Chapter

14
International and Comparative Industrial Relations

McGraw-Hill/Irwin An Introduction to Collective Bargaining & Industrial Relations, 4e

Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved.

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International and Comparative Industrial Relations

The U.S. has one of the lowest rates of unionization of any advanced economy, and the rate of unionization has fallen faster in the past 30 years than any other industrialized country American management opposes unionism more than most other countries U.S. unions are less tied to politics than other western nations The trade deficit has emerged as a critical policy issue in light of regional trade pacts in recent years

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Industrial Relations in Germany

- The distinguishing feature is codetermination
Mandated by German law and applies to all enterprises whether or not they are union

- Two key parts to codetermination:

Employee representation on company boards and work councils Provides a parallel form of representation to employees that is in addition to the union representation

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Board Representation
German law mandates employee representation on supervisory boards The number of representatives varies by the size of the firm and industry, with special provisions for coal and steel industries German firms have a two-tiered board structure - The supervisory board (Aufsichtsrat) is the higher ranked board It has the responsibility to control managerial performance and appoint top managers - The lower managing board (Vorstund) runs the firm on a day-today basis - Employee representatives to the supervisory board are elected proportionately from the blue and white collar workforce The law reserves two or three seats for unions

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Work Councils
Work councils are the second major component of the German codetermination structure Mandated by law for private firms with five or more employees Work councils have rights to information, consultation, and codetermination The law requires negotiation with work councils for major operational changes Works councilors are elected by all employees in a firm regardless of union affiliation Works councilors cannot call a strike, but can sue management in case of a breach of contractual rights

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Union Representation and Structure

Unions play an important role in the German industrial relations system
- Unions represented 25% of the German work force in 2004 - Union membership as a percentage of the workforce has been steady since 1960 - After unification, unions extended their jurisdiction to the former East Germany Unions played a role in the restructuring of the East German unions are also active in political and social issues The largest federation of German unions, The Deutsche Gewerkschaftsbund (DGB), is closely aligned to the SPD

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Collective Bargaining in Germany

- Collective bargaining in Germany is highly centralized Most agreements are reached at the regional or industry level The most important unions in the private sector represent workers in one or more industries - IG Metall represents metal working industries - Recently, a super union, Verdi, representing workers in the service sector, was formed by amalgamation with a number of private and public sector unions - German law does not give exclusive representation rights More than one union commonly represents workers - Employers commonly represented by associations in regional bargaining
Once an agreement is reached, the terms are extended by law to other employees and firms in that industry

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Strike Rates in Germany

- Over the post-World War II period, Germany has had a lower strike rate than other major industrialized countries
Some analysts argue that the low strike rate is a product of the conflict mediation accomplished with codetermination Others say the stability is due to the fear of returning to the social instability that occurred before the rise to power of Adolf Hitler The low strike rate could also be a product of Germanys huge economic success

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Vocational and Apprenticeship Training

- Supporting German labor-management relations is a very strong vocational and apprenticeship training system - High school-aged youth must choose among three educational tracks at age 16: A college-bound program An apprenticeship vocational school program A general education program - Over 70% of high school graduates who dont go to college enter the vocational programs Overseen by joint business-labor groups that set qualifications for each program Provides highly skilled workers and cited for Germanys economic success

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Industrial Relations in Japan

Enterprise Unionism - The distinguishing feature of Japanese industrial relations is the central role of enterprise unions - They represent both white and blue collar employees regardless of occupation and include management staff - Only high level managers do not belong - New employees automatically become union members and pay dues through a dues check-off system Union and Employer Federations - Enterprise unions are commonly associated with federations, which are affiliated with confederations - Employers commonly belong to counterpart federations - Bargaining is between the enterprise union and management of the firm, but some industry level bargaining does occur

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The Lifetime Employment Principle

Japanese firms, particularly large ones, tend to hire new employees upon graduation from either high school or college
- Employees tend to stay until retirement - If a firm faces a financial crisis, it may try to shift workers to other firms in their trading group, which are firms linked by common ownership or business ties - Extensive cross training of workers facilitates these shifts - In addition, workers retire relatively early in Japan at the average age 64 - The use of many part-time workers help firms to keep the lifetime promise - Wages are 15-30% lower in smaller firms, and there is less employment security

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Pay Determination in Japan

- Most pay agreements are set in annual negotiations between a firm and the enterprise union - Many negotiations occur in spring offensive, or Shunto - Workers are typically paid a salary, plus a bonus of up to five months pay - Seniority impacts pay (and thus age is a factor) - Performance appraisals up to twice per year with perhaps a 10% annual bonus for good appraisals - Job definitions are broad and flexible in Japan

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The Role of Consultation in Japanese Industrial Relations

The labor relations system in Japan relies heavily on consultation between labor and management to settle disputes
- Grievance procedures are rarely used - Union membership (density) is falling in Japan 35% of the labor force from the 1950s-1973 19.2% in 2004 - Critics see enterprise unionism as the co-option of independent unionism - Others see its success in conflict resolution, employee commitment, and economic security

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Industrial Relations in Multinational Firms

A multinational firm engages in economic activity in more than one country
- Multinational firms expanded greatly in the past 50 years

Problems Created by Multinationals for Management and Labor

- The most important factors are cultural, legal, and institutional differences, and the bargaining power gained by multinational managements

The Pressure of Diversity

- The management of a multinational enterprise confronts cultural, legal, and institutional diversity - Workers in different countries view work differently and place different demands on their unions - European unions are often affiliated with political parties

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The Degree of Industrial Relations Centralization

The extensive diversity in culture, law, and institutions poses coordination problems for the multinational firm Managements problem is how to pursue company wide objectives through industrial relations policies in the face of this diversity - Response of multinational firms has been decentralization of industrial relations - The expansion of globalization in recent years has reversed that trend as firms sought global integration of policies The challenge is that culture and law retain international diversity while globalization increased the premium for coordination

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The Power Advantage Provided to Management by Multinational Operations

- The expansion of economic activity across national boundaries reduces the bargaining power of unions - Management can shift production and capital across borders and raise competitive pressures - If faced with a strike, management can use alternative production facilities Similar to the competitive menaces noted by John Commons that occurred after the expansion of markets in early industrialization and thence weakened the unions Management can move production to countries with weak environmental and social rules; called social dumping

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Multinational Unionism
- In the United States at the start of the 20th century, unions expanded their jurisdiction by shifting from local or regional to national unions - Globalization has created strong incentives for unions to expand beyond their boundaries But this has been infrequent - The Difficulties Unions Face Diversity, law and culