labour mobility between the formal and informal sectors.
74 Chile
3.3.1 Labour Supply
The supply response of labour over the economic cycle acts to attenuate or
accentuate unemployment problems. In Chile, one observes a very
moderate response to the crisis of 1982 in both total and gender-specific
participation rates, although the decline in the participation rate was more
significant for men than for women. We do not have sufficient information
to analyze the effects of the previous recession, in 1975; however, it can
be seen that in spite of the recovery of output between 1976 and 1981,
participation rates did not increase l2 (see Figure 3.3).
Once the economy began to recover - especially after 1984 -
participation rates increased significantly for all groups of the population;
although the most significant increase was in the female participation rate
occurred from 1991 on. Thus, the clearest trend seen in terms of supply is
the increase in participation rates of recent years.
It should be pointed out that Chile has low participation rates compared
both with developed countries and the recently developed Asian countries.
And although female participation rates have grown recently, their levels
are still below those of OECD countries in the 1960s.
In order to investigate the potential responsiveness of participation
rates, supply equations were estimated based on cross-section data for
1992. The (uncompensated) wage elasticity is 1.07 for men and 1.88 for
women, indicating significant elasticities in both cases but, as was to be
expected, higher in the case of women. The analysis also indicates that for
men adjustment is stronger in hours worked, while for women, adjustment
via the number of persons employed explains 78 per cent of the total
change in supply (see Table 3.3}.
80
70
~Men
60
50
40
30
20
1976 78 80 82
Wage Change
elasticity ill labour supply due to:
(uncompensated) Entry/exit Hours
The conventional wisdom for Latin America is that the informal sector
has played a buffer role by absorbing a significant part of the unemployed
during recessions. 13 However, in the case of Chile it has been argued that
the response to fluctuations in economic activity may have occurred
largely through changes in formal sector employment and in the rate of
open unemployment. 14
The heterogeneity of the informal sector also causes a certain ambiguity
in predicting its behaviour in response to economic cycles. Thus, if in the
informal sector a productive segment, with an integration/subordination
relation with the formal sector of the economy, coexists with a segment of
displaced workers who have no other work alternatives, then one might
expect either a pro-cyclical or an anti-cyclical behaviour in response to
output fluctuations.
Table 3.4 summarizes different estimates of the size of the informal
sector; depending on the definition, it represents between 21.5 per cent
and 42 per cent of urban employment.
The figures suggest a certain stability in the size of the informal sector.
In order to investigate its behaviour in more detail we examine longer time
76 Chile
Table 3.4 Chile: estimates of the size of the informal sector, 1980-92
(at the national level as a percentage of non-agricultural employment)
series for the non-wage informal workers, a sub-set comprising the major-
ity of the informal sector for which there is information, comprised of self-
employed workers and unpaid family members.
Wage Differentials
Table 3.5 presents information on differences in income between formal
and informal workers, based on CASEN survey data. 17
The monthly incomes of workers in the informal sector were 30 per cent
Jess than those in the formal sector, estimated as per centage differences
Pilar Romaguera et al. 77
Figure 3.4 Chile: employment, unemployment and informal sector, 1977:
1-1993: I, quarterly figures
180
160
140
120
100
80
60
Source: GarcIa (1995), based on INE data; unemployment rates are open and total
(with emergency employment programmes).
Note: Employment is non-agricultural and excludes emergency employment.
1990 1992
Note: The dependent variable is the logarithm of the income from work. The
values in the second row were obtained from a regression in which the dependent
variable is the logarithm of wages and the independent variable is a dummy
(formal/informal sector). The third row adds as independent variables, human
capital variables (education, experience, experience squared, sex and interaction
variables). The fourth row adds to the previous regression dummies for sector of
activity.
Source: Authors' own estimates based on 1990 and 1992 CASEN survey data.
consistent with figures showing a slight decrease in the size of the infor-
mal sector in recent years.
In sum, although the impression existed that - as in other Latin
American countries - the Chilean informal sector had played a buffer role
in recessions, the evidence supporting this hypothesis is weak and aggre-
gate figures show a stability in the size of the sector. In this sense our
results stress the structural character of the informal sector and indicate
that entry to (and exit from) this sector has been less fluid than expected.
Even though incomes in this sector are inferior to those in the formal
sector, the size of the differential is moderate, once differences in worker
characteristics are controlled for.
The changes in labour legislation and how they relate to the increased
macro flexibility that has been observed in the Chilean case are examined
Pilar Romaguera et al. 79
in more depth in this section. IS We first present a brief outline of labour
policies in the past two decades, then examine in more depth the cha-
racteristics of the labour market's regulatory framework.
The main way in which workers have access to training in Chile is through
a programme which encourages firms to demand training through a tax
allowance, the Company Programme. 26 The State's direct participation in
training activities is more secondary and supportive than productive in
nature. There is no tradition in Chile of a strong presence of other agencies
in the training system: unions have had little involvement and entre-
preneurs have been involved to a certain extent by means of their profes-
sional associations, but this has centred only on certain very specific
activity sectors, such as the metal and mechanical sector and in technical-
professional schools.
The characteristics of the Chilean training system are therefore strongly
influenced by the Company Programme. The system is decentralized and
general (its design is not focused on specific sectors or groups of workers,
although the practical result may be different). There is a strong private
sector presence in the definition, organization and running of specific
training initiatives. Market mechanisms are used, with the State's role
88 Chile
limited to encouraging and supervising such initiatives, and with a design
which ensures the relevance of the training provided.
The number and type of training programmes has expanded since 1990.
However, the main one (the young people's training programme), main-
tains the central characteristics of decentralization, maximization of
private sector participation and the use of market mechanisms, although
this programme is focused on specific groups and involves State action in
its setting up, supervision and financing. In this sense it is a social pro-
gramme, of innovative design, which seeks to increase efficiency through
market mechanisms.
Figures on coverage based on data from household surveys indicate that
11.6 per cent of those in work declare that they have participated in train-
ing programmes during the past 3 years. These figures might put Chile at
an intermediate level in terms of training coverage, compared with inter-
national figures, although this is a very indirect measurement and subject
to comparability problems (see DECD, 1991).
00
\0
\0
o
Source: SENCE.
Pilar Romaguera et aJ. 91
very low percentage of semi-skilled and unskilled workers; and it is con-
centrated in large companies and certain sectors such as administration,
marketing and services.
Re-training programmes, aimed at enabling a worker to transfer to
another sector of production or firm, ought to be most closely linked to the
topic of labour flexibility. In the case of Chile, despite having suffered
sectoral shocks and structural adjustment, there is only one instance of a
government re-training programme, namely the one implemented in the
coal mining area (VIII Region}.27
In 1992, given the total loss of competitiveness in the coal mining
sector as a result of its high costs of production, ~ subsidy was established
for workers who were or had been working in this sector, including
miners themselves and casual freelance coal gatherers (pirquineros). A
beneficiary population of between 3000 and 5000 workers was estimated.
A survey containing information up to August 1993 shows that only
38.6 per cent of worker participants found work after taking part in the
programme, and half of these did so in self-employment. The results
suggest that the programme basically converted independent workers in
the coalmining sector into independent workers in other sectors, without
managing to retrain the ex-employees of the coal mining company.
The experiences of the labour re-training programme in the coal indus-
try point out the difficulties in implementing this type of programme in
situations of urgency, while at the same time highlighting deficiencies in
its design and implementation. Despite its shortcomings, the implementa-
tion of the programme did provide experience in the management of
different instruments (bonuses) as well as defining a series of elements
which should be taken into account in future re-training programmes.
This section explores in greater depth the topic of labour input flexibility,
examining labour flexibility strategies at the firm level, how firms adapt to
changing market conditions and external competition. First, this analysis
will enable us to examine how certain components of labour flexibility,
which have been analyzed more generally in previous sections, translate to
the micro, or firm, level, namely mobility and wage and employment flex-
ibility. Secondly, the analysis of management strategies makes it possible
to integrate these different aspects at the firm level and deal more
adequately with one of the dimensions of labour flexibility which we
mentioned in the Introduction, namely flexibility in the labour input.
92 Chile
In order to make the concept of flexibility more workable at the level of
the firm, we have specified both the components of a flexible strategy and
the possible sources of rigidity, emphasizing four areas: employment poli-
cies, wage policies, training practices and the influence of the institutional
framework. These elements, together with elements pertaining specifically
to management, will finally enable us to define a typology of firms with
respect to the tissue oflabour flexibility.
The restructuring scenario, discussed earlier, and the current economic
climate place Chilean companies on a search path for new margins of
flexibility, both to reduce production costs and to enhance product quality.
The question to be answered is how business strategies are being adapted
so as to achieve greater efficiency, and how the restrictions on labour
issues (economic, institutional, cultural) are being overcome.
There are numerous Latin American studies of how firms are respond-
ing to adjustment and the new competitive conditions in markets which
are increasingly open to the rest of the world. These studies emphasize
three types of reaction, similar to those enumerated by Porter (1980): the
defensive strategy, the offensive strategy and the innovative, change-
anticipating strategy.
On the basis of these results, it is to be expected that Chilean firms, in-
creasingly integrated into the international market, should deploy more
offensive strategies, with greater concern for flexibility as an input for
systemic competitiveness, and not only as a short-term resort in response
to market difficulties. But one must also take into account, following
Humphrey (1993), that competitive pressures widen the gap between firms
due to the big differences that exist in technological and management
capacity, not only according to size, but also by type of ownership and
management style (family firm, multinational).
It is important to ask whether, with greater exposure to competition
and the demands of external markets, the 'idiosyncratic' (or unrational-
ized) model, which was a feature of the import-substitution phase, is
weakened (Katz, 1993), and if a shift towards world-\Yide best practices
is occurring (Humphrey, 1993). The latter could translate into organiza-
tional innovations leading to an increase in the flexibility of human
capital as well as yearly training plans, just-in-time production,
multi functionality (multipurpose workers), and total quality (greater
involvement of personnel).
In Chile there is scant evidence on the determinants of flexibility and
the forms it adopts in terms of employment, wages and work organiza-
tion inside the firm. The most recent studies have had a technological
focus.
Pilar Romaguera et al. 93
3.6.1 Methodology and Sample
Case studies were carried out, using a methodology which allows dealing
with a large number of issues in a reduced number of firms; although this
favours a descriptive approach which takes advantage of the richness of0
large number of variables, the representativeness of the conclusions is
limited, and the analysis should take this shortcoming into account.
A total of 21 companies were considered, belonging to a dynamic chain
of production in six productive sectors. The sectors (and numbers of firms)
selected were mining (5), wood and furniture (5), printing (5) and clothing
(4), and in each sector a survey was carried out of different sized firms:
small (5), medium (8) and large (8). As well as this, two control cases
were included: a tyre company known for its experience in applying
advanced flexibility techniques, and a supermarket chain, with the object
of having a reference to what is happening in the services sector. In each
of the selected firms, semi-structured interviews were carried out with the
Human Resources Manager, or else with the person in charge of personnel
management (General Manager, Production Manager or Head of Plant).
TYPE! Stable Paternalistic Labour Basic 'On the Small Social Furniture (1)
workforce hierarchical presence wage job' scale benefits,
Traditional control as a + relations Graphics (2)
hierarchical Low rigidity bonus Worker Product of confidence Clothing (3)
finn degree of career mix
sub-contracting
TYPE II High Lack of Conflic- Over Training Reduced Technification Furniture (2)
turnover coherence tive or time product of
Transitional non- mix management Graphics (1)
finn existent
labour Mining (3)
relations
\0
\0
0
0
TYPE III Low Rationalized Regulated Fixed Internal Quality Internal Mining (2)
turnover management collective wage training control promotion
Partially bargaining Graphics (2)
flexible Outsourcing Apprentice
firm of services ships Clothing (1)
Tyres (1)
TYPE IV Out-sourcing Worker Alternative Incentive Training Total Emphasis Mining (1)
of participation systems plans quality on
Firm services selection Supermarket (1)
consolidated Career and
in Career plans training Furniture (1)
flexible structure
systems Assessment
of
F acili tating performance
leaders
Pilar Romaguera et al. 101
high pace of growth in the past 5 years and which have modernized as
they have gone along, or they are recent firms which started with state-of-
the-art technology and more rationalized management methods, oriented
from the start towards an export market niche.
The most advanced firms as regards the implementation of flexibility
strategies are those where human resource management is highly profes-
sionalized and incorporates world-wide best practices (Type IV). In some
cases there is an external referent as they are subsidiaries of foreign com-
panies or joint ventures, and thus evaluated by international standards.
3.6.4 Comments
The results of this investigation highlight the fact that the biggest source of
rigidity seen among firms in the industrial sector is found neither in the
legislation nor in the labour market, but rather in backwardness in the
areas of administration and human resources planning inside each firm.
Although there is a trend towards professionalization both in management
functions and in staff administration, the firms are not very concerned
about the issue of human resource flexibility.
In general the firms analyzed seem to be very effective in the areas of pro-
duction engineering and marketing, but not so in terms of the processes in-
ternal to the firm (human resources, process re-engineering, etc.). With the
exception of the big companies, efforts to introduce new forms of work
organization do not figure in the plans of the small and medium-sized firm.
The results of this study also tend to confirm a certain technological
development or path in the firms, which begins when the market opens up
to competition, the moment in which the firm adjusts or 'rationalizes' in a
defensive way. When the firm starts to operate in export markets, it needs
to improve its higher level entrepreneurial capacities (marketing, finance);
this is the time when owners accept a delegation of functions to their chil-
dren or relations with higher education. Then comes technological upgrad-
ing in machinery and equipment, when pressure is on product quality,
Lastly, success in expanding markets begins to exhaust itself and a search
for internal flexibility through organizational changes begins; this final
phase still appears to be in very early stage in Chilean industry.
(1) Clothing 650 0 520 Yes Yes Sub-contracting External Scarcity of skilled Stable
(national capita\) of operations training workers
Sub-contracting Bonuses for Legislation on
of services meeting targets female work
5% turnover
(2) Clothing 125 0 80 Yes Yes Sub-contracting External Scarcity of skilled Contraction
(national capital) of operations training workers
Sub-contracting Production
of services bonuses
16% turnover
(3) Clothing 45 6 29 No No Sub-contracting Production Scarcity of skilled Stable
(national capital) of operations bonuses workers
4% turnover Punctuality Scarcity
bonuses of professionals
(4) Clothing 530 230 Yes Yes Sub-contracting Internal training Scarcity of skilled Stable
(national capital) of operations External training workers
Sub-contracting
of services
6% turnover 0
-
VI
Productive Employment Unions Personnel Flexibility mechanisms Sources of Expectations
o
a..
sector department rigidity of
employment
Total Seasonal Women
I I Quantitative I Qualitativ~ growth
0
-
-..I
Productive Employment Unions Personnel Flexibility mechanisms Sources of Expectations
o
00
sector department rigidity of
employment
Totall seasonali Women Quantitative 1 Qualitative growth
References
4.1 INTRODUCTION
113
114 Mexico
defined in terms of the degree to which the labour market is responsive to
changing demand and supply conditions, the Mexican case is quite flexible
if we look at the rate of unemployment, which has remained extremely
low in spite of the dramatic shocks that occurred in the economy in the
period 1982-94. As we will see later, this does not mean that flexibiliz-
ation has not taken place in the Mexican labour market: the problem is that
one has to look at the apparently rigid regulation of the labour relations
system and see how it allows for some flexibility that does not appear to
take place if one looks at the quantitative indicators. This is what we will
do when addressing the Mexican institutional system later in this chapter.
The same problem occurs when we consider the other element, labour
input flexibility, which is related to the degree of flexibility of the human-
capital endowment of workers and the potential rate of growth of labour
productivity. When we look at the training system we wi\1 see that, in spite
of having made many efforts to support economic restructuring, it still
only plays a limited role.
The question of how labour flexibility impacts on productivity is also
problematic, because even if the presence of a political will to promote the
latter has been present since 1992,3 its expression in concrete agreements
has been restricted to a very few companies. Productivity payments,
instead of reflecting real events in the production sphere, have been
granted from above through decisions made at the Ministry of Labour and
not through collective bargaining. 4 Productivity increases do not have a
link to the remuneration of work and derive more from the decrease in the
unit labour cost than from any flexibilization policy (see the PRO and
ULC columns in Table 4.1). In another instance of Mexican specificity,
there have been no efforts to establish real links between wages and labour
productivity, with the notable exceptions mentioned in n. 4.
We can conclude that the relation between labour flexibility and produc-
tivity is not governed by the economics of the firm. It is an understatement
to say that market possibilities and constraints, the way in which entre-
preneurs relate to their workers, the dynamics of unemployment or of real
wages or hours effectively worked, the structure of collective contracts
and the logic of strike activity are very distant from any economic calcula-
tion and much closer to links of a political nature, in the business, union
and governmental sectors (Zapata, 1995).
The explanation for these difficulties will be the keynote of this study
and will be addressed through the consideration of the process undergone
by Mexico in the period 1982-94. Section 4.2 focuses on the impacts of
the adjustment process and economic restructuring upon the labour market
arid productivity. Section 4.3 discusses the institutional determinants of
Table 4.1 Mexico: macroeconomic and labour force indicators, 1980-93
Year GDP GDP Open unemployment % lnjla- Min. Median PRO ULC
growth % per capita Men Women Total tion % wage wage (1980 = 100)
growth
Source: GDP and GDP per capita: Inter-American Development Bank, Social Progress in Latin America, Washington, (1993); Open
unemployment (men, women and total): INEG!, Cuadernos de informacion oportuna, Mexico (1985,1989,1993, 1994); minimum
wage and median wage growth in %: Comisi6n Econ6mica para America Latina, Balance de La EconomEa Latinoamericana (all
years since 1980). PRO (productivity in manufacturing) and ULC (unit labour cost): INEG!, lndicadores de La competitividad de La
economEa mexicana, 5 (1994).
VI
-
116 Mexico
labour legislation that have affected and continue to affect the dynamics of
this market; Section 4.4 considers training as a policy directed towards
flexibilization. We will conclude (Section 4.5) with some considerations
on the general questions addressed in this study with regard to the
Mexican situation.
N
122 Mexico
Table 4.6 Mexico: employment according to size of company, by sector,
1980-8, %.
Manufacturing
1-5 4.7 7.7 9.4
6-50 15.4 15.8 16.6
51-250 25.4 24.6 24.7
251 and over 54.5 51.9 49.3
Retail sales
1-5 25.0 21.1 21.7
6-50 28.8 26.8 28.1
51-250 23.4 29.1 29.3
251 and over 22.8 23.0 20.9
Services
1-5 25.5 21.1 19.8
6-50 26.4 22.3 23.2
51-250 20.3 25.4 26.1
251 and over 27.7 31.2 30.9
tion stagnated: indeed, when there are fewer blue and white collar
workers, there will inevitably be fewer unionized workers, especially
if the legal framework for the constitution of unions remains the
same. Let us examine these propositions in detail.
Note: Both series of employed and total population are estimates based on data for census years. IMSS data include both permanent
and temporal employees insured as of December of each year.
Source: Columns (1)-(2): Carlos Salinas de Gortari, Tercer lnforme de Gobierno, Statistical annex, Poder Ejecutivo Federal (1991);
Column (3) & (5). INEGI, Cuadernos de informacion oportuna, Mexico (March 1994). eols (4), (6) and (7): author's calculations.
.-
tv
U\
126 Mexico
Enterprise or sector
The Mexican labour relations system has direct effects upon the form and
degree of adaptation of the capital-labour link to the changes experienced
130 Mexico
Employment Stability
The implementation of diverse forms of labour flexibility - employment,
salary, technical and organizational, temporal- depends on the degrees of
freedom allowed to business to manage institutional rules (legal and con-
tractual) relative to the hiring and use of the labour force. Employment
flexibility consists in the adaptation of the volume of work to the needs of
Francisco Zapata 133
the company in response to cyclical or structural variations of demand or
to technological changes. Its obvious consequence is the uncertainty it
creates for the worker with respect to the unstable character of employ-
ment. To limit this uncertainty, Mexican legislation proposes to guarantee
the worker stability in his job while work is available, introducing two
restrictions, one relative to working time (duration) and the other relative
to the legal rules that regulate the forms in which a layoff can take place,
where a justification has to be established. This form of regulation can be
considered as 'rigid' because it restricts the freedom to hire. Nevertheless,
the freedom of action on the part of business can be higher or lower de-
pending on how the laws are interpreted and depending on union pressure
for enforcement. In matters of layoffs, the present law allows for the exist-
ence of 14 specific causes and one general cause that can permit employ-
ers to legally fire a worker without responsibility for the company (Article
47 of the LFf). In addition, a layoff can be decided upon unilaterally by
the employer. Confronted with an unjustified layoff, a worker has the right
to opt for reinstallation instead of compensation but employers can also
opt not to do so in certain cases (Article 49). The law does not allow for
layoffs due to economic or technological events in the company, and in
this case readjustments of personnel can be decided by an agreement
between the union and the company. I I
This way of protecting employment stability has become very
inefficient. The tripartite integration and the dependency of labour tri-
bunals upon the executive allowed governments to implement policies
geared towards the flexibilization of the volume and quality of employ-
ment. The subordination and complicity of union leaders also contributed
to this. This is the way in which the apparent rigidity of the legal frame-
work can be superseded by practice.
Severance Pay
In Mexico, there is no unemployment insurance. However, there is an sev-
erance pay policy where workers can be compensated for the involuntary
loss of employment and at the same time employers are discourage from
using this mechanism when facing market turbulence. Workers laid off
without cause must receive 3 monthly salaries plus a seniority bonus, in
addition to the proportional vacation and yearly bonus. In cases where
there is a collective layoff, severance pay limited to the 3 salaries in addi-
tion to the seniority bonus. The high number of workers who lost their
jobs between 1982 and 1994, as a consequence of plant closure, economic
restructuring or privatization, indicates that this legal regime did not
134 Mexico
become obsolete. Layoffs and severance payments were facilitated by
business strategies centred upon the reduction of employment, without
need to reform the legal or contractual amounts.
Conditions of Work
The legal regime concerning conditions of work contains a series of
restrictions which limit the flexibility of salary, working time, technologi-
calor organizational flexibility. The law establishes minimum conditions
of work that cannot be renounced by the people involved nor by the labour
authority (Article 51). This is the reason why collective contracts can go
beyond minimum legal levels of protection. Given that legal protection is
practically non-existent in some specific areas, it is within collective con-
tracts that restrictions are implanted. The flexibilization strategy of the last
10 years had therefore to face the fact that the law was clear with respect to
the fact that collective contracts had to respect legal minimum requirements.
However many loopholes were found, such as the straight elimination of
contractual clauses, rewriting of clauses resulting in neutralization of their
purposes, 'offers to 'buy' some clauses with special one time payments, etc.
Salary Flexibility
This dimension of labour flexibility is understood as the adaptation of
salaries to cyclical fluctuations (inflation and productivity) and to external
shocks (terms of trade) and their variation as a function of the behaviour
of the company. In spite of the fact that existing minimum wages tend to
guarantee an adequate salary for the needs of reproduction of the labour
force, in recent years they have tended to become an instrument of adjust-
ment policies and of the economic integration to Canada and the USA
derived from the approval of the North American Free Trade Agreement
(NAFTA). This latter strategy made it imperative for the State to inter-
vene much more in this field. It is precisely because of this heightened in-
tervention by the State, and because of the strong imbalance between the
negotiating capacity of social actors, that real salaries have tended to
decrease, dramatically in the case of minimum wages (see Table 4.10).
But this has also taken place because the union leadership has opted for
the maintenance of its privileges in exchange for the imposition of the
policy of the Ministry of Labour upon working conditions. 12
When at the same time that a group of manufacturing plants becomes au-
tomated, the general offices of a great variety of companies increase the
use of personal computers, in part because of low cost and also because of
simplicity in gathering and registering new information. The increase of
the domestic market also favours the local production of personal com-
puters. The increase in production of personal computers in Mexico has
been important, but the manufacturing of machinery and industrial
equipment based on microelectronics has nevertheless stagnated at low
levels because buyers prefer to import more reliable equipment despite
their higher prices. Some industrial companies opted to transform their own
machines by using robotics. Until now, there has been fast growth of
industries with forward linkages from microelectronics, in contrast with
140 Mexico
industries that manufacture components and capital goods assisted by
computers.
Enterprises are required by law to provide training. For this purpose there
is a system of committees at various levels, either tripartite or bipartite,
and some consulting services provided by the State. In addition, the State
Francisco Zapata 141
offers the services of training and technological studies. Training and
industrial technical education is organized around a National System
of Education and Technology, dependent upon the Subsecretarfa de
Educacion e Investigacion Technol6gica, or SEIT (directed by the
Assistant Minister of Education and Technological Research). SEIT
groups 10 public institutions that provide technical education at middle
and higher levels, in~luding postgraduate education.
This middle level technical education system produces professional
technicians and technologists who can obtain middle level jobs in the
productive sector, thus linking management to workers. For these inter-
mediate levels there is also the option to continue with higher education,
in engineering careers, for example, or to integrate themselves directly to
the production the process.
With regard to training for work, the government created the Sistema
Nacional de Capacitacion y Adiestramiento (National System of Training
and Skilling), that focused on the active participation of workers and em-
ployers in the formation, development and reskiIling of the workforce
within training centres. The structure of the system discards the idea of
scholarly and formal training because this would involve the separation
between the system and the real needs of the productive apparatus.
Training has been conceived as a participative process in the overaIl
formation of the worker.
In face of the need to expand the training programmes in a context of
productive restructuring and adoption of technological innovations, the
Ministry of Labour created, in 1984 a scholarship programme for training
for work (Programa de Becas de Capacitaci6n para el Trabajo or
PROBECAT) geared towards workers aged between 20 and 55 years who
had lost their jobs. 14 Recently, the package designed to face the crisis
opened in December 1994 as a result of devaluation reinforced this pro-
gramme to facilitate the reaIlocation of unemployed persons. Through this
mechanism, the State is trying to ensure that the training courses upgrade
the capabilities and skills of the unemployed, at the same time as pro-
viding them with a temporary income, equal to the minimum wage.
Training is thus linked to activities that present better chances of recovery
in the short and medium term.
In the last 10 years, companies have had to train or re-train workers within
an increasingly competitive environment, where technological innovation
is more and more crucial. How have training strategies contributed to the
adjustment of companies to these challenges? Many companies have
created their own tr!lining centres, making a serious effort to train human
resources according to their needs. These private centres are part of large
conglomerates that provide services for the specific companies involved.
The companies contribute to the operation of the centres but they can
make their opinion felt concerning teaching methods, programme content
and teachers. The board of directors of these conglomerates require results
and decide what are the priorities in terms of knowledge to be taught.
Important cases where this type of facilities exist are the VITRO con-
glomerate in the city of Monterrey, SPICER, FORD, NISSAN and many
of the in-bond factories (maquiladoras) in the northern border of Mexico.
Also, Mexicana de A viaci6n (one of the two national airlines of Mexico)
and Telefonos de Mexico (TELMEX) have engaged in intense private
training programmes (Arena, 1994).
In 1991, TELMEX created the Instituto Tecnol6gico of Telefonos de
Mexico (Technological Institute of Telefonos de Mexico) where all
training activities of the company were concentrated. Between 1991 and
1992, the number of trainees doubled, each trainee took on average 9.4
courses.
These conglomerates have created apprenticeship schools and also
training centres geared towards new production techniques. Training is
also provided in organizational techniques as well as total quality
control (TQc) and just-in-time methods. They have also developed
training in computer assisted manufacture (CAM) and programmes
related to expanding the range of skills that workers can exercise in their
jobs (polyvalence). Some of them, especially the transnational compa-
nies, send some workers to be trained in their main offices in the USA
or Japan.
A large proportion of the manpower of these companies has undergone
training: for example, 25 per cent of the workforce of the Hermosillo plant
of the Ford Motor Company-Mexico has been trained in Japan or Spain
and every year this number grows (Covarrubias and Grijalva, 1994). The
nature of the productive process in these plants, highly automated, some-
times using robots, means that, in Ford, more than 78 per cent of the total
workforce is either semi- or fully skilled. Therefore, the new plants of
these companies have a workforce whose training levels are very high
144 Mexico
right from the start, a stark contrast to the manpower of the old plants of
these same companies in the country. This means that training is part of
the overall planning of the implementation of the new projects.
Cases such as NISSAN-Aguascalientes (a plant inaugurated in 1993)
are very good examples of this new facet of industrial expansion. A kind
of 'philosophy of collective production' has been developed, centred
around values such as honesty, respect, reciprocity, collaboration and
openness. These values are translated into specific objectives in production
terms such as work quality, responsibility, manual skill, productivity,
flexibility, capacity to participate in groups, care with regard to materials,
cleanliness of shops and production areas, hygiene, zero mistakes, statisti-
cal control of processes, etc. Personal evaluation is related to the type and
amount of remuneration and to promotion systems despite the fact that
polyvalence is given priority.
On the other hand, organizational innovations have contributed to the
achievement of high levels of productivity and quality. The fact that these
values become a part of the overall planning of production processes has
involved a new view about the role of manpower. Thus, managers have
had to learn new ways to involve themselves with the people with whom
they work. Supervisors, superintendents, middle level managers and
general line bosses have had to learn about the ways in which techno-
logical innovation can be incorporated into the normal operation of the
productive process. The results have been highly positive: a substantial re-
duction in defective products has taken place, and higher degrees of
control of productive contingencies. The changes in recruitment practices
and the formation of human resources means that people have higher
educational levels as well as higher formal training when they begin their
productive life. Initiative, responsibility and self-evaluation of quality
become a part of working life.
4.5 CONCLUSION
Notes
References
5.1 INTRODUCTION
151
152 Canada
smaller domestic market, they were often inefficient small-scale plants. As
such, they are undergoing substantial restructuring as Canada is now faced
with more global competition and trade liberalization, especially under the
Canada-US Free Trade Agreement (CAFTA) and the subsequent North
American Free Trade Agreement (NAFTA) that also includes Mexico.
Even within Canada there is considerable variation in the institutions
and policies across the different provincial jurisdictions, given that much
of the legislation in the labour area is provincial. Specifically, legislation
governing collective bargaining, employment standards, human rights,
workers' compensation and occupational health and safety is mainly
provincial, while unemployment insurance, social assistance (welfare) and
training are mainly federal, often with substantial provincial involvement
in administration and sometimes funding.
The Canadian experience with labour flexibility is outlined in four
major sections. Section 5.2 deals with background issues, emphasizing the
impact of the macroeconomic environment on labour market flexibility
and adjustment, and the feedback effects from labour market flexibility to
macroeconomic performance. Section 5.3 deals with wage structures and
mobility, including issues of wage polarization, public sector wages, geo-
graphic mobility and barriers to the internal mobility of labour. Section 5.4
deals with various institutional dimensions of the Canadian labour market:
unions, legislation and government policies and programmes. Section 5.5
deals with the issue of skills, focusing on human-capital formation at the
economy-wide level, and human resource and workplace practices at 'the
enterprise level. Section 5.6 contains brief conclusions.
100 , - - - - - - - - - - - - - - - - - - - ,
95 - - - - - - - - - -
~ 90
t;!< 85 t:-- ___________ _
';;' 80 - - - - - - - - - - __
f:l 75 - - 15-24
§ 70
·c 65 - - - - 25-44
II 60 - - - - 45...{i4
:Q 55
~ 50
0... 45
40
(a) 35 +-+-+-+-+-~~~~~~~_4_4_+_+_+-4
1975 77 79 81 83 85 87 89 91 93
Year
100 .-----------------------------------~
95
~ 90
t;!< 85
';;' 80
f:l 75
a 70 - - 15-24
.g 65 - - - - 25-44
1160
--- _----r-
- - - - 45...{i4
:Q 55
~ 50 ____ ~
~ 45 _--------
40 1-----
(b) 35 +-+-+-~~~~~~~~~~~~~~~~
1975 77 79 81 83 85 87 89 91 93
Year
Source: CANS 1M database.
154 Canada
created adjustment problems of youth unemployment when they first
entered the labour market. They are now creating problems of blocked
promotion opportunities and skill obsolescence. Soon they will create
adjustment problems associated with retirement and pension issues.
Earlier retirement is becoming increasingly common, especially for males
aged 55-65, many of whom have been displaced from their regular job.
Immigration continues in large numbers, but with increasing difficulty in
assimilating into the labour market. As a result of many of these changes,
the Canadian labour force is becoming increasingly diverse especially
with respect to ethnicity and gender.
The Canadian labour market also continues to be subject to numerous
interrelated changes emanating from the demand side. Since the demand
for labour is derived from the demand for the firm's output, then pressures
that firms have been facing to be flexible and adaptable have been trans-
mitted to the labour market in the form of demands for a flexible and
adaptable workforce. Global competition has been paramount, especially
from low wage Newly Industrialized Countries (NICS). Trade liberaliza-
tion is occurring, recently associated with CAPrA and NAFTA. Further
extensions to South America, Central America and the Caribbean Basin
are being contemplated. Technological change has been dramatic, espe-
cially in the area of computers. Industrial restructuring has occurred, espe-
cially from middle wage, bluecollar manufacturing jobs to service jobs at
the polar extremes of the wage distribution: high wage 'knowledge-based'
managerial, administrative, professional and financial jobs on the one
hand; low wage personal service jobs on the other hand (Figure 5.2).
Deregulation and privatization have been common, subjecting employers
and their work forces to the pressures of greater competition. Associated
with these changes is an increase in the use of 'contingent workforces'
often involving precarious employment in various forms: sub-contracting;
limited duration contracts; permanent part-time work; on-call workers; and
temporary help agencies (Figure 5.3). These reflect the uncertainty of the
demand changes, as well as a desire to avoid the regulations that are
increasingly placed on the regular workforce.
From a labour market perspective, a key macroeconomic feature of
the environment is the legacy of two recent pronounced recessions
(Figure 5.4). The recession of 1981-2 was the most severe since the Great
Depression of the 1930s. The recession of 1990-2 was less severe, but
longer. Both left the economy with levels of unemployment that appear to
be ratcheted upwards from previous levels, raising the spectre of
permanently higher levels of structural unemployment (see Figure 5.4 and
Table 5.1). In addition, there have been unusually large amounts of under-
Michael Baker, Morley Gunderson and Susan Horton 155
Figure 5.2 Canada: composition of non-agricultural employment. 1975-93
%
100no~-n-nrnrrrrrnrrrrrrrrrrrT"rTrTrTrT~
90
80
70 OPublie admin.
.CBPS
60 IDFIRE
50
'Trade
40 III Manufacturing
30 ·Olher
20
10
O~~~~~~~~~~~~~~~~~~~
1975 77 79 81 83 85 87 89 91 93
Year
%
100
90
80
70 • Part-lime
employment
60 C1Full-time
50 employment
40
30
20
10
o
1975 77 79 81 83 85 87 89 91 93
Year
Note: Decomposition is for non-agricultural employment.
SOl/fce : CANS 1M database.
24 ,-------------------------------------,
~ 22
~ 20
'i 18
e 16
E 14
E 10
I.,-------
12 /"--
S /'
-a. 8 ' , , , , , , , -::--.. - ----: . ' "
~
_ _ _ _ I
6
------_ ..
:5 4
2
o +_+_;-;--r-r-+-+~~~r_r_r_r_r_+_+_+_4
1975 77 79 81 83 85 87 89 91 93
(a) Year
24 ,-------------------------------------,
~ 22
~ 20
~ 18
e 16
---
c 14
E
S
-a.
~
12
10
8
6
-_/' ---------"""' -_--
..
:5 4
o2 +_+_+-;--r-r-+-+~~~~r_r_r_r_r_+_+_4
1975 77 79 81 83 85 87 89 91 93
(b)
Year
Males Females
Notes: All statistics for population ages 16-64. Observations for Prince Edward
Island and the Yukon and Northwest Territories have been excluded. All currency
in 1985 dollars. Full year full-time workers work 40 weeks or more in the
reference year in (mostly) full-time non-agricultural employment at positive
wages.
Source: Canadian Censuses (1981, 1986, 1991).
myriad of other interrelated changes that occurred at the same time. This
is especially the case because much of the dynamic restructuring that
occurred was designed to enable firms to be more competitive in the
global economy and to attract capital. The same applies to many of the
macroeconomic and other policy initiatives pursued by governments.
In part reflecting this difficulty, there have been few studies that have
attempted to directly measure the wage and employment impact of trade
liberalization like the CAFTA and NAFTA. The limited evidence2 avail-
able suggests that the short-run wage and employment impacts on Canada
are likely to be small. In the longer run, given the higher labour cost in
Canada, there should be a shift to higher value-added production. Labour
market flexibility will obviously be important in that transition.
158 Canada
Figure 5.5 Canada: average real manufacturing wage and minimum wage,
1975-93
13
12 ~-----------------------------.
~---- _ _- ______
II
\0
~ 9
--- Real
~ 8
manufacturing wage
"" 7 - - - Real
6
5 minimum wage
4
3+-t-+-+-l--+--+-+-lc-+-+-+--+-t-+-+-l-+-l
1975 77 79 81 83 85 87 89 91 93
Year
Note: The average hourly manufacturing wage includes overtime; the minimum
wage is an employment weighted average of provincial minimum wages each year
deflated by the CPI.
Sources: Manufacturing age; Statistics Canada; minimum wage: CCH Canadian
Ltd (1975-93), Labour Canada (1976-87 and 1989-93) and CANSIM database.
Table 5.2 Canada: changes in the distribution of males' log weekly wages,
1980--90
Note: All calculations are for full year full-time non-agricultural workers (see
notes to Table 5.1). Regression residuals are from regressions of the log weekly
wage on controls for four education groups, seven experience groups and
province. High school graduates have no post-secondary study.
Source: Canadian Censuses (1981, 1986, 1990).
160 Canada
Table 5.3 Canada: full year full-time non-agricultural employment and weekly
earnings, by industry, 1980-90
Employment Average
weekly earnings ($)
Males
Primary 0.04 0.04 0.D3 721 741 736
Manufacturing 0.28 0.27 0.23 572 584 583
Construction 0.07 0.06 0.07 604 536 562
Transportation 0.Q7 0.07 0.07 589 579 585
Communications and 0.05 0.05 0.05 665 700 686
utilities
Wholesale trade 0.06 0.06 0.06 563 542 573
Retail trade 0.09 0.09 0.09 481 457 455
FIRE 0.04 0.04 0.05 715 709 696
Education 0.06 0.06 0.06 694 630 645
Health 0.03 0.D3 0.03 515 702 715
Business services 0.03 0.04 0.05 644 542 570
Accommodation, food 0.02 0.03 0.03 375 348 338
and beverage
Miscellaneous services 0.03 0.03 0.04 512 460 477
Government services 0.11 0.10 0.11 638 637 656
Unspecified 0.02 0.02 0.03 480 459 500
Females
Primary om 0.01 0.01 449 461 512
Manufacturing 0.16 0.15 0.12 334 344 371
Construction 0.01 0.01 0.01 376 334 360
Transportation 0.02 0.D3 0.03 394 394 401
Communications and utilities 0.04 0.04 0.03 431 488 482
Wholesale trade 0.04 0.04 0.03 156 348 379
Retail trade 0.10 0.09 0.10 302 291 305
FIRE 0.11 0.11 0.10 371 387 417
Education 0.11 0.10 0.11 519 390 426
Health 0.15 0.15 0.16 413 530 537
Business services 0.04 0.05 0.06 376 419 431
Accommodation, food and 0.05 0.05 0.05 245 238 244
beverage
Miscellaneous services 0.04 0.05 0.05 280 282 291
Government services 0.08 0.09 0.09 426 453 486
Unspecified 0.02 0.03 0.D3 351 323 345
Note: See notes to Table 5.1. FIRE is finance, insurance and real estate.
Employment data are the fraction in each industry.
Source: Canadian Censuses (1981, 1986, 1991).
Michael Baker, Morley Gunderson and Susan Horton 161
on earnings is mixed, since while average compensation is higher in busi-
ness services than manufacturing, it is lower in miscellaneous services.
For men, however, the effect is a decline in earnings, since in 1985 and
1990 both service sectors had lower average compensation than manufac-
turing. Table 5.4 provides clearer evidence of a decline in earnings for
both sexes, since earnings in both business and miscel1aneous services are
lower than in manufacturing, after controlling for the effect of observable
individual characteristics of workers. Therefore the trend out of manufac-
turing into service industries might be interpreted as 'bad' jobs replacing
'good' ones. The simulations of average log weekly earnings in Table 5.5
using historical measures of the industrial co~position of employment
provide some evidence of this trend over the 1980s.
The empirical evidence indicates that wage polarization has increased in
Canada (Table 5.2), but that the increase has not been as great as that
which occurred in the USA.3 The smal1er increase in polarization in
Canada probably reflects such factors as the greater increase in the supply
of higher educated persons keeping returns to education and pay at the
higher end of the occupational wage structure from rising rapidly
(Freeman and Needles, 1993) as wel1 as the greater degree of unionization
in Canada and the fact that unions tend to compress wage structures
(Lemieux, 1993). Interestingly, despite this difference, Kuhn and Robb
(1995) report that trends in weeks worked by individuals at different wage
declies are similar in the two countries: decreases in weeks worked and in-
creases in unemployment have been concentrated among the less skilled.
Empirical evidence (see Gunderson and Riddell, 1991 and Table 5.6) on
public-private compensation differences in Canada suggests the following
generalizations: (1) Public sector wage rents tend to prevail, being in the
neighbourhood of 10-13 per cent above private sector pay. (2) The premi-
ums are highest for women and low wage workers, highlighting a basic
policy dilemma in that curbing such wages will have a disproportionate
adverse effect on workers who are already relatively disadvantaged.
(3) Fringe benefit advantages are likely even greater, suggesting that the
total compensation premium is slightly higher than the wage premium.
(4) The pure premium is decreasing somewhat (for males) in recent years
in response to political pressure for public sector restraint and retrench-
ment. (5) There is often considerable volatility in public sector settle-
ments, with unusual large settlements in some years which tend to
162 Canada
Table 5.4 Canada: % deviation of the average weekly earnings in each industry
from the average for manufacturing (log weekly earnings
differential): full year full-time workers,
Canada 1980-90
Males Females
Note: See notes to Table 5.1. Differentials from regressions of log weekly wages
on education, experience (quadratic) and controls for marital status, urban area,
occupation, province and industry. The excluded industry is manufacturing.
Standard errors are in brackets.
Source: Canadian Censuses (1981, 1986, 1991).
dissipate over time. (6) The union wage premium itself is smaller in the
public sector compared to the private sector but proportionately more
workers in the public sector are unionized and therefore receive that
premium. Overall, unionization contributes to the public sector rent, but
Michael Baker, Morley Gunderson and Susan Horton 163
Table 5.5 Canada: simulations of changes in average log weekly earnings
related to changes in the distribution of employment
across industries, 1980-90
Males Females
Note: Results are for full year full-time workers. Predicted weekly earnings in
each year are the product of the current year's parameters and the current year's
mean values of the regressors, except for industrial composition where noted. The
values, therefore, give the predicted log weekly earnings that would have prevailed
had the industrial composition of the workforce stayed the same as in the specified
year. The regressions are described in the notes to Table 5.5. The standard errors for
the predicted log weekly wages are uniformly small (0.006 or less).
SOUfce: Canadian Censuses (1981, 1986, 1991).
Table 5.6 Canada: employment and weekly earnings and the private and public
sectors, 1985-90
Males Females
Note: Log earnings differentials are from regressions of weekly wages on four
dummy variables for education, age (quadratic) and controls for marital status,
urban area, occupation, province, industry and sector. Note the definition of
education and the occupational and industrial classifications differ from those
available in the Canadian censuses.
Soufce: Survey of Consumer Finances (1986, 1991) Statistics Canada (1986, 1991).
164 Canada
through a higher degree of unionization receiving a smaller union wage
premium.
Table 5.7 Canada: male-female log weekly earnings differential. full year
full-time workers, 1980-90
Table 5.8 Canada: full year full-time non-agricultural employment and weekly
earnings, by province, 198{}-90
Males
Newfoundland 0.02 0.01 0.01 $540 $535 $543
Nova Scotia 0.03 0.03 0.03 507 512 518
New Brunswick 0.02 0.02 0.02 517 530 528
Quebec 0.26 0.25 0.26 564 553 554
Ontario 0.39 0.41 0.40 593 602 620
Manitoba 0.04 0.04 0.04 540 547 530
Saskatchewan 0.03 0.03 0.03 569 547 528
Alberta 0.10 0.09 0.10 654 635 604
British Columbia 0.12 0.11 0.12 657 617 621
Females
Newfoundland 0.01 0.02 0.01 232 344 369
Nova Scotia 0.03 0.03 0.03 333 363 352
New Brunswick 0.02 0.02 0.02 313 355 369
Quebec 0.26 0.25 0.25 383 371 388
Ontario 0.40 0.42 0.41 373 390 433
Manitoba 0.04 0.04 0.04 338 363 365
Saskatchewan 0.03 0.03 0.03 369 376 359
Alberta 0.10 0.10 0.09 387 409 393
British Columbia 0.11 0.10 0.11 412 405 396
Males Females
Note: The regression specification is described in the notes to Table 5.5. The
excluded province is Ontario.
Source: Canadian Censuses (1981,1986,1991).
Note: Column (1) is average annual net outmigration as a percentage of population for the period 1975-93. All regressions also
include a quadratic trend.
Source: CANSIM database and Statistics Canada.
Michael Baker, Morley Gunderson and Susan Horton 169
Figures 5.6 and 5.7 we examine the industrial and occupational mobility
of labour in Canada in the 1970s and 1980s. The measure of mobility is
the Index of Structural Change (ISC) used in AJlen and Freeman's chapter
8 in this volume, and the figures are comparable to those in the US study.
At I year intervals, the ISC for industries is slightly larger in Canada than
in the USA. For the period 1980-92 the mean for Canada is 1.08 com-
pared to 0.87 for the USA. It is difficult to determine whether this indi-
cates that the Canadian market is more flexible, however, since Canada
Figure 5.6 Canada: Index of Structural Change (lSC) for industries, 1971-93
and 1975-93
4.5
4
3.5 ,,
,, .. - ... I
--- I year intervals
3 \ - .. I
2.5
- - - 5 year intervals
2
1.5
I
0.5
o ~-+~~~~+-~-r+-~-r+-~-r+-~
1971 73 75 77 79 81 83 85 87 89 91 93
Year
Note: The ISC is one-half the sum of the absolute values of the 1 or 5 year differ-
ences in the employment shares by industry multiplied by 100; the employment
data are for nine one-digit industries.
Source: CANSIM database.
Figure 5.7 Canada: Index of Structural Change (ISC) for occupations, 1977-93
and 1981-93
6 .---------------------------------~
5.5
5
4.5
4
3.5 --- I year intervals
3
2.5
\ --.
2 - - - 5 year intervals
1.5
I
0.5
o +_4_~~_+_+_+_+~--~~+_+_+_4_~~
1977 79 81 83 85 87 89 91 93
Year
Note: The ISC is one-half the sum of the absolute values of the I or 5 year differ-
ences in the employment shares by occupation multiplied by 100; the employment
data are for nine one-digit occupations.
Source: CANSIM database.
170 Canada
has a more open economy and therefore is likely to experience larger
shocks than the USA. Likewise, while the ISC for occupations is again
higher in Canada (1 year intervals 1980-93 means: Canada 1.19, USA
0.75) this may be due to the fact that greater adjustment was required.
5.4.1 Unions
5.4.2 Legislation
There is general recognition that high wage countries like Canada will
have to compete on the basis of higher value-added production, often em-
phasizing specialized market niches and quality products. Furthermore,
human resources will be an increasingly important source of comparative
advantage, as other sources such as land, primary resources, low wage
labour and financial capital are increasingly available on a global basis.
Location advantages and technology are also becoming less important in a
world of reduced transportation and communications cost and easy tech-
nology transfer. For these various reasons, investment in human resources
takes on increased importance for competitive survival. This is true with
respect to education, government supported training, and the human
resource practices of firms at the enterprise level. 10
Michael Baker, Morley Gunderson and Susan Horton 177
5.5.1 Education
5.5.2 Training
Notes
I. The real manufacturing wage in the USA declined over this period.
Minimum wages relative to average (manufacturing) wages followed
roughly similar paths in the two countries.
2. Gaston and Tretler (1994) estimate that the tariff reductions in CAFf A
should lead to short-run losses of 3.4 per cent in employment and 0.2 per
cent in wages. Fung and Huizinga (1991) estimate that the combined tariff
barrier and NTB reductions would lead to union wage reductions of about
2.5 per cent, but increase in non-union wages of 2.5-5.0 per cent. In a
review of over 75 different empirical studies involving II different method-
ologies, Gunderson (1993) concluded that the probable wage and employ-
ment impacts of the FfA and NAFfA would be small. In the longer run,
they are likely to be positive as the induced productivity improvements
increase real wages, although there will be greater wage polarization and
negative effects in particular sectors. Most of these studies involved the
wage and employment impact of trade liberalization in general (not of the
CAFfA or NAFfA), although some involved simulating the expected
impact of those agreements.
3. Economic Council of Canada (1990, 1991); Freeman and Needles (1993);
Picot et al. (1990).
4. This evidence is discussed in the international context in Gunderson (1989,
1994). Baker et al. (forthcoming) provide recent evidence for Canada.
Michael Baker, Morley Gunderson and Susan Horton 181
5. Baker and Benjamin (1994); Bloom, Grenier and Gunderson (1995).
6. Eleven Canadian studies are reviewed in Gunderson and Riddell (1993,
p. 396) with recent evidence given in Riddell (1993).
7. For a discussion of the Canadian legislation in the broader international
context see Gunderson (1994).
8. Canadian evidence on job search activity and its effectiveness is discussed
in Gunderson and Riddell (1993, p. 654)
9. These special adjustment assistance programmes in the context of trade
liberalization are discussed in Gunderson (l993a). They are currently oper-
ated by the Employment component of the federal department of Human
Resource Development Canada (HRDC).
10. These issues are discussed in more detail in Betcherman and Gunderson
(1990), Porter (1991), Prosperity Secretariat (1992), and Gunderson and
Verma (1992).
11. This is discussed in Employment and Immigration Canada (1989) and
Finbow (1993).
References
6.1 INTRODUCTION I
185
186 The European Union
how the issue of labour market flexibility has been handled, how it related
to the strategies put forward and partially realized for greater European
integration, and what the evidence indicates about the extent and forms of
flexibility among EU Member States. References to differences in labour
market regulation tend, inevitably, to be either sweeping or highly
selective;2 so are those to the meta and macro level labour market
performance indicators which relate to flexibility. The coverage does,
nonetheless, seek to capture the complex pattern of regulation amongst
EU Member States and the evidence of the EU's relationship with labour
market flexibility and ultimate economic perfOlmance.
Section 6.2 shows how the conditions of the 1970s and 1980s helped to
give impetus to the flexibility thesis. Section 6.3 reviews briefly the
European integration programme and characterizes the principal ways in
which labour market conditions are likely to be influenced by the approach
to integration and, in turn, themselves influence the course of integration.
Section 6.4 exarnines various aspects of flexibility, analyzing the regula-
tory constraints in operation, the perceptions of potential effects and the
behavioural evidence of their actual consequences. Section 6.5 examines
macro and meta level measures of flexibility where the emphasis is on
outcomes rather than mechanisms of regulation and response. The main
conclusions are given in Section 6.6.
Figure 6.1 Europe: the size of the 'black economy', rough estimate
%35 .---------------------------------------------.
30 ...... ......... .......... ............................................................... .... ..... .... .
25 ................................ ..... ........................................ ... .. ... .... .. .... .
20 ................................................................................. .. .. .. .
10
5
Oli-~~-L~-L~-LL--L~~~~~~~~~~~_
UK D DK NL IRL LUX F B p E GR
% of : .0 Working population 0 GDP • Earnings
UK =United Kingdom =
F France
D =Germany B =Belgium
DK =Denmark P = Portugal
NL =Netherlands I=lIaly
IRL = lreland E=Spain
LUX =Luxembourg GR =Greece
(where included) have by far the most de-regulated labour markets. Spain
tends to be among the most regulated whereas the other three poorest
economies usually either appear in the middle of the regulatory range
covered by the remaining Member States or move about within it.
The extent of labour market regulation derives from legislation, discre-
tion left to the courts, and strength of enforcement. Ambiguities in the
Unlimited
140 , - - - -- - - - - - - -- - - - - - - ----,.....--.
120 +-----------------------------------------~
100 +----------------------------------------
~ 80 +-----------------------------------------~
~
~ 60+------------------~
40 +------------------------------------fi
20 +---------------~
(a)
7 r---------~========~--------~
6+--------------1 o Priority for vacancy
5~------------~==~~~~lunll;~"cu~~
.s
0::
4 ~-____1ri'i'::i':;:;;;;:::o_l
o
~ 3 +------1
I..;.;.;.;..;..;z;~
2 +-----~~-~----~---_+~r
OK GR IRL P UK D B NL F E L
(b)
194 The European Union
Figure 6.2
.
continued
5
10 Ovenime
I
8760
4
F""'"'
~~
~ .. ,
Ir:..
3 I;~\
- ~~~
);.
=
r-7ff ]
r=
2 ,
=;;=
~ ,~ - ~~;,;~
, ~.
~ 1~ ~i
I~ ,
,.~ J
'~
It.j'
. ' f',
li~
'I'
I
r- '/1 tf
,~ r~
"
'~
~ ~
~
o.l 'Ii'
,. • !'i I ;";~" " ' I
".-: "
....l o
L =Luxembourg NL = Netherlands
GR =Greece D = Germany
E= Spain P = Ponugal
F =France IRL = Ireland
B =Belgiulll DK = Denmark
1= Itllly UK = United Kingdom
(c)
Notes:
I Maximum hours permitted without.
2 Estimates for 1989; maximum weekly hours have been reduced in Portugal.
Source: Wells (1992).
60 ,--------------------------,----~~~~--_rr
50 r--------·-----------------,~~~rTI~~mm_cinn
40 r----------------------------r~
.sg 30 +------------H(tl;IH,~:t__"
l:
20 t------------ili
F D B L P E NL GR IRL UK OK
(a)
70.---------------------------------------------,
50+------------------------------.~~~>7~~~
~40~-----------------~B:~;1~~I~i~~~1~\"H
E
o
l:30 r-----------------------------~~ri~~}-1~~~~~
20
E GR B o P NL F IRL L UK OK
(b)
=
E Spain NL = Netherlands
I = Italy F= France
GR =Greece IRL = Ireland
B = Belgium L =Luxembourg
0 = Germnny UK =United Kingdom
P =Ponugal OK = Denmark
Belgium 8.5 2 10 8 1 4 2 7
Denmark 11 6 9 10 10 7 1 10
France 5 7 6.5 6.5 4 9 5 4.5
Germany 3 10 4 5 3 6 3.5 6
Greece 6 5 5 4 5 2 8 2
Ireland 7 9 8 9 10 10.5 10 8.5
Italy 10 1 2 3 2 2 6 8.5
Netherlands 1 11 6.5 6.5 7.5 8 3.5 4.5
Portugal 4 3.5 1 1.5 6 5 9 1
Spain 2 3.5 3 1.5 7.5 2 7 3
UK 8.5 8 11 11 10 10.5 11 11
Note: The higher the ranking. the greater the degree of regulation.
Source: Grubb and Wells (1993). Tables 1-3.
Robert M. Lindley 197
atives in adjusting tenns and conditions of employment and reducing the
size of the workforce to match corporate requirements. In addition, trade
unions have gradually been excluded from political influence by reduc-
tions in opportunities for corporatism.
The government has altered social benefit regulations in ways which
have reduced the level of income support relative to what it would have
been under the previous social security regime and has increased the pres-
sure on unemployed people to engage in job search. It has abolished the
statutory minimum wage provisions operating in certain industries, having
previously already made them inapplicable to young workers. Finally,
through its stance on macroeconomic policy, the government has removed
any doubt about whether the State will act, in effect, as an employer of last
resort: unemployment has been allowed to rise to record levels.
The rankings given in Table 6.1 derive from data on individual elements
of the regulatory field concerned. This involves combining qualitative and
quantitative data. As an example, the construction of the separate indices
underlying the summary ranking for 'protection against dismissal' is given
in the left-hand part of the table. This shows how much the rankings of
differeqt elements of the dismissal regime can vary from each other and
from the overall ranking for this category.
Taking the rankings as a whole, it is easier to find countries that are low
rather than high on all categories: Ireland and the UK fit into the former
group, as would Denmark but for its maximum normal hours limit.
Strong regulation in one area does not necessarily apply to others. In
terms of dismissals and flexible contracts, Italy certainly records high
levels of restriction but its maximum normal hours limits are moderate
and flexible working limits low. Greece, Portugal and Spain limit the flex-
ibility of working patterns (shiftwork, night work, etc.) quite markedly but
not the maximum normal hours worked.
It is by no means easy to offer a coherent rationale for each country's
configuration of controls which would encapsulate cultural and economic
determinants. One can relate the history of regulatory developments, but it
is difficult to capture an underlying economic rationale for the relationship
between 'economy' and 'society' as represented in the organization of the
labour market. This problem applies all the more to attempts to classify
countries in distinctive models of the way socio-economic pressures are
regulated in order to resolve conflict and promote development. The most
striking example of such analytical difficulties is found in the final area
of regulation to be mentioned here, albeit briefly: the framework for
collective negotiation in the labour market. (Further reference will be
made to this in connection with wage flexibility in Section 6.5.)
198 The European Union
A summary of degree of labour market regulation and bargaining level is
given in Table 6.2.
Bringing these two dimensions of institutional regulation together
compounds major conceptual and measurement problems. For one thing,
the degree of regulation is assessed in the late 1980s, whereas the main
bargaining level is derived from a study whose principal aim was broadly
to compare the 1980s with the 1970s. Another point to note is that bar-
gaining often takes place at several levels within a negotiating phase,
whereas the classification focuses more on whichever level is the highest
in operation. So central bargaining for Greece encompasses a host of
sectoral bargaining activities.
Leaving the many caveats to one side, it is apparent that, by the 1980s,
the UK is most clearly definable and its position amounts to being the
most de-regulated and uncoordinated labour market in the EU. Much more
tentatively, Greece might be regarded as the most regulated and co-
ordinated labour market, at least on the basis of Table 6.2. However, its
Table 6.2 Europe: labour market regulation and collective bargaining level
80~----------------------------~--1-------~
60 +-------1
UK o B p IRL GR F E NL
Note: Manufacturing industry, Denmark and Luxembourg were not surveyed; 1989
Ee survey adjusted for response.
Source: Wells (1992).
The UK not only usually comes bottom in the rankings of the above but
the range is enormous, covering roughly 20-80 per cent (where appli-
cable), and the UK is the one country which is low on every item
mentioned. Italy, in contrast, usually comes at or near to the top of all the
above rankings. Moreover, its extensive layoff or short-time working
regime contrasts with the complete absence of public provision in the UK.
France records high percentages under (i) and (ii) but is in the middle of
the range for (iii) and (v), and near the bottom with the UK and the
Netherlands for (iv).
Table 6.3 provides evidence relating to 1985 for the then nine EC
Member States: Denmark, Portugal and Spain are thus excluded. This
confirms that Italy and the UK are undoubtedly among the most and least
regulated labour markets, respectively, indeed, they look to be at the
extreme ends of the EU spectrum. Belgium and Ireland are more likely to
be counted as above and below average, respectively. The positions of the
Table 6.3 Europe: EC firms' opinions about regulatory constraints, 1985
Italy 83 (62) 1 88 1 78 1 63 3
France 81 (53) 2 48 6 22 8 53 5
Belgium 75 (46) 3 74 3 63 2 63 4
Greece 67 (51 ) 4 76 2 62 3 50 6
Ireland 68 (45) 5 35 8 33 6 47 7
Luxembourg 56 n.a. 6 54 5 52 4 69 2
Germany 56 (44) 7 63 4 46 5 74 1
Netherlands 51 (58) 8 47 7 12 9 32 8
UK 26 (27) 9 28 9 23 7 27 9
EC 60 n.a. 58 422 55
average
Portugal (42)
Spain (63)
Note: The survey excluded Denmark (both years) and Portugal and Spain (1985).
Source: CEC(1986, 1991) and Emerson (1988) (Tables 4,7,8, and 14).
N
o
202 The European Union
other countries do not, however, map easily from the degree of legal
restraint to the degree of perceived control.
However, a later survey enables comparisons to be made between 1985
and 1989 and these suggest that the regulatory burden as perceived by
employers has declined quite substantially in all countries except the UK,
where it has remained the same, and the Netherlands, where it has
increased.
Turning to the views of the main employers' organizations, the IOE
(1985) survey covers not only the three of the EU Member States omitted in
the CEC survey, but also the five EFTA countries (Austria, Finland, Norway,
Sweden, Switzerland), whilst excluding Greece. These results (Table 6.4)
confirm the positions of Italy and the UK; Denmark, Portugal and Spain fall
into line as expected on termination of employment and use of fixed-term
contracts; the same is true, more or less, of the use of temporary work agen-
cies, though here Portuguese employers' associations appear less concerned
than the legal framework might lead us to expect (cf. Table 6.1).
Source: Emerson (1988) using data from the CEC 1985 ad hoc labour market survey. IV
ow
Table 6.5 Europe: Associations between labour market phenomena, regulatory strength and employment ~
Labour market Regulatory Association! Outliers'
phenomena measure
Notes: a as % of employees.
b as % of total employment.
c as % of population of working age.
d of employee work.
e Only for item II would exclusion of outliers not only strengthen statistical significance but also change the sign of the
effect.
fThe above classification is extremely rough, depending on visual inspection as well as the statistical significance shown.
Very approximate definitions of terms are gi ven below (note tha tso = 1, t9S = 2 and t99 = 3).
Description t statistic range
Very weak t ~ 1.0
Weak 1.0 < t ~ 2.0
Moderate 2.0 < t ~ 3.0
Strong 3.0 < t ~ 4.0
Very strong 4.0 < t ~ oc
Source: Derived from Grubb and Wells (1993).
tv
5;
206 The European Union
As regards the employee structure, the percentage of employees who
are working part-time is strongly negatively related to the measure of
overall regulation of employee work, so heavier regulation of employee
contracts appears to carry with it either a discouragement to organizations
to employ part-timers, or to individuals to seek such work, or a combina-
tion of both. It does not itself promote part-time employment unless it is
associated with a temporary contract.
The difficulty in dismissing regular workers is strongly positively linked
to the percentage of employees who are on fixed-term contracts; specific
restrictions on such contracts have only a moderate discouragement effect
on their incidence. In contrast, controls on the dismissal of regular workers
have little impact on the incidence of temporary agency workers; here, the
main factor is the degree of control on agency activity per se.
Turning to hours of work, the regulation of maximum hours has a
significant effect on average normal hours, though not strongly binding; its
effect on average usual hours is more substantial, though no significant
(negative) additional effect is attributable to restrictions on overtime. As
regards the patterns of working hours, restrictions on working hours
have the strongest effect of any regulatory measure, discouraging
working above usual hours. However, controls on night work have only
weak effects and those on weekend work appear to have no systematic
effect on its incidence. The dispersion of hours worked is only weakly
related to restrictions on the flexible distribution of hours, though Grubb
and Wells (1993) point to the likelihood of Belgium's major liberaliza-
tion in regulation in 1987 not having had its full effect by the survey
date in 1989; omitting this country would increase the association very
greatly.
What can we conclude from these findings, bearing in mind that regula-
tion is only one factor in determining the structures of organizations and
sectors which underlie aggregate employment indicators? First, strong
statements about the relationship between degree of regulation and level of
total employment relative to popUlation of working age are not supported
by the data. Second, regulation is mainly likely to influence the structure
of employment and hours. Certain features of the pattern of employment
status and working hours are clearly influenced by regulations (incidence
of overtime, temporary workers, use of temporary agencies, and average
usual hours worked) even after allowing for the effects of the overall
regulatory climate which affects particularly part-time employment.
Sometimes it is the controls over regular employment rather than any par-
ticularly permissive stance on non-regular employment that foster the
latter. Finally, it seems that there is enough variation between countries
Robert M. Lindley 207
Structural Change
Section 6.3 has already noted the view that more structural change is
taking place and this requires more flexibility in order to minimize its
effects on unemployment. Following this up with evidence, however, is
not quite as straightforward as it might seem. It is sometimes difficult to
stay in the mainstream of the analysis, avoiding the many tributaries
offered. In particular, in looking for real evidence, it is often forgotten that
changes in quantities and prices are not very informative unless the para-
meters of the demand, supply and wage adjustment functions are known.
Moreover, we need to recognize when the lack of flexibility may be due to
a slowness of response rather than a low degree of adjustment achieved
over the long term.
However, the fascination with quantities and prices does reflect the
intuitive appeal of a certain line of reasoning:
1960s: G DK D,F
T DK D,F,NL, UK USA
1970s: G DK D, F, I, J, NL, UK
T DK B, D, F, I, J, NL,
UK, USA
1980s: G DK, F, I, J, UK D,NL
T UK B, DK, F, I, J, USA D,NL
Note: G is the average of the weighted standard deviation of annual growth rates (in logs) of sectoral employment. T is the average of
half the sum of the absolute annual changes in sectoral shares of total employment.D =Denmark, F =France, NL =Netherlands, I =
Ireland,G =Germany, J =Japan, B =Belgium.
Source: OEeD (1994a), Part I, Table 1.7.
tv
~
210 The European Union
distinction between ex ante and ex post structural change. Some forms of
structural change may themselves reflect failures to compete because of
lack of flexibility. Precipitous declines in manufacturing employment
caused by inefficiency through restrictive working practices or failure to
attract suitably skilled labour because of narrow wage differentials hardly
amount to 'coping' with structural change, yet they would usually boost
the index. So ex post measures of structural change can be interpreted as
indicators partly of the task faced by the economy concerned and partly of
the amount of redeployment achieved.
Whilst a high level of ex post structural change does imply a high level
of flexibility (i.e. 'flexible' in Table 6.6) in order to achieve it, a low level
may either reflect low flexibility ('inflexible') in the face of high ex ante
pressure for structural change, a medium level of flexibility in the face of a
medium level of ex ante pressure ('responsive') or any of the three options
if the level of ex ante pressure for structural change is too low to offer a
test of the capacity for adaptation.
The fact that there do not seem to be great differences in the ex post
measures of structural change calculated from employment data for the
1960s, 1970s and 1980s (Table 6.6) does not necessarily suggest that this
has not been a cause of rising unemployment. It may rather imply that
these economies could deliver only so much sectoral employment re-
allocation because of inflexibilities in labour markets which were common
to all three periods. Unemployment then rises because the underlying
economic conditions called increasingly for more adjustment.
Yet when similar degrees of sectoral employment re-allocation are
recorded in economies as different as France and the USA during each of
the three decades (the USA was apparently less 'flexible' than France in
the 1960s), virtually regardless of the measure used and level of disaggre-
gation, it is difficult not to conclude that the 'flexibilities' of their labour
markets cannot be that different.
On the other hand, the indices do identify Denmark and, to a lesser
extent, the UK, associated with particularly low regulation of the labour
market as exhibiting the highest degree of structural change.
Thus, the mere fact of there being a lot of movement relating to the
labour force, employment and unemployment is a rather poor indicator of
flexibility.s Fluidity does not necessarily imply flexibility. Some move-
ment might, indeed, seem to suggest a failure of the labour market
mechanism: very high turn-over at organizational level or gross outflows
and inflows at sectoral level may be due more to the inadequate personnel
policies of employers as much as to a well-judged balancing of the relative
costs of putting up with high turn-over compared with improving working
conditions and rates of retention. The same caveats attach to attributing
low job tenures and low service records with the same industries to
dynamic labour market responses.
We are not sure, therefore, of what to make of the facts that mobility in
and out of unemployment is over twice as high in Denmark and the UK as
in Italy and Spain, or that average job tenure is lower in the Netherlands
and the UK (7 or 8 years) and higher in France, Germany and Spain (about
\0 years), or that labour turn-over (as measured by the percentage of the
employed who had been in their jobs for less than a year) was highest
in Spain and the UK, followed by Denmark and France, and lowest in
Belgium, Italy and Greece, or that intersectoral mobility is highest in
Denmark, France and the UK and lowest in Belgium, Germany, Greece
and Ireland.
212 The European Union
In addition, the occupational stock and flow data for EU countries do
not permit satisfactory analysis either of ex post structural change or
ex post mobility. In the case of spatial labour market flexibility, the data
on geographical mobility are not sufficiently standardized for differences
in the sizes of the spatial areas used to allow us to reach much more than
very broad conclusions, such as that mobility is relatively high in the UK
and low in Italy.
Finally, if such data are to be used to indicate differences in labour flex-
ibility between countries, there would also seem to be a case for using
them to indicate how far flexibility has changed over time for the same
country. The results for the UK are especially noteworthy (Beatson, 1995).
Industrial and occupational mobility increased by about 50 per cent during
the last half of the 1980s and then halved by the mid-1990s, more or less
bringing it back to the same levels as a decade ago. Regional migration,
which is much less than industrial and occupational mobility, increased
more erratically and by a smaller degree but also fell back during the
1990s, actually dropping significantly below the mid-1980s' level.
The above results do not suggest a period of success for de-regulation
followed by one of failure; they reflect more the wel1 known impact of the
cyclical upturn fol1owed by the downturn upon the mobility of labour in
an economy. It is clear that more time must elapse before being able to
distinguish 'regulation' effects from cyclical effects. It would be exces-
sively purist not to conclude that the UK is probably the labour market
that exhibits the greatest extent of external labour mobility and this pro-
bably reflects a greater propensity for mobility. It is the link between
this propensity and the institutional and regulatory regime that is not
identifiable with present data.
The presentation of key stylized facts about labour force movements in
the EU cannot get round the problem of not having comparable informa-
tion on the parameters of models that seek to explain those facts.
Migration, mobility and turnover data are only now just becoming avail-
able in time series of sufficient comparability and length to support such a
mode\ling exercise, albeit using very simple specifications.
Table 6.7 Europe: responsiveness of labour demand to real product wages, 199
6.6 CONCLUSIONS
(i) rules derived from (i) direct regulation, (ii) statutory underpinning
of collective negotiation and (iii) purely voluntary negotiation among
the social partners at whatever level;
G) the socio-economic space within which compliance is sought and
achieved (i.e. the effects of the informal economy and compliance
'gaps' within the formal economy);
(k) the extent to which labour market constraints prove to be critical
factors in decision making in practice (e.g. how far labour market
differences determine the spatial distribution of investment rather
than other differences);
(I) the diverse pattern of degrees of regulation and coordination such
that the extents of regulatory efforts in different areas are not as
highly correlated as might be expected (this comes on top of the
effects of (j) above);
(m) the interplay of different regulations such that sometimes 'flexible' pat-
terns of work are promoted mainly by the restrictions imposed on
regular employment rather than those which facilitate the flexible form;
(n) regulation may affect mainly the structure of employment rather than
the level;
(0) the nature of collective bargaining and the relative importance of
insider-outsider considerations (derived partly from different
concentrations of unemployment) may be more important for the
level of employment.
Notes
1. I am especially grateful to Edward Amadeo and Sue Horton for their helpful
suggestions and patience during the preparation of this chapter. I should like
to thank my co-contributors to this book, Gary McMahon of the IDRC, and
Robert M. Lindley 221
other participants at the Guadalajara and Toronto conferences on the
project for their comments. My thanks are also due to William Wells (UK
Department for Education and Employment) for permission to use his data
in preparing some of the charts relating to European labour market regula-
tion and to Terence Hogarth of the IER for periodic discussions of compara-
tive labour market issues. The UK Economic and Social Research Council
provided research assistance for part of the work reported in this chapter
(grant no. L-113-25-1018 'Human Resource Regimes and the Single
European Market').
2. Little, for example, is said of equal opportunities, the regulation of
minimum wages and provision of social security benefits.
3. Hourly industrial (manufacturing and construction) labour cost ratios of
roughly 6 to I, adjusting for differences in industrial structure, can be found
within the EU: Germany and Portugal being at the two extremes (Zighera,
1993). The average for the 12 EC countries during the late 1980s was
4~ times that for Portugal, 3 times that for Greece and 50 per cent higher
than the Spanish average.
4. By contrast with no 3, average manufacturing labour costs in the EC are
about 3 times higher than those of the old NICs (Hong Kong, Korea,
Singapore and Taiwan) but between 10 (Malaysia) and 30 (Indonesia) times
higher than new NICs (which also include the Philippines and Thailand)
(Petit and Ward, 1995).
5. Mobility within the labour force is only one way of achieving a net change
in the deployment of labour; differentiated rates of initial entry to and retire-
ment from the labour force (plus temporary exit and return during working
life) provide another mechanisms. The scope for using the latter mechanism,
however, has probably contracted with declining youth cohorts, increasing
recourse to extended education and training prior to entering the labour
market, and a marked increase in early retirement stimulated by strategies
for coping with high unemployment amongst older workers during the
1980s.
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222 The European Union
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7 Labour Flexibility and
Productivity in Japan
Neantro Saavedra-Rivano and
Hideki Imaoka
7.1 INTRODUCTION
For a long time the Japanese economy has been a source of wonder and
puzzlement. Its performance has been remarkable while at the same time
its practices and institutions seem to differ markedly from those existing in
other developed economies. These feelings have certainly something to do
with the fascination that the Japanese culture and society generally inspire.
Perhaps in no other area of economic activity are these societal and cul-
tural aspects as important as in the working of labour markets and in the
makeup of labour practices at the firm level. Observers of the Japanese
labour markets have been in particular impressed by its low rate of unem-
ployment which, in spite of a prolonged economic crisis, has remained
consistently below the 3 per cent mark. In addition, labour relations seem
to be, at least when measured by the number of days lost as a result of
strikes, much more harmonious than in other advanced countries. A third
feature that impresses outside observers is the level of cooperation that
seems to exist at the level of the firm and that finds its expression in
sophisticated practices such as the quality control circles (QCCs). Some of
these practices have been applied, with relative success, to other countries,
both developed and developing.
These observations have impressed on many observers the perception
that Japan is unique. In this, they are supported by many Japanese who
also believe that their culture, history, and environment have produced a
society that is not only unique but also unreadable by foreigners. The
'culturalist' school of Japanese labour relations was thus born,) and from
the beginning it recognized two main characteristics that were to be associ-
ated with the Japanese way: the lifetime employment system (shuushin
koyou seido) and the wage seniority system (chingin nenkou joretsu). The
former refers to the understanding that employment will normally last for
the whole useful life of the employee. Associated with this is the total
commitment of employees to the fortunes of their enterprise, in such a way
225
226 Japan
that the relation between employers and employees goes beyond the con-
tractual type of relations that would be usual in other countries. The latter
refers to the relation between time of service (which often is related to age)
and levels of wages as well as of rank within the enterprise. Besides these
two, there are some other particular features of Japanese labour markets. In
the first place, trade unions at the shop level (rather than industry-wide
federations or national confederations) are the most significant labour
organizations from the point of view of labour negotiations. Secondly, and
also in relation with this, labour negotiations are synchronized and take
place every year during the spring year. This is the famous spring offen-
sive, or shuntou. 2 In the third place, a large portion of the annual income of
workers takes the form of bonuses, usually paid twice during the year, in
June and again in December. Finally, the rate of female participation in the
labour markets is lower than in other developed countries.
The popularity (particularly in the West) of the culturalist school has
lasted until now, in spite of the mounting criticism of many economists. In
particular, most Japanese labour economists disagree with the explana-
tions offered by the culturalist school for the specific performance of the
Japanese labour markets. We will discuss these arguments in the next
section. However, in spite of a very basic disagreement, most Japanese
economists would accept that, at least to some extent, the preceding fea-
tures differentiate the Japanese system of employment from that of other
developed countries.
The controversy surrounding the proper characterization of the Japanese
system of employment must be of course placed within the context of the
ongoing debate about the relative merits of the Japanese and American
economic systems as well as about the future of the relations among both
countries. Some of the questions being asked about the Japanese system of
employment are also asked about other particularly Japanese economic
practices and sound familiar: Is Japan different? If so, is it changing? Is
change necessary to the survival of Japan in the new international environ-
ment? The issue of adaptation to new internal and external realities is of
utmost importance.
Let us finally place this characterization within the context of current
economic conditions. As is well known Japan has endured for the last four
years an acute recession, which followed the longest expansionary period
of the post-war, the so-called Heisei boom (1987-90). The productivity
and GDP growth columns in Table 7.1 tell this story. They show, in addi-
tion, the relatively small variation in the unemployment rate, albeit the
latest figures for 1995 place this indicator at around 3.1 per cent. It can be
finally noted that, in spite of large drops in productivity during the current
Table 7.1 Japan: basic data on the economy and labour market, 1980-93, %
Year GDP growth Unemployment Productivity Real wage Nominal wage Rate of inflation
(rate of growth) (rate of growth) (rate of growth)
tv
tv
-...J
228 Japan
recession, the real wage rate has suffered a very small erosion. These
numbers confirm the casual observation that the current recession,
however long and deep, has not unduly strained labour conditions.
Let us start by presenting the basic facts on the Japanese labour force, and
for this purpose we will refer to Tables 7.2-7.4.
In 1993 the labour force was composed of some 66 million people. As
is well known, unemployment is comparatively low in Japan, and in 1993
only 1.7 million people were out of a job, corresponding to a rate of open
unemployment of 2.57 per cent. Some 80 per cent of all engaged persons
were employees, the vast majority in non-agricultural sectors. If we
exclude public servants, we can see that more than 72 per cent of employ-
ees work in firms with fewer than 500 workers, and that more than 54 per
cent of employees work in firms with less than 100 workers. These figures
express well how important small and medium firms are in the Japanese
economy and labour market. The well known and large firms, which we
might identify with those firms employing at least 1000 workers, account
for about 21 per cent of all employees in the private sector. If anything, the
importance of the small and medium-sized firms has increased in the last
20 years. While the total number of employees increased by about 42.8
per cent in this period, the number of those employed in firms with more
than 500 workers increased by 39.1 per cent, and that of those employed
Table 7.2 Japan: composition of the labour force, 1975-93, million people
Retail and wholesale trade (private) (employees) 7.1 8.3 9.1 11.2
in firms with more than 1000 workers increased by a mere 30.3 per cent.
Another observation that can be drawn from these data is that the pro-
portion of workers employed in the manufacturing sector (and also in
the public sector) has decreased steadily, while those employed in the
230 Japan
Table 7.4 Japan: modality of employment, by gender and age group, 1987 and
1992, % of total in each group
1987
All workers 6.7 74.9 10.1. 4.1 4.2 100
15-24 0.3 81.6 2.9 13.0 2.2 100
25-34 2.2 85.9 6.2 3.1 2.6 100
35-54 7.5 73.3 14.2 1.8 3.2 100
above 54 18.9 54.2 10.4 3.7 12.9 100
Male 8.5 83.2 0.7 3.3 4.2 100
15-24 0.4 81.5 0.7 15.3 2.0 100
25-34 2.6 93.2 0.3 1.8 2.1 100
35-54 9.5 86.3 0.3 0.9 3.0 100
above 54 21.9 57.1 2.9 3.3 14.7 100
Female 3.6 60.6 26.3 5.5 4.0 100
15-24 0.1 81.6 5.2 10.6 2.4 100
25-34 1.4 70.4 18.4 6.0 3.7 100
35-54 4.1 50.5 38.4 3.3 3.6 100
above 54 12.2 47.5 27.1 4.3 8.8 100
1992
All workers 7.6 72.4 11.3 4.8 3.9 100
15-24 0.5 78.5 2.6 16.5 1.9 100
25-34 2.5 84.8 6.7 3.2 2.7 100
35-54 8.5 71.5 15.7 1.7 2.6 100
above 54 18.5 52.7 13.8 4.0 10.9 100
Male 9.6 81.4 1.0 4.0 3.9 100
15-24 0.7 78.5 0.7 18.3 1.7 100
25-34 3.1 93.0 0.3 2.0 1.5 100
35-54 10.7 85.9 0.3 0.8 2.1 100
above 54 21.6 57.4 4.0 4.0 13.0 100
Female 4.4 58.3 27.5 6.0 4.0 100
15-24 0.4 78.5 4.5 14.5 2.2 100
25-34 1.5 70.2 18.1 5.4 4.8 100
35-54 4.9 48.9 39.5 3.1 3.5 100
above 54 12.5 42.9 33.8 4.1 6.8 100
retail and wholesale trade and in the services sector has increased
accordingly.
Let us look now into the various modalities of employment. In addition
to managing positions and regular employees, the two most important
other modalities are part-timers and 'arubaito'. Even though part-time
employees are not regular employees, do not belong to the firm union, and
Neantro Saavedra-Rivano and Hideki Imaoka 231
have a tenuous contractual relation, in some cases they can work many
hours. In principle, part-time employees may work as many as 35 hours a
week. The proportion of part-time employees is higher in Japan than in
most other developed countries, and it has shown an increasing trend at
least in the last 20 years. It is also to be noted that few male workers prac-
tice this modality, while on the other hand female workers adhere to it
widely, a pattern that has only changed slightly in recent years. This fact is
related, of course, to the division of social activities within the family.
Women usually take up jobs, either regular or part time, early in their
adult life. They often quit after marrying or giving birth and, when the
children grow up, may return to work, most often as part-timers.
'Arubaito' (from the German arbeit) refers to work contracted by the
hour or the day. This modality is widely practised in restaurants, gas
stations, and similar non-career building occupations. As it can be seen
from the large proportion of workers in the 15-24 year old group that are
employed in this modality, students make up the largest contingent of
'arubaito' workers. We will see later that the fact that a relatively large
proportion of all employees belong to either of these two modalities is one
of the factors behind the flexibility exhibited by the Japanese labour
market during the recent recession.
With these facts and figures in mind, let us proceed to an examination of
the two features most often associated with the Japanese employment
system, namely the lifetime employment system and the wage seniority
system. As noted above these are considered by the culturalist school to be
the defining, and in particular unique, characteristics of the Japanese
employment system. As such, they have attracted the attention of critics of
this school, most of them well known Japanese labour economists. 3
Ideally, the lifetime employment system implies that workers enter em-
ployment at a given firm immediately after graduation and remain in that
firm until the age of retirement. Empirical studies of the degree to which
this ideal approximates actual conditions have looked at two sorts of
surveys. One is to ask employees whether they have or have not been
working in the same firm· since graduation. Surveys of this type, rather
predictably, yield very low proportions of lifetime employees. According
to Tachibanaki (1984), and using data for the years 1979-80, as few as
9.8 per cent of male employees in the 50-54 year old age group belong to
this category. Even for male employees in the 30-34 year old group the
proportion is only 33.4 per cent. Rates for female employees are much
lower. The survey also shows that lifetime employment becomes more
common the larger the size of the firm and the higher the educational level
of the employees. This type of survey, however, can be criticized as it in-
232 Japan
terprets the concept of lifetime employment too literally. The point of the
culturalist school, which this literal interpretation would miss, is that cor-
porate employment in Japan is highly cohesive (see, for more details on
the concept of cohesiveness, Imaoka, 1989). A second type of survey asks
employees how long they have stayed with the same firm. As a matter of
fact, these data appear, with a great degree of disaggregation, in the yearly
Census on Wages (Chingin Sensasu) compiled by the Ministry of Labour
of Japan. Comparable data are not compiled so systematically in other
developed countries, but still some comparisons are possible on the basis
of existing statistics. Table 7.5 presents the result of a comparison between
Japan and the USA conducted by Tachibanaki (1984) with data for the
years 1977-8. Substantial differences in length of service are apparent, es-
pecially for female workers and for male workers less than 54 years old.
The fact that length of service is relatively low for employees older than
54 years is due to the mandatory retirement age (usually 60-63 years) that
is prevalent in large firms, which induces many employees to move rather
early to other positions. Table 7.6, which displays more recent data for
Japan, shows that length of service patterns have not changed much for
workers in the 30-64 year old group, while for other age groups the trend
is for a decrease in length of service.
Koike (1988) did another comparative study, in his case between Japan
and the countries of the European Community (EC) (at that time, Belgium,
Britain, France, Italy, Luxemburg, the Netherlands, and West Germany).
The survey, however, dealt with a rather different question, namely the
composition by length of service of the male labour force in manufactur-
ing. Koike found that, when looking at the aggregate figures, the pro-
Table 7.5 Japan: length of service in the same firm: Japan, 1977 and the USA,
1978 (years)
portion of Japanese workers with more than 20 years of service (data from
1970-1) was consistently lower than that for European workers (data
from 1972). The comparison became even stronger when the figures for
Japanese employees of large firms were used, albeit in the case of the Ee
only aggregate data were available. From this analysis Koike concluded
that claims to the effect that lifetime employment is a Japanese character-
istic are misplaced. Koike's analysis, however, seems to be incomplete. In
order to reach conclusions about the cohesiveness of the employment
structure, from data on the composition by length of service of the labour
force, additional comparative data on the age structure of the labour force
would be needed. This kind of data is not presented nor discussed in Koike
(l988) and it seems not to be available.
Let us move on now to the second feature, the wage seniority system.
Again ideally, this means that wage levels as well as rank within the firm
are in direct relation to the length of service in the firm. Empirical
verifications of this feature, in practice, consist of measuring wage differ-
entials by age. This is due, of course, to the difficulty of collecting both
consistent global statistics on rank within the enterprise and associative
data of wage rates according to length of service. The hypothesis to be
tested, then, is that about the existence of a strong positive relation
between age and wage level. Data for the year 1993 and collected in
Figures 7.1-7.3 indeed confirm this hypothesis for workers up to 54 years
old, and also show that the relation is stronger for male workers. The fact
that wage levels start to decrease after this age is consistent with the fact,
noticed above, that employees at this age start to move to other jobs with a
higher frequency. The hypothesis is maintained consistently when we
234 Japan
Figure 7.1 Japan: wage differentials, by age group and gender, 1993
450
•
[ 400
§ 350 .• •
•
•
• •
•
c 300
.~ 250
g,o 200 ••
••
.
••
. ....... All workers
• --- Male
I • ....... Female
~ 150 •
j 100
"" 50
o~-+----------~-+------+-~-+ ______ ~
Figure 7.2 Japan: wage differentials, by educational level, male workers, 1993
.,;>.,c
600 • •
500 •
§ •• •
• . . . .
400 -+- University level
·. .
.S
.,
VI
300- •I .• x x x -- Junior college
• ----- High school
x
~ x
~
;>.,
200 I x -- Junior high school
I
~0 100
~
0
Upto 17 25-29 40-44 55-59
Age group in years
Source: Ministry of Labour, Japan (l994b).
Figure 7.3 Japan: wage differentials, by educational level, female workers, 1993
600
5
§ 500 • •
.5 400 • •
~o 300 • • • ....... University level
~
~200
•
•
I
.•..
x
•
.. .. .. •
•
• .. .. •
---Junior college
....... High school
--Junior high school
~ 100
o~~-+-+ __ ~+-+-~-+-+ __ ~+- __ ~-+ ____~
7.3 INSTITUTIONS
7.3.1 Unions
duties are also barred from union membership. Trade unions flourished
after the end of the Second World War, and in 1950 about 46 per cent of
all workers belonged to a union. This coverage has decreased steadily
since then and in 1993 only 24.2 per cent of all workers were members of
a union. In spite of that, the coverage of trade unions is still much higher
in Japan than in the USA, although well below that existing in most
European countries. In general, the larger the size of the firms, the higher
the proportion of unionized workers. There are also important differences
depending on the sector of the economy. Public workers have the highest
rates of unionization, wholesale and retail trade has one of the lowest
rates, and manufacturing is slightly above the average. Table 7.7 gives
more particulars on this matter.
It is generally recognized that labour relations are more harmonious in
Japan than in most other countries. Table 7.8 provides some evidence to
this effect, comparing the number of workers involved and of days lost in
industrial disputes in Japan and some other developed countries. The fact
that most unions are enterprise-based may help in explaining this, as
most potential conflicts can be identified and handled at an early stage.
Another possible factor could be that labour negotiations are co-
ordinated, happening around March of every year (this is the famous
shuntou, or spring offensive), and that their results hold for a whole year.
An examination of the pattern of spring wage increases (Figure 7.4),
together with the observation above that unionization rates are higher in
larger enterprises, supports the hypothesis that unions have been suc-
cessful in obtaining higher wages for their members. This hypothesis is
also confirmed by an earlier albeit much more detailed study by Taira
(1970). He also noticed that this successful 'shuntou unionism' has as a
counterpoint the increase in the use by firms of non-regular workers, as
part-timers and 'arubaito'.
Table 7.7 Japan: union memberships. totals and selected sectors, 1980-93, %
Japan
Workers 449 216 123 75 86 84
Days lost 919 538 264 174 220 145
USA
Workers 1021 656 324 118 452 185
Days lost 20,409 9061 7079 4364 16,996 5926
UK
Workers 4608 2103 791 790 727 291
Days lost 29,474 5313 6402 3702 4128 1890
W. Germany
Workers 77 40 78 33 44 257
Days lost 483 15 35 42 100 364
8
7
~6
~5 \
.
.S
'C;4
~3
,
,
)
I•
[J Large fi rms
Small firms
I
"
2
,•, ,\
"
- ~
r i
-
" " f
l
o
00
0- '" '"
00 00
t.r:I\Of'OO
00 00 00 00
0-
00 0>
Year
Note: Based on a sample of firms, al\ possessing at least one union; large firms
have at least 1000 employees and small firms have at most 300 employees.
Source: Asahi Shimbun (1993).
7.3.2 Legislation
important labour laws are: the Labour Relations Law (September 1946);
the Trade Unions Law (June 1946); the Labour Standards Law (April
1947); the Employment Security Law (November 1947), all of them sub-
sequently revised and updated. Both the laws on Labour Relations and on
Trade Unions establish the basic rules and institutions for relations
between labour and management. In· addition, the Labour Relations Law
establishes a Central Commission for Labour Relations and Commissions
for Labour Relations at local levels, to provide support for negotiations
between labour and management. The Labour Standards Law defines
working conditions, such as working hours, procedures for payment of
wages, general safety standards, and other standards relating to the work-
place environment. In addition to setting these standards, inspection
bodies are established and penalties for infractions are set.
Legislation aimed at employment stability and at alleviating the conse-
quences of unemployment is comprehensive. The Constitution of Japan
establishes that everybody who is willing and able to work has the right to
do so, and the Employment Security Law is explicit in its assignment to
the government of the main responsibility in maintaining equilibrium in
the labour markets. Bureaux of Employment Security are set at central and
local levels to take the necessary steps to this effect. Some of the activities
of these Bureaux are to channel information so as to match supply and
demand and to offer vocational training to displaced workers. On various
occasions, and according to the circumstances, special laws have been
enacted to strengthen this sort of activities by the government authorities.
The Employment Insurance Law (December 1974) set up a national
system of unemployment compensations. All regular workers of firms are
eligible to participate in this scheme, which is administered by the national
government. Operational and overall financial backing is provided by the
state, while workers and firms di vide equally a premium of 1.5 per cent of
wages. As of March 1993 some 32.8 million workers belonging to
1.8 million establishments were covered by this scheme which, through
the fiscal year of 1992 (April 1992-March 1993), paid almost 900 billion
yen (10 billion dollars) to 571,000 beneficiaries (monthly average). Part-
time and 'arubaito' workers, due to their type of working arrangements,
are rarely eligible for any unemployment compensation. During the fiscal
year of 1992 slightly less than 50,000 day workers (monthly average)
received unemployment compensation.
This brief discussion of labour legislation illustrates that Japanese
labour policies are active in promoting the level of employment and
regulating labour conditions. The government establishes annual and
Neantro Saavedra-Rivano and Hideki lmaoka 239
pluri-annuallabour plans, which contemplate measures to retrain workers,
provide relief for sunset industrial sectors, and so on. Emphasis has been
placed recently on the reduction of hours of work, and several measures
have been taken to this end. Through the working of labour legislation and
institutions, and the execution of labour policies, it can be judged that the
government provides an important contribution to the flexible operation of
labour markets.
It has long been noticed that the rate of unemployment in Japan is low if
compared with those of other industrial countries. In addition, it appears
that this variable is not very sensitive to business conditions. Even during
the current recession, probably the deepest in the post-war period, the rate
of unemployment has barely exceeded 3 per cent. Again, several factors
have been cited to explain that Japan is not so different, after all, from
other countries. Chief among them are the low rate of participation of
female and young people in the labour force, differences in definitions of
unemployment, and the relatively high proportion of people employed in
family and rural businesses (where employment is inherently more
stable). Even taking account of these factors it still remains, as Ito
(1992) convincingly shows, that the unemployment rate in Japan
is lower and less responsive to business conditions than in other
developing economies.
Following Ono (1989) we will proceed to analyze the main supply and
demand factors behind employment in several periods and across several
industrial countries. Emphasis will be on two generally recessionary
periods, 1973-76 and 1979-82, and the countries considered, besides
Japan, are Canada, the USA, France, West Germany, and the UK.
Let Q stand for real GDP, E for employment, H for hours per worker.
We can define. productivity a by the formula
a=Q/EH
and define the employment rate e by e = ElF, we may combine all of these
relations into
e = Q/a{3HN
If we instead consider rates of change, we are left with the final expression
e Q a Q-a t3 H N
Canada
1970-3 0.13 20.40 10.26 10.14 3.59 --0.25 6.67
1973-6 -1.66 13.67 7.77 5.90 2.21 -2.27 7.62
1976-9 --0.34 12.54 2.79 9.75 4.11 0.26 5.72
1979-92 -3.84 1.71 1.99 --0.28 1.53 -2.84 4.87
1982-5 0.54 13.22 4.15 9.07 2.34 2.92 3.27
USA
1970-3 0.06 13.08 2.84 10.24 2.24 2.6 5.68
1973-6 -2.96 2.93 --0.04 2.97 2.07 -1.47 5.33
1976-9 2.00 12.12 0.90 11.22 3.96 0.25 5.01
1979-82 -4.08 --0.46 1.91 -2.37 1.19 -3.23 3.75
1982-5 2.76 13.40 1.8 11.60 1.75 4.11 2.98
Japan
1970-3 --0.12 21.86 21.48 0.38 --0.38 -2.87 3.75
1973-6 --0.74 6.20 10.26 -4.06 -1.67 -4.34 2.69
1976-9 --0.10 16.40 10.35 6.05 1.76 2.13 2.26
1979-82 --0.28 11.55 9.05 2.50 0.74 --0.38 2.42
1982-5 --0.27 13.21 8.98 4.23 0.19 1.23 3.08
N
.j:>.
N
~
N
e Q a Q-a r3 H N
France
1970-3 -0.25 17.62 17.87 -0.25 0.14 -2.90 2.76
1973-6 -1.86 8.77 12.54 -0.37 0.49 -4.59 2.19
1976-9 -1.62 10.49 10.99 -0.50 0.78 -1.92 2.26
1979-82 -2.37 3.35 6.72 -3.37 -1.68 -3.19 3.87
1982-5 -2.38 3.39 7.02 -3.63 -1.92 -2.03 2.70
W. Gennany
1970-3 -0.45 12.26 13.60 -1.34 -0.94 -2.30 2.35
1973-6 -3.07 4.02 12.41 -8.39 -2.32 -3.21 0.21
1976-9 0.77 10.30 7.80 2.50 -0.70 0.68 1.75
1979-82 -3.59 0.88 4.67 -3.29 -1.77 -2.61 4.18
1982-5 -1.77 7.00 7.56 -0.56 -0.26 0.10 1.37
UK
1970-3 0.02 13.08 12.75 0.33 0.88 -0.95 0.38
1973-6 -2.77 2.18 6.79 -4.61 1.38 -3.85 0.63
1976-9 0.24 6.97 3.65 3.32 0.58 1.00 0.50
1979-82 -6.33 -2.49 6.39 -8.88 -1.36 -2.97 1.78
1982-5 -1.04 9.97 4.69 5.28 1.37 3.06 1.89
Let us explore now in more detail the instruments and methods used by
Japanese enterprises to deal with the question of employment adjustment.
A comparative survey conducted in 1988 by the Ministry ofInternational
Trade and Industry (MITI, 1988) noted that few Japanese enterprises
(1.8 per cent of those surveyed) resort to the firing of employees for the
sake of employment adjustment. The instruments favoured, when prepar-
ing long-term employment plans, are instead adjustment in the amount of
overtime (44.9 per cent) and in new hirings (37.7 per cent). On the other
hand, 21.1 per cent of enterprises surveyed in the USA resorted to the
firing of employees for the purpose of employment adjustment.
Neantro Saavedra-Rivano and Hideki lmaoka 245
Figure 7.5 Japan: effect of a I per cent increase in manufacturing output on
labour inputs
%
0.9
0.8
0,7
0,6
0,5
0,4
0.3
0.2
0.1
Ot - ---+-
- 0,1 Japan USA Canada France Germany UK
Countries
Source: Ministry of Labour, Japan (1994a), based on data from various sources for
1948-91.
Manufacturing
First oil shock 71 54 23 50 16 20 5
Endaka crisis 40 26 20 12 4 6 3 3
Recent period 50 38 29 24 9 10 7 2
Equipment related
First oil shock 82 69 30 64 18 23 6
Endaka crisis 56 41 29 18 6 10 3 5
Recent period 65 52 39 34 12 14 8 3
Retail and wholesale
First oil shock 37 16 6 24 5 0 I
Endaka crisis 14 8 6 4 I 1 0
Recent period 27 17 9 14 3 4 0 I
Services
First oil shock
Endaka crisis 15 5 3 5 4 0 I
Recent period 31 19 14 13 4 5 1 2
Note: Data for the first oil shock refers, in the case of manufacturing, to April-June 1975; and to July-September 1975 for other
sectors. For the endaka (high yen) crisis, in the case of manufacturing and equipment-related sectors, to October-December 1986; in
the case of retail and wholesale, to January-March 1987; and in the case of service, to January-March 1986. The recent crisis uses
data for the period October-December 1993.
Source: Ministry of Labour, Japan (1994a).
Neantro Saavedra-Rivano and Hideki Imaoka 247
the enterprise or to the group of related enterprises (keiretsu). The big
enterprises use often the instrument of transferring employees within the
enterprise or group of enterprises. In a study conducted over the year
19927 about the motives behind flows of personnel in workplaces, it was
found that 59.3 per cent of these movements were due to transfers to other
positions within the same firm, 5.2 per cent to transfers within the same
group of enterprises, 25.4 per cent were leaving the firm for contractual
reasons (retirement or end of fixed-term contract), and 10.1 per cent were
fired due to business conditions.
Undoubtedly all these tools of adjustment reflect on per capita labour
income. It is interesting to examine the increase in labour share that corre-
sponds to a 1 per cent increase in GDP and decompose it into its two
components, namely the increase in the level of employment and the in-
crease in per capita labour income. Such an exercise was carried out, by
the Ministry of Labour of Japan for the six major OECD countries. 8 In the
case of Japan it is found that almost 100 per cent of the labour share
increase is explained in terms of per capita labour income. Exactly the
opposite situation is found for Canada, while for the USA more than
90 per cent of the labour share increase is accounted for by increase in the
level of employment. For the other countries of the sample it is also true
than more than half of the change in the labour share must be attributed to
changes in the level of employment (see Figure 7.6).
Figure 7.6 Japan: effect of a I per cent increase in GDP on employment and per
capita labour income
%
0.8
Let us look now more closely to the labour participation rate, in particular
the female participation rate. If we refer to Table 7.12 for the more recent
figures, we can see that the total rate of participation in the labour market
is quite stable, with a maximum variance of 2.4 percentage points. Both
the female and the male participation rates have separately a higher
variance (3.1 and 2.7 percentage points respectively), the male rate being
much higher than the female rate. Female participation has been increas-
ing while the male rate has declined slightly. These figures confirm the
general stability of the conditions in the labour market but they also indi-
cate that some changes are developing slowly, which tends to increase the
importance of women in these activities.
It has already been noted before that, during the period 1973-6, only
Japan and W. Germany exhibited a drop in participation rates. If this rate
is further examined to differentiate according to gender (see Table 7.13)
we find an interesting difference between Japan and the other countries
surveyed. While in all countries (including Japan) the participation rate
for males drops, the corresponding rate for females increases for females
in all countries except for Japan (and also for W. Germany, albeit the
figure is in this case insignificant). In addition, the fall in the Japanese
male participation rate is, except for the UK, the smallest. This is quite
striking and demands further examination.
13m f3, f3
Canada -0.78 7.71 2.21
USA -0.72 6.43 2.07
Japan -0.36 -3.89 -1.67
France -1.66 4.09 0.49
W. Germany -3.78 -0.06 -2.32
UK -0.06 4.54 1.38
Notes
I. Perhaps the best early work representing this school is that of Abegglen
(1958). See also Abegglen (1973), where his ideas were refined and brought
up to date.
2. It is important also to note, given its likely impact on the medium-term
flexibility of the labour markets, that all agreements are valid for only one
year and are thus bound to be revised one year later subject to changes in
business conditions.
3. The volume edited by Aoki (1984) is representative of these critics. The
work by Taira (1970) should also be mentioned, as well as that of Koike
(1988), which draws on many of his earlier writings. Dore (1973) must also
be mentioned, as a perceptive critic of the culturalist school.
4. Hanami (1979, 1989) provides detailed information on labour relations in
Japan, including the history of the Japanese trade unions.
5. Of course we must keep in mind that the rate of unemployment is much
higher in France than in Japan.
6. This analysis can be found in detail in pp. 169-72 of Ministry of Labour,
Japan (1994a). The period of analysis is 1984-91.
7. See Ministry of Labour, Japan (1994a), pp. 182-3.
8. See Ministry of Labour, Japan (1994a), pp. 174-5. The period considered is
1976-92 and statistical data from the OECD are used.
References
8.1 INTRODUCTION
255
256 The US Labour Market
too dumb to understand how markets work, or too subject to interest
group pressures. On the same level of debate, it can be argued that
reducing unemployment to low levels is a relatively trivial theoretical
exercise, provided you have no social and political constraints. John
W. Morley, Head of the Employment and Labour Market Policy Unit,
Commission of the European Communities.
Yet if one looks over a time horizon greater than the last 15 years, the
foundation for this view is less solid. 25 years ago unemployment rates in
the USA were between 5 and 6 per cent - several times larger than unem-
ployment rates in Europe, which ran between 1 and 2 per cent. For labour
market flexibility to explain this change, one of three things must be true:
either the US labour market became more flexible; or European labour
markets became less flexible; or the economic environment changed to
make flexibility a more important determinant of outcomes than in the
past.
Moreover, as is now widely recognized, the benefits of US employment
growth have been accompanied by rising wage inequality and impoverish-
ment of the lower parts of the earnings distribution. The concentration of
these problems in the USA compared to Europe suggests that while flex-
ibility US-style might help cure some economic troubles, it exacerbates
others, and that while some forms of market flexibility might be socially
beneficial overall, others might not pass a societal benefit-cost test.
In this chapter we examine an aspect of flexibility that has received little
attention: the flexibility that shows up in quantitative reallocation of
labour. Since much of the virtue of price or wage flexibility is that it
induces changes in output or employment, we argue that quantitative flex-
ibility is as (or more) important an indicator of 'economic virtue' as price
flexibility, and thus deserving of greater analytic attention. We ask
whether quantitative flexibility has been faster or slower in the USA in
the 1980s-1990s than in previous decades; and whether it has been greater
or smaller than in other countries.
Our analysis provides little or no support for the view that quantitative
flexibility has increased in the USA. We reject the popular business press
reports that the past two decades have seen extraordinary shifts in jobs
among sector or occupation; exceptional job creation or destruction; the
growth of a huge 'contingent' workforce or of 'virtual' employees shifting
among jobs and employers regularly. Quantitative flexibility is no higher
than in the past in the USA.
Our analysis also provides little or no support for the view that the US
labour market has greater quantitative flexibility than European labour
Steven G. Allen and Richard B. Freeman 257
markets. Shifts of labour among most categories, such as across industry
lines, are quite similar. In addition, we note that labour market regulations
have increased in the USA in recent years, while regulations have been
eased in European countries. We conclude that the major area in which the
USA has shown great flexibility is in wages: relative wages have changed
more than in other countries, and real earnings have fallen for larger
segments of the workforce.
Restraints or policies that reduce flexibility affect both the wage and
employment equilibrium values. Consider, for example, an external
restraint on employer ability to alter employment that reduces the elas-
ticity of labour demand. This would produce a smaller change in em-
ployment to a given shock and a greater wage adjustment. By contrast, a
constraint on the adjustment of wages will produce a greater adjustment
in employment. To evaluate arguments about flexibility in the context of
this model, it is necessary to examine both quantity and wage adjust-
ment.) In more complicated models that allow for firms to respond along
margins bey~md numbers hired and wages paid, the point is even
stronger.
A final consideration in benchmarking a labour market's flexibility is
whether the market remains near full employment in the aggregate.
Despite the relative absence of constraints and magnitude of wage adjust-
ments, the USA would not be considered flexible (or flexibility would not
be considered virtuous) if unemployment rates had been 10 per cent or
more in the 1980s and 1990s. The ability of an economy to remain at full
employment can be interpreted as a signal of its aggregate responsiveness
to self-correcting market forces. But again, full employment is not equiva-
lent to flexibility; otherwise all the countries on the other side of the Berlin
Wall really would have been workers' paradises.
Virtually all analysts rate the USA high in labour market flexibility. What
is the evidence that justifies this rating?
We categorize the evidence along two dimensions: aggregate or macro-
economic outcomes and relative (microeconomic) outcomes; and wage or
quantity outcomes (see Table 8.1). The flexibility debate has focused on
three of the four cells: macroeconomic evidence on wages; macro-
economic evidence on quantities; and the microeconomic evidence on
260 The US Labour Ma1*et
Table 8.1 USA: types of evidence on labour market flexibility
Changes in the structure of individual wages in the USA over the last 25
years are summarized in Freeman and Katz (1994, pp. 34-5) using data on
hourly earnings for full-time workers from the March Current Population
Survey (CPS). The wage gap between college and high school graduates
increased from 1963 to 1971 but then fell throughout the 1970s and rose
sharply throughout the 1980s. Returns to experience grew considerably in
the 1970s for college graduates but then declined modestly in the 1980s.
The payoff to experience for high school graduates changed little in the
1970s but grew tremendously in the 1980s. The wage gap between men
and women changed little in the 1960s and 1970s but narrowed remark-
ably in the 1980s. Finally, within categories of workers, the dispersion of
wages increased considerably in both the 1970s and 1980s.
Freeman and Katz compare the changes in the US wage structure to the
experience of ten other countries. Only the UK experienced a similar
widening of wage differentials. There was a modest rise in differentials in
Australia, Canada, Japan and Sweden; no noticeable change in France,
Germany and Italy; a modest fall in the Netherlands; and a large fall in
South Korea. Assuming similar shocks in supply and demand, the US
wage structure is indeed highly flexible. But Freeman and Katz also note
that the supply of college graduates increased massively in Korea and
more rapidly in the Netherlands than in the USA. At least part of the dif-
ferential experienced in relative wage adjustments reflects responses to
differential shocks, not differential responsiveness.
Steven G. Allen and Richard B. Freeman 261
Geographic wage patterns also indicate considerable flexibility in the
USA. Historically wages have been lower in the South than elsewhere, but
that wage differential has gradually eroded over time. Blanchard and Katz
(1992) regress annual average wage growth by state (for production
workers in manufacturing) between 1950 and 1990 on log wages in 1950
and obtain a slope of -0.01, indicating slow, but steady convergence.
Since the work of Stichter and Cullen, labour economists have stressed
the stability of the interindustry wage structure. In these and more recent
studies, stability has been defined as autocorrelation in average hourly
earnings for production workers. This does not mean that wage patterns
across industries are etched in stone. As Allen (1995) shows, the
coefficient of variation of wages has varied considerably over the last 100
years, falling from 1890 to 1920, rising in the 1920s and 1930s, sharply
dropping in the 1940s, and then steadily rising since the 1950s. The in-
terindustry pattern of earnings for non-production workers exhibits a great
deal more fluctuation over time than do the patterns for production
workers.
Figure 8.1 shows the pattern of change in two series that describe pay per
hour in the aggregate economy: real average hourly earnings and real
hourly compensation. 4 Both series show that hourly pay rose rapidly in
the 1960s. Real average hourly earnings peak in 1973 and have declined
since; today they are lower than at any time since 1965. The hourly com-
pensation series paints a less stark picture, growing by 8 per cent in the
1970s and by 6.9 per cent since 1980, though these rates are also far below
150
145
140
135 --0- Real hourly
130 compensation
125 -<>- Real average
hourly
120 earnings
115
110
105
100~~~~+44-~~+4~~+++44-~~++~-H
1960 65 70 75 80 85 1990
Another reason why the US labour market is cited as most flexible is its
return to full employment after the oil and money shocks in the 1970s and
Steven G. Allen and Richard B. Freeman 263
1980s. Unemployment in the USA was higher than in the EC in 1970 and
was somewhat higher still in 1980. This situation reversed in the after-
math of the 1982-3 recession. In 1984 and 1985 unemployment fell in the
USA, whereas it levelled in the EC. Starting from a higher base, the 1990
recession pushed EC unemployment into the double-digit range.
The US employment record is even more impressive. Employment grew
more rapidly in the USA than in the EC (1.6 versus 0.5 per cent annual
growth), in part because of greater growth in the working age population and
increased labour force participation. But these supply indicators do not tell
the whole story. The employment-population ratio in the USA grew more in
the 1980s than in any other decade since the Second World War. In contrast,
employment grew by less than the working-age population in Europe.
As for output and productivity, output grew more in the USA
(2.6 versus 2.1 per cent annual growth), but productivity grew more in the
EC (1.7 versus 0.8 per cent). Because of these productivity gains, the USA
and EC enjoyed comparable growth in their overall living standards, despite
the superior US performance in job growth. Per capita output grew by
1.8 per cent in the EC in the 1980s versus 1.6 per cent in the USA and
Canada. When evaluating the payoff to labour market flexibility, the focus
will have to be in the areas of employment and distribution, not growth.
To summarize, there is a reasonable case from relative wage adjust-
ments, aggregate wage patterns, and aggregate employment to support the
conventional wisdom that the USA has a more flexible labour market than
Europe. But on closer examination, the case is 'thinner' than is recog-
nized. In terms of relative wage changes, the USA had a more rapid decel-
eration in the growth of the educated workforce than many other countries,
which contributed to the exceptionally large rise in education or skill dif-
ferentials. In terms of aggregate wage determination, macroeconomic
wage relations do not show the USA to be an outlier in adjustment to
'shocks'. It is on the aggregate quantity side - greater growth of employ-
ment and lower rate of unemployment - that the case for the flexible US
job market rests most heavily. Is this case supported by the missing
element in the flexibility discussion: the micro quantitative adjustment of
labour across disaggregated sectors or areas?
12
10 '. ,
8
"" ,"' :11,
'II: I
,I
"
"
j I' ,I "
, I 0'
u
!!l 6
"
\'
:' ~, ,
iI, I,
,'
, ' - - I year
, \ 't, I'
\I I , "0' I, , - - -5 year
" 'II I", , I,
4 , ' \' \ I , - - . - 10 year
I
," ,'o,!f-
2
O~~~~*»w#m##m~~~~w#~m##m#m~~
tion of labour in the 1980s and 1990s. The mean value for ISC for
1980-92 is 0.866, not much different than the means for the 1950s
(0.893), 1960s (0.862), and 1970s (0.846). It is below the mean ISC for
the decades in the first half of the century. The most turbulent decade was
the 1940s (2.362), followed by the 1920s 0.871) and 1930s (1.659),
The biggest reallocation in recent years took place during the 1981-2 re-
cession, when 1.4 per cent (net) of the workforce changed sectors. In the
post-war period alone, larger reallocations took place in 1948-9, 1953--4,
1957-8, 1965-6, and 1974-5 than in 1981-2, All of these pale besides the
reallocations that took place in 1920-1 and the second World War, when the
net sectoral reallocation amounted to over 4 per cent of the labour market.
Over longer intervals also the 1980s and 1990s were not unusual in
terms of changes in employment shares by industry. The largest sectoral
reallocations took place after the First World War, during the Great
Depression, and during and after the Second World War. There is nothing
in Figure 8.2 to suggest any more sectoral reallocation in the 1980s and
1990s than in the 1950s, 1960s or 1970s.
Leonard (1987), Dunne et al. (1989) and Davis and Haltiwanger (1992)
have shown that there are sizable reallocations of labour among plants
within industries. The main sources of these flows are expansion and
266 The US Labour Market
contraction of employment in individual establishments and births and
deaths of establishments. In the Davis and Haltiwanger longitudinal data
set of manufacturing plants, there is a gross rate of job creation (the ratio
of employment growth in expanding and new plants to total employment)
of 9.2 per cent per year and a gross rate of job destruction (the ratio of the
decline in employment in contracting and dying plants to total employ-
ment) of 11.3 per cent per year in 1973-86. This implies a gross job
reallocation rate of 20.5 per cent per year.
Professor Steven Davis of the University of Chicago Graduate School
of Business kindly provided us with a revised and updated set of summary
statistics for manufacturing for 1973-88.7 This data set gives us a different
measure of labour reallocation to see if the 1980s stand out as a period of
turbulence on the quantity side. As can be seen in Figure 8.3, the average
rates of job creation, job destruction, and net job growth changed
markedly from the 1970s to the 1980s. The rate of job creation dropped
from 10.0 per cent for 1973-9 to 8.4 per cent for 1980-8; the rate of job
destruction grew from 9.2 to 11.1 per cent. The average rate of net job
growth correspondingly fell from 0.8 to -2.7 per cent.
Despite declining employment levels in manufacturing in the 1980s,
however, there is nothing unusual about the sum of the rates of job cre-
ation and destruction, which measures gross sectoral reallocation. The
average rate of job reallocation for 1973-9 is 0.192; it increased only
slightly to 0.194 in 1980-8. The decline in employment in this sample of
plants was accomplished by a decrease in the rate of job creation that was
almost exactly offset by an increase in the rate of job destruction. The
sizable increase in wage inequality could have been accompanied by
surges in both job creation and job destruction. It was not.
0.25
0.02
! 0.15
'0 0.10 ......... Job creation
§ 0.05 ....... Job destruction
'f 0
--- Net job growth
1-{l·05 --it- Job reallocation
-{l.1O
-{l.15 I I I I I I
197374 75 76 77 78 79 80 81 82 83 84 85 86 87 88
Figure 8.4 USA: ISCs for I-digit occupations over 10-year intervals, 1910-80
10
8
u
CIl
-7
5 ~----~------1-----~~----1-----~~-----r----~
1910 20 30 40 50 60 70 80
Year
Source: Historical Statistics of the United States: Employment and Earnings.
268 The US Labour Market
Figure 8.5 USA: ISCs for I-digit occupations at 1-, 5- and lO-year intervals,
1955-93
8.00
7.00
6.00
-+-1 year
5.00
----5 year
~ 4.00 A -6--10 year
3.00
2.00
1.00
0.00 +-+-+-f-HH-+-+-++++++-+-++-I-H~H-+-+-+-+-++++++-+-f+-l
1956 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92
Year
actually lower than those in the 1950s, 1960s, and 1970s. The means of
the 1 year ISC measure are as follows:
1955-9 l.68
1960-9 1.00
1970-9 1.02
1980-93 0.75
In sum, the recent years stand out as a relatively quiet period in terms of
changes in the occupational distribution, not a chaotic one.
12
10
8
u
~6
O+-----~-----+------r_----+_----;_----_+----~----~
1910 20 30 40 50 60 70 80 1990
Year
Source: Historical Statistics of the United States: Employment and Earnings.
Figure 8.7 USA: ISCs across states over 1-, 5- and IO-year intervals, 1939-90
7
6
- 1 year
/
_ "'
- /
or "
\ --5year
/ \/" - - - lOyear
2
OLu~~~~~~~~~~~~~~~~~~~
1940 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88
the 1930s (l0.1 per cent); there also was considerable reallocation in the
1970s (6.6 per cent). In the 1980s, the rate of geographic reallocation
declined to 4.4 per cent, a level comparable to that in most other decades.
Once again, it is difficult to argue that the 1980s witnessed anything extra-
ordinary in terms of the reallocation of labour across sectors.
8.4.5 Interpretation
All the evidence examined thus far tells a similar story: there has been no
upswing in the reallocation of labour in the USA in the J980s-J990s
270 The US Labour Market
compared to earlier periods. Unless shocks to the labour market in the
1980s and 1990s were smaller than in earlier decades, this pattern is
difficult to reconcile with any claim that the labour market became more
flexible. Given increased shocks, in fact, it implies the opposite - that the
US labour market grew less flexible. Given a steady level of shocks, it
implies no noticeable change in stability.
The rough stability in quantitative adjustments that characterized the
1980s-l990s stands in sharp contrast to the great change in relative wages
shown earlier. How might we best explain this divergent pattern of price
and quantity adjustments?
One interpretation is that the large adjustments in relative prices
buffered the quantity side of the job market against exceptional shocks.
Changes in demand for workers that might have caused massive shifts in
employment did not do so because wages ameliorated the employment
adjustment. We would feel more comfortable about this explanation if it
were not also true that aggregate unemployment rose over 1980s, and that
(as we shall soon document) groups with large wage losses experienced
increased joblessness.
A second interpretation is that the wage adjustment was great because
the quantitative adjustments were overly sluggish. In this case, sluggish
supply responses - a slow movement of people out of industries or occu-
pations or skill groups with declining demand into those with increasing
demand - produced stable quantitative adjustments over time but
increased price adjustments.
A third interpretation is that the institutional forces that had maintained
the wages of less skilled workers - unions and the minimum wage - had
smaller effects in the 1980s than in earlier decades, so that even shocks
comparable to those in the past produced greater wage dispersion than in
previous decades, whereas these forces had no effect on quantitative ad-
justments. We would feel more comfortable with this explanation if it
were not also the case that unions and minimum wages were relatively
weak throughout much of the pre-1940s period.
14
12
10 --25-34
-A-35-44
8 -<>- 45-54
6 -0-55-64
4
2
0
1951 63 66 73 78 83 87 91
Source: Employee Benefit Research Institute (1994).
tenure has been slightly larger for women than for men. This should not be
surprising, since a majority of women return to work shortly after child-
birth and a rising proportion of women are employed in occupations
previously dominated by men.
There are limitations to the data in Figure 8.8 and Table 8.2. First, they
relate to spells of employment that are in progress rather than to spells
that have been completed. Second, these measures are based on a sample
of employees rather than a sample of the population. These distinctions are
particularly relevant for older men, whose labour force participation rates
Table 8.2 USA: median years with current employer, by gender and age group,
1951-91
Men
Total 3.9 5.7 4.2 4.6 4.5 5.1 5.0 5.1
25-34 2.8 3.5 2.7 3.2 2.7 3.4 3.7 3.7
35-44 4.5 7.6 6.0 6.7 6.9 7.7 7.6 7.2
45-54 7.6 11.4 8.8 11.5 11.0 13.4 12.3 12.2
55-64 9.3 14.7 13.0 14.5 14.6 17.0 15.7 15.5
Women
Total 2.2 3.0 2.8 2.8 2.6 3.3 3.6 3.8
25-34 1.8 2.0 1.9 2.2 1.6 3.1 3.1 3.2
35-44 3.1 3.6 3.5 3.6 3.6 4.6 4.9 5.0
45-54 4.0 6.1 5.7 5.9 5.9 6.9 7.3 7.3
55--64 4.5 7.8 9.0 8.8 8.5 10.5 10.3 10.4
Table 8.3 USA: distribution of job tenure on longest job, male workers aged
58-63 in 1969 and aged 58-61 in 1993, %
0-4 years 12 7
5-9 years 10 11
10-19 years 23 25
20-29 years 24 29
30-39 years 18 24
40+ years 13 4
Note: 1993: tabulations from the public use files of the Retirement and Health
Survey
Source: 1969: Quinn, Burkhauser and Myers (1990).
274 The US Labour Market
But Swinnerton and Wial (1995) find that retention rates fell between
1983 and 1987 and 1987 and 1991, especially among low seniority
workers. And even if tenure rates have not changed much, it is possible
that the labour market is experiencing a change in the impetus for job
shifts from quits to layoffs that makes workers less secure. Still, nothing in
the evidence as yet shows that the labour market has undergone the revo-
lution in the nature of work or of employee attachment to firms that the
popular press portrays.
(1)
1950-9 4.5
1960-9 4.8
1970-9 6.2
1980-9 7.1
1990-3 6.6
2.5
2.0
-0- Below
1.5 12
-<>- 12
-b- 13-15
16 or
0.5 more
0+-+-~~~-4-+-+-+~~4-+-+-~~-+-+-+~
1970 72 74 76 78 80 82 84 86 88 90
Table 8.4 USA: mean annual hours worked, by wage decile, male workers,
1970-90
Source: Tabulated from US Census of Population public use data files (1970,
1980, and 1990).
Figure 8.10 USA: ratio of group to total unemployment rate, men, 1948-93
4.5
4.0
3.5
3.0
2.5
2.0 -0- 16-19
-0-- 20 and over
1.5
1.0 ~><>¢-<><><><>¢<>¢.<><><>¢-¢...:>o<><><><~~~>¢-<>¢oO<>¢(>.C>¢<><><>'~
0.5
O~HH4+++HH4+++~H+++HH~++HH++~~~HHH
1948 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93
Source: Economic Report of the President (1994).
Steven G. Allen and Richard B. Freeman 279
Figure 8.11 USA: ratio of group to total unemployment rate, by gender, 1948-93
1.4
1.3
1.2
1.1
1.0
0.9
0.8 4+++-~I--I-"H-IH4-+4-++++~~H-IH4-++++++-l-I-IH-I-+4-++4+-l
1948 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93
Figure 8.12 USA: ratio of group to total unemployment rate, by race, men,
1948-93
2.1
1.9
1.7
1.5
1.3
1.1
o. 9 r~~~~:>O()<Y><~>¢<>'<>-o¢~>¢¢"X>¢.o-o<l,<><><>o<I:>¢¢
0.7
0.5 4+~H-IH4-++-++++-H-IH-I-++++f+-'H4-++++H-IH-+-++++-++H
1948 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93
period since the second World War despite the decrease in teen wages
relative to adult wages.
The trends in wages by gender and race differ from those for education
or experience. The gender gap narrowed in the USA and the white-
non-white wage gap, which had been narrowing steadily throughout most
of the twentieth century, stayed constant in the 1980s. How did relative
joblessness change among these groups?
Female unemployment historically has been above male unemployment,
but this trend reversed in the 1980s. This coincides with the timing of the
decline in the gender gap in earnings, but we are unable to determine
whether this is a reflection of increased education and experience in the
280 The US Labour Market
female work force or a relative demand shift. There is no apparent trend in
relative unemployment rates by race over the last 45 years.
This evidence on relative unemployment rates shows how difficult it is
to tell a single simple story about real wage growth and joblessness within
the USA. Greater joblessness is associated with lower relative wage
growth for men and for workers who did not attend college. There seems
to be no connection at all between real wage growth in the 1980s and
1990s and relative unemployment by age or race.
'the source of business' problems ... is the larger body of labour law
and regulation that pervades the workplace and the non-productive costs
it generates. The problem is not any particular law or regulation, but
their collective weight. And the cost is not so much the penalties, as the
litigious process and delay. (Testimony before Commission on the
Future of Worker-Management Relations, September 8, 1994)
USA 5.4
Britain 6.9
France 12.6
Germany 10.7
Italy 12.3
Spain 21.9
8.10 CONCLUSIONS
(1) Quantitative reallocation of the work force has not increased in the
USA in recent years.
(2) The groups that suffered great losses in real wages did not make
compensatory gains in reduced unemployment.
(3) Employment-output elasticities show no consistent pattern of
increased flexibility.
(4) Labour market regulations have become more extensive.
(5) Along some dimensions, the US labour market is quantitatively more
flexible than the European market, but the US reallocation of labour
across industries has been less than in Europe.
The overall pattern of results strongly suggests that there has been no
decrease in quantitative flexibility in the US job market. If, at the same
time, there has been no decrease in quantitative flexibility in Europe, the
only possible way quantitative flexibility might explain the differing per-
formance of the USA and Europe is if flexibility became a more important
economic attribute in the 1980s than in earlier periods. This may have
been the case. But we are more impressed with the fact that the differing
employment and unemployment experiences of the USA and Europe were
accompanied by differences in real wage adjustments. If falling real
wages, not some special quantitative flexibility, explains the job miracle in
the USA, the correct reading of US experience is not that the country
found a free lunch but that it paid for its good employment performance
with a weak wage performance.
Steven G. Allen and Richard B. Freeman 287
Notes
I. Thanks go to Steve Davis and Phil Levine for providing some of the data
used in this paper and to Daniel Hamermesh and Susan Houseman for
guiding us through the literature on employment-output elasticities. We
appreciate the research assistence of Mark Sisak and Darrin Curtis.
2. The distinction between speeds of adjustment and magnitudes of adjustment
can be most readily seen in terms of a simple lagged adjustment model in
which changes of employment are a function of lagged employment and
equilibrium employment. The speed of adjustment relates to the adjustment
coefficient on lagged employment. The magnitude of adjustment depends on
the effect of the exogenous variable under consideration on equilibrium
employment.
3. The need to examine both quantity and price data to make a proper assess-
ment of flexibility arguments can be illustrated in how we read the recent
increase in the gap in wages between high school and college graduates,
which is exceptional in the USA and the UK. This rise signals an absence of
constraints on wage adjustment. But if one of the underlying reasons for the
wage increase is that costs of college were increasing or entry to collegel
limited, less flexible quantity adjustments would also be a factor. This also
would be the case if internal firm training procedures make college and non-
college workers less substitutable in the USA or UK than countries such as
Germany.
4. Both series are deflated by the CPI for all urban consumers. The use of
different price indexes, such as the personal consumption deflator, has a
modest impact on the magnitude of the drop in real pay levels or real pay
growth but does not radically alter the overall pattern in Figure 8.1.
5. In most cases, these regressions make wages a function of other macro
variables that are also endogenous, and lack any clear 'natural experiment'
variation to isolate routes of effects.
6. ISCs also were calculated for 2 digit industries using data from the National
Income and Product Accounts since 1947, with results similar to those
reported below for 1 digit industries.
7. These appeared in Davis et at. (1994).
8. In 1994 alone, Fortune has ran three cover stories heralding this trend. See
The End of the Job', (September 19, 1994); 'The New Deal: What
Companies and Employees Owe One Another', (June 13, 1994); and The
Contingency Work Force', (January 24, 1994).
9. Defined-benefit pensions also can induce job-lock, but the share
of employees covered by such pensions has declined in the 1980s and
19908.
10. The well-trained microeconomist will quickly note that (I) does not contain
the relative price of labour. This has become standard practice mainly
because the high frequency changes in wages are small relative to changes
in output and because of problems in measuring the price of capital.
II. See Commission on the Future of Worker-Management Relations (1994,
Chapter IV), for more detailed discussion of increased US regulations.
12. These data are calculated from OECD (1991 b).
288 The US Labour Market
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Census, Washington, DC, Government Printing Office.
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Dunne, T., Roberts, M. and Samuelson, L. (1989) 'Plant turnover and gross
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issues and policy options, Kansas City, Federal Reserve Bank.
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Labor Market Behavior, Ithaca, NY, ILR Press.
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Steven G. Allen and Richard B. Freeman 289
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there evidence of job-lock?', Quarterly Journal of Economics, 109 (February),
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Index
Abraham, K.G. 275, 275-6, 284 behaviour: employers' and regulation
adjustment 10 191,202-7
Chile: structural adjustment 67-9 Bernstein, J. 276
costs 37-8 Berry, A. 27, 151
government policies and Bivar, W. 24
programmes in Canada 175-6 Blanchard, O. 261
Japan see Japan Blanchflower, D.O. 22,26,54,262
Mexico see Mexico blue collarization 235
AFP system (Pension Fund Manager) bonus payments
80,85 Chile 85
age Japan 226,250--1
Japan: female participation 249; Borjas, OJ. 165
length of service 231-3; Brazil 2, 37-64
wages and 233-5 employment flexibility 50--4
older workers in EU 188 human capital investment 58-61
USA: job tenure 271-3; informal sector 27,56-7
unemployment 278-80; and institutions see institutions
wages 235 macroeconomic variables 49-50,
Akerlof, G. 13 51
all-risks insurance 83 output per worker 31-2
Allen, S.G. 261 segmentation 56-7,61
allocative efficiency 17, 18 wages see wages
Amadeo, E. 27, 57 Brown, F. 129
Anderson, 1. 170 buffer: informal sector as 76
Anderton, 218 Bureau of Employment Security
Andriessen, F. 255 (Japan) 238
anti-discrimination legislation 173 business cycle see economic cycles
Aoki, M. 7,8
Apprenticeship programme (Chile) Camargo, J.M. 27,57
89-90 Canada 2, 151-83
Arena, E. 143 adjustment policy 175-6
'arubaito' workers 230,231 comparative analysis of adjustment
assimilation of immigrants 165 239-43,245,247
Austria 24 employment see employment
automation, flexible 139 institutions see institutions
automobile industry 139 labour market background 152-8
autonomous training centres 142 output per worker 32
skills 176-9; education 177;
Baker, M. 25 human resource and workplace
balance of payments 49-50 practices 178-9; training
Barros, R.P. de 54-5 177-8
Basu, P. 30 unemployment 24, 154-6
Beatson, M. 212,218 wages see wages
291
292 Index
Canada-US Free Trade Agreement Community College system (Canada)
(CAFTA) 152, 157, 180 177
Canadian Auto Workers 171 Company Programme (Chile) 87-91
Canadian Job Strategy Programme concentration of industrial
(CJS) 178 employment 120,124
Card, D. 151,156 conciliation audience 43-4
Castillo, M. 95 conditions of work
Central Onica dos Trabalhadores Brazil 41
(CUT) 48 Mexico 134
Chan-Lee, 218 Confederaci6n Patronal de la
childcare facilities 84 Republica Mexicana
children, number of 250 (COPARMEX) 137
Chile 2, 65-112 Confederaci6n de Trabajadores de
economic indicators 67-8 Mexico (CTM) 136-7
firms' labour flexibility Confederation of Workers' Unions
strategies see firms (CUT) (Chile) 97
labour mobility see mobility Consolida~ao das Leis do Trabalho
legislation and institutions 30, (CLT) (Labour Code) (Brazil)
78-87,97-8,102;labour 39,40
policies 79-81; regulation contingent workforces 154
81-7 corporatism
macroeconomic performance Mexico 130-2; debate on labour
66-73; economic cycles and legislation reforms 136-7
structural adjustment 67-9; neo-corporatist model 8-9,29,30
employment 69-71; wages Cortazar, R. 73
71-3 'cost-cutting' scenario 190
output per worker 31-2 court suits 281-2
training see training see also Labour Courts
unemployment see unemployment Covarrubias, A. 143
wages see wages culturalist school 225-6, 232
Chile Joven 89-90
city of residence: size of 249 Davis, SJ. 265-6
coal miners: re-training 89-90,91 demand, labour 154, 239-43
COBRA (Consolidated Omnibus Denmark 210,219
Budget Reconciliation Act) 1985 deployment of labour see mobility;
(USA) 271 reallocation of labour
collective bargaining Diaz, A. 96
Canada 171-2 Diebold, F.X. 273
Chile: firms' flexibility strategies dismissal see firing/dismissal
97-8; regulation 82,85-7 Domfnguez, L. 129
EU 198,215 Dunne, T. 265
USA 257-8
collective labour contracts early retirement 245, 246
Brazil 40,47-9 Echeverria, C. 79
Chile 98 economic cycles
see also labour contracts Chile 67-9; and employment
collective rights 135-6, 137 69-71; informal sector 75-6,
Comisi6n Nacional de Salarios 77
Minimos 131 Japan 243-4,250-1
Index 293
economic growth 243--4 USA 263; employment-output
Economic Solidarity pacts (Mexico) elasticities 274-6; regulation
132 280-3
economically active population (EAP) Employment Insurance Law 1974
see supply of labour (Japan) 238
education Employment Programme for Heads of
Brazil 60 Households (POJH) (Chile) 79
Canada 159, 177 Employment Security Law 1947
EU 216 (Japan) 238
Japan 234,235,249 employment standards legislation
USA 276-7 172-3
see also training employment-at-will doctrine 281
efficiency 9-10 equal pay 173
allocative 17,18 establishments see firms
EFfA countries 29 European Union (EU) 2, 185-223
Emergency Employment Programme comparison of USA with 263,
(PEM) (Chile) 79, 103 283-6,286
Emerson, M. 199 European integration and the labour
Employee Benefit Research Institute market 189-90
271 flexibility as a common cure 186-9
employers institutions 29,191-207
impacts of regulation on behaviour macro and meta level indicators of
191,202-7 labour market flexibility
perceptions and regulation 191, 207-18; deployment of labour
199-202,203 208-12; employment-output
see also firms responses 212-15; wage
employment flexibility 215-18
Brazil: flexibility 50--4 output growth 31
Canada: flexibility 167-70; regulation see regulation
structure 154, 155 unemployment see unemployment
Chile 102; firms' flexibility exclusion clause 137
strategies 95-6; pro-cyclical
behaviour 69-71 family allowances 84
EU: employment-output responses family structure 249-50
212-15; regulation and Farber, H.S. 273
202-7 Federal Labour Law 1931 (Mexico)
full 17,18,259 130
Japan: characteristics of Federal Reserve Bank of Kansas City
employment system 225-6, 255-6
228-35; comparative analysis female participation see women
of adjustment 239--43; firing/dismissal 15, 16
fluctuations and business cycle Brazil 40,46-7
243--4; tools of adjustment and Canada 172-3
income effects 244-7 Chile 81, 83--4
labour flexibility 12, 13-17 EU 193,196,197,199,200,285
labour market flexibility 11, 12; Japan 244-5,246
evidence of growth 22--4 Mexico 133
Mexico: stability 132-3; structure USA 281
117-19 see also severance payments
294 Index
firm size 16 Giersch, H. 255
employment in Japan 228-9 global economic order 179-80
Mexico: employment 120, 122; Goldin, C. 24
productivity 127-9 government supported training
firms 177-8
Canada: skills 178-9 Greece 197, 198-9
Chile and labour flexibility see also European Union
strategies 91-10 1, 103-4, Gregory, P. 119
105-8; labour relations 97-8; Grubb,D. 194,202,206
management styles 98-101; Gunderson, M. 161
restrictions on labour issues
93-4; training 96-7; turnover Haltiwanger, J. 265-6
and sub-contracting 95-6 Hamermesh, D.S. 275
and employment flexibility 16-17 Hart, R. 212-13
Mexico: attitudes to training head of household income 250
143-4 health insurance 271
reallocation of labour among Health Insurance Managers (ISAPRE)
establishments 265-7 80
see also employers health and safety legislation
fluctuations in employment 243-4 173-4
see also economic cycles health system 80
Ford Motor Company - Mexico Higuchi, Y. 249-50
143-4 hiring
France 29,31,200,284 Chile: rules 84, 93-4; subsidies
comparative analysis of adjustment 79
239-43,245,247 Japan: instrument for adjustment
see also European Union 244-5,246
Freeman, R. 151,161,260 regulation in EU 199, 200, 285
Frente Autentico del Trabajo (FAT) hoarding, labour 252
(Mexico) 136 Hoddinott, J. 22
Horton, S. 7, 30
Gabayet, L. 123 hours of work
Garda, B. 119 EU 193-4,196,197,206
GarcIa, N. 123 Japan 240-3,244-5,251-2
Gaskell, J. 177 Mexico 120, 122, 124, 134-5
Geller, L. 95 USA 284
gender Houseman, S.N. 257,275,275-6,
labour participation in Japan 284
248-9 human capital/resources
USA: job tenure 271-3; Brazil: investment 58-{j I
unemployment 278-80 Chile 99-100, 101, 103
wage differentials in Canada 164 enterprise-level practices in Canada
see also women 178-9
General Agreement on Tariffs and flexibility and labour flexibility
Trade (GATT) 138 12-17
Germany 29, 31, 284 see also skills; training
comparative analysis of adjustment human rights legislation 173
239-43,245,247,248 Humphrey, J. 92
see also European Union Hyclak,T. 216
Index 295
illegal/non-signed labour contracts Mexico 30, 129-37; collective
45,55-6,56,57,61 rights 135-6; conditions of
ILO 24, 25, 29, 31 work 134; employment
Imaoka, H. 232 stability 132-3; reform of
immigrants 165 labour legislation 136-7;
see also migration severance pay 133-4;
import substitution industrialization technico-organizational
(lSI) 119 flexibility 135; wage
incentives 14 flexibility 134; working hours
income distribution 69 134-5
indexation of wages 71-3,80 trends 28-32
Indices of Structural Change (ISCs) USA 28,257-9, 280-3
Canada 169-70,283-4 see also legislation; regulation;
USA 25,264-70; comparisons unions
with Europe 283-4 internal migration 166-7, 168
individual labour contracts international market 59
Brazil 40, 40-7 international unions 171
Chile 83-5 IOE 202
see also labour contracts Ireland 197,200,219
industrial employment concentration see also European Union
120, 124 Italy 29,197,200
industrial growth 116-17 see also European Union
inflation 71-2 Ito, T. 239
informal sector 5, 6, 26-7
Brazil 27,56-7 J-mode 8-9,29-30
Chile 66,75-8, 102-3; as buffer Japan 2,225-53
76; wage differentials 76-8 characteristics of employment
EU 192 system 225-6, 228-35
Mexico 27,119,120,122-3 composition of labour force 228
information asymmetries 13 economic indicators 226-8
information and communication institutions see institutions
technology (ICT) 187-8 labour market adjustment 239-51;
innovation 59 bonus payments 250-1;
strategy 92 comparative analysis 239-43;
institutions 17-19 employment fluctuations and
Brazil 30-1,37-8,39-49,61; the business cycle 243-4;
collective labour contracts female participation 248-50;
40,47-9; individual labour tools of adjustment and income
contracts 40, 40-7 effects 244-7
Canada 28-9,170-6; government tenure 25,231-3
adjustment policies and wages 24,247,251
programmes 175-6; job creation
legislation 171-4; unions Brazil 54
170-1 and job destruction in USA 266,
Chile 30,78-87,97-8, 102 285
EU 29, 191-207 job-lock 271
Japan 29-30,31,235-9; job security 16-17
legislation 237-9; unions see also tenure
235-7 jobless growth 156
296 Index
Johnes, G. 216 forms 257-9
Juntas Federales de Conciliaci6n y and labour flexibility 12, 13-17
Arbitraje (Mexico) 131,137 labour mobility see mobility
Jusidman, C. 123 labour plans 238-9
labour regulation see regulation
Katz,1. 92 labour relations
Katz, L.F. 24,25,27,260-1 Chile 99-100; flexible legislation
Klau, F. 22 97-8; mistrust 94
Koike, K. 232-3,235 Japan 236-7
Korea 7,260 legislation in Canada 171-2
Krugman, P. 255 Mexico 129-37
Kuhn, D. 161 Labour Relations Law 1946 (Japan)
238
Labour Code Labour Standards Law 1947 (Japan)
Brazil 39, 40 238
Chile (Plan Laboral) 71, 72, 80, labour supply see supply of labour
82,83 Lailson, S. 123
labour contracts Layard, R. 22, 262
Brazil 38,40-9,52-3; collective Lazear, E.P. 257
40,47-9; illegaVnon-signed legislation 17-19
45, 55-6, 56, 57, 61; individual Canada 171-4
40;40-7 Chile 30, 78-87, 97-8, 102
Chile: collective 98; individual Japan 237-9
83-5; legislation 97 Mexico 130; debate on reform
duration/length 13-15, 52-3, 195 136-7
EU 195,196,197,202-6 see also institutions; regulation
labour costs 4-5,6-7 Lemieux, T. 161
Brazil 42-4 length of service see tenure
Chile 84-5 Leonard, 1. 265
EU 216--17 Ley Federal del Trabajo 1931 (LFT)
see also wages (Mexico) 130, 136
Labour Courts 38, 39, 43-4 lifetime employment system 225-6,
labour demand 154,239-43 231-3,251-2
Labour Directorate (Chile) 81 Lindbeck, A. 255
labour flexibility 1-17 Lindley, R. 24
costs of labour rigidity 5-6 litigation 281-2
dimension of 3-5 see also Labour Courts
examination of concept 9-17 locational decisions 189-90
macroeconomics 6-7 Long, R. 179
models 7-9 longest job 273
Labour Force Development Strategy
(LFDS) (Canada) 178 macroeconomics 4, 6--7
labour hoarding 252 see also recessions; shocks
labour input flexibility 1-2,3, Madrian, B.C. 271
11-17 Maki, D. 171
labour legislation see legislation management styles 98-101
labour market flexibility 1-2, 3, manufacturing
9-11,18,19 output per worker trends 31-2
evidence 19-28 USA: job reallocation 265-7
Index 297
Margo, R. 24 Needles, K. 161
market-oriented model 7-8,8-9, neo-corporatist model 8-9, 29, 30
28-9,30 Netherlands 202, 260
maternity leave 84 see also European Union
Mazumdar, D. 22-4, 30 new global economie order 179-80
Meller, P. 69 'new unionism' 48
Meltz, N. 178 NISSAN-Aguascalientes 144
Mendon~a,R. 54-5 non-signedlillegallabour contracts
Merideth, L. 171 45,55-6,56,57,61
Mexicana de Aviaci6n 143 North American Free Trade
Mexico 2, 113-50 Agreement (NAFTA) 134,136,
adjustment and restructuring 138,152
116-19; impact on labour
market and unionization occupations
119-27; impact on productivity reallocation by in USA 267-8
127-9 structure in Mexico 140
economic indicators 115 offensive strategies 92
informal sector 27,119,120,122-3 oil shocks 240-3,243
institutions see institutions older workers 188
output per worker 31-2 see also age
training see training Olson,M. 8
wages see wages Ono, A. 239-43,249,251
microelectronics 139-40 Organization of Economic
migration Cooperation and Development
internal in Canada 166-7, 168 (OECD) 88,138, 178, 185,284
Mexico 120, 127 job turnover in EU and USA 284-5
minimum wages 57, 172, 270 wages and unemployment 214,215
Mishel, L. 276 Oswald, A.J. 22,26,54,262
mistrust in labour relations 94 output
Mittelstadt, A. 22 and employment in EU 212-15
Mizala, A. 73, 76 and employment in Japan 244, 245
mobility 18, 19 output per worker trends 31-2
Canada 167-70 USA 263; employmenHlUtput
Chile 73-8,95,99-100; informal elasticities 274-6
sector 26-7,75-8; labour overtime 244-5
supply 74-5
EU 208-12; labour force flows Pacto de Solidaridad Econ6mica
210--12 (Mexico) 116
labour market flexibility 10--11; part-time employment 230--1
evidence 19-28 participation rates see supply of
see also reallocation of labour; labour
segmentation; turnover rates Partido dos Trabalhadores (PT)
modalities of employment 230-1 (Brazil) 48
Morley, J.W. 255-6 payroll taxes 258
Municipal Placement Offices (OMC) pension system 80
(Chile) 81 per capita labour income 247
Municipal Workers' Union (Japan) see also wages
235 perception of regulation 191,
Murphy, K.M. 24,25,27 \99-202
298 Index
performance-related pay 216 race 278-80
personal computers 139 Read,1. 282
polarization, wage 159-61 reallocation of labour 256-7, 263-70
Poret, 218 among establishments 245, 246,
Porter, M.E. 92 247,265-7
Portugal 197, 202 EU 208-12
see also European Union by industry 264-5
Pozas, M. de los Angeles 131 by occupation 267-8
price, product 59 by region 268-9
pri vate sector USA and Europe compared 283-4
training 177-8 see also mobility
wage differentials with public sector recessions 6-7
in Canada 161-4 Canada 154-6
probation 193 Chile 67-8, 71
producers: suppliers, users and Japan 226-8
187-8 redundancy see firing/dismissal
productivity regional labour costs 216-17
Canada 158 regional wage differentials 166-7,
growth 12-17,17,18 216
Japan 252 regions: reallocation by 268-9
Mexico 114, 115, 146-7; impact regulation
of adjustment and restructuring Chile 81-7; collective bargaining
127-9 and union membership 85-7;
output per worker trends 31-2 firms' flexibility strategies
USA 31, 252, 263 93-4; individual labour
profits 251 contract and labour costs
Programa de Becas de Capacitaci6n 83-5; stages 81-2
para el Trabajo (PROBECAT) EU 191-207,219-20; employers'
(Mexico) 141 perceptions 191, 199-202;
Psacharopoulos, G. 24 impact on employers'
public employment exchanges 175-6 behaviour 191,202-7;
public sector regimes 191-9
Canada 172; wage differentials Mexico 130-7
with private sector 161-4 USA 257-8, 280-3
Chile: modernization of labour see also institutions; legislation
legislation 85; wages 71-2, reinstatement 83
73 Rend6n, T. 124
employment in Mexico 120, 124, Rengo (Japanese Private Sector Trade
125, 126 Union Confederation) 235
Pyke, F. 96 restructuring
Canadian firms 178-9
quality Mexico 116-29; impact on labour
Mexican firms and 144 market and unionization
product 59 119-27; impact on productivity
of workers 13-14 127-9
'quality' scenario 190 retirement 188
quantitative flexibility see United early 245,246
States re-training programmes 89-90,91
Quinn, J.F. 273 Riddell, W.C. 156, 161, 170
Index 299
right to manage contract 4 special adjustment assistance
Robb, L. 161 programmes 176,181
Robbins, D. 27 spring offensive (shuntou) 226,
Roberts, B. 122 236-7
Romaguera, P. 73, 76 stabilizations 6-7
see also structural change
Salas, C. 124 state intervention 130-2
scholarship programme (Chile) strikes
89-90 Canada 171,172
Seamen's Union (Japan) 235 Chile 82,86-7
sectoral mobility see mobility structural change 6
sectoral reallocations 264-5 EU 208-10
sectoral wage differentials 216 structural adjustment in Chile
segmentation 10-11,18,19,20 67-9
Brazil 56-7,61 sub-contracting 83,95-6
see also mobility Subsecretarfa de Educaci6n e
self-employment 55-6, 56, 117-19 Investigaci6n Technol6gica
SENCE (Servicio National de (SEIT) (Mexico) 141
Capacitati6n y Empleo) (Chile) suppliers 187-8
88,89-90 supply of labour
service sector 123 Canada 153-4
severance payments Chile 74-5
Brazil 45-6 Japan 239-43; female
Chile 82,83,85 participation 248-50
Mexico 133-4 Mexico 119, 121
shocks Sweden 29
Brazil 49-50 Swinnerton, K.A. 274
oil shocks and Japan 240-3, 243
USA 263-4 Tachibanaki, T. 231,232
shuntou (spring offensive) 226, Taira, K. 236
236-7 taxes, payroll 258
side-arrangements 282-3 Teachers' Union (Japan) 235
Silva, A.A. 44 technical education 140
Single European Market (SEM) 189 technical skills: scarcity 94
Sistema Nacional de Capacitaci6n y technico-organizational flexibility
Adiestramiento (Mexico) 141 135
skills technology/technological change
Canada 176-9 development path in Chilean firms
Chile: scarcity of technical skills 101
94; skills improvement EU 187-8
programmes 80,88-91 and training in Brazil 59-60
see also training and training in Mexico 138-40,
social security systems 141-2
Chile 80, 84-5 TELMEX (Telefonos de Mexico)
EU 188-9 143
Mexico 120, 124-7 temporary work 195,196
Spain 31,197,286 tenure
see also European Union Japan 25,231-3
Spath, B. 96 USA 232, 270-4, 284-5
300 Index
termination see firing/dismissal unemployment insurance
Topel, R. 277 Brazil 40, 44--5
total factor productivity (TFP) 127, Canada 166-7, 175
128 Chile 81
trade liberalization 127 Japan 238
Trade Unions Law 1946 (Japan) 238 unemployment subsidies 79,81
training unions
Brazil 38, 46, 58-61, 62 Brazil 39~O,47-9
Canada 177-8 Canada 162~, 170-1, 171-2,
Chile 80,84,87-91; firms' labour 179
flexibility strategies 96-7, Chile: firms' labour flexibility
99-100, 104; programme strategies 97-8; regulation
88-91; system 87-8 82,85-7
Mexico 114, 138~5; autonomous Japan 226,235-7
training centres 142; Mexico 136--7; collective rights
companies' attitudes 143~; 135-6; impact of adjustment
policy 140--1; technological on unionization 119-27;
innovation and 138~O, training 144-5; 'white
141-2; training centres' unions' 131-2
attitudes 141-2; unions and USA 170,171,270,280
wages 144-5 United Kingdom 24,29,210,285,
see also human capitallresources 286
transfers of employees 245, 246, 247 collective bargaining 215
see also reallocation of labour comparative analysis of adjustment
turnover rates 239~3,245.247
Brazil 38,53,59,60-1 de-regulation of labour market
Chile 95 194-7,198,199-200,202
USA 284-5 mobility 212
typology of firms 98-101 output per worker 31-2
see also European Union
unemployment 7 United States (USA) 2, 22, 24, 24-5,
Brazil 50, 52; duration 50--2 255-89
Canada 24, 154--6 age see age
Chile 25-6,67,68,69,71,102; Canada's dependence on 151
and wages 72-3 comparative analysis of adjustment
comparative studies 262 239~3,245,247
costs of labour rigidity 5-6 comparisons with Europe 263,
EU 24,186-7,208,210,263; 283-6,286
wage flexibility 217-18 employment--output elasticities
Japan 228, 239 274--6
labour flexibility 9, 15; evidence female labour participation
24,25-6 249-50
Mexico 114, 116; informalization forms of flexibility 257-9
and 119,122-3 institutions 28, 257-9, 280--3
USA 262; comparison with EU macro quantities 262-3
255-6,263,283,285; structure output per worker 31-2
276-80 productivity 31, 252, 263
Index 301
reallocation of labour 256-7, Mexico 26, 124, 126; flexibility
263-70 134; training, unions and wages
regulation 257-8, 280-3 144-5
tenure 232,270-4,284-5 minimum wages 57,172,270
unemployment see unemployment real wages: labour flexibility 12,
unions 170, 171, 270, 280 13-17; labour market flexibility
wages see wages 11,12,22-4,25-6
US Auto Workers 1(1 structures 24-5
Urani, A. 45, 56 USA 257,258-9,270,286;
users: producers, suppliers and comparison with EU 283;
187-8 macro 260, 261-2; micro
260, 260-1; structure of
Valle, R. 58-61 unemployment 276-8, 280
Vanderkamp, J. 166 widening differentials 27-8
voluntary separations 47 Walwei, U. 190
Weitzman, M.L. 251
wage curves 54-5 Welch, F. 24
wage seniority system 225-6, Wells, W. 194, 202, 206
233-5 Werner, H. 190
wages 'white unions' 131-2
Brazil 26, 38; labour contracts Wial, H. 274
42-3; real wage flexibility women 189
54-6 Chile: regulation 84, 93-4
Canada 156-7, 158-67, 158; employment in Mexico 123
immigrants 165; male-female Japan 226,248-50,251
differentials 164; polarization male-female wage differentials in
159-61; public-private sector Canada 164
differentials 161-4; regional work organization 135
differentials 166-7; unions workers' attitudes to training 60
171 working conditions see conditions of
Chile 102; real wage flexibility work
71-3; wage differentials working hours see hours of work
76-8; wage policies 80 workplace practices 178-9
costs of rigidity 4-5 World Bank I
EU 214-15,283; flexibility
215-18 young people 84
Japan 24,247,251
macroeconomics 6-7 Zapata, F. 114, 116, 132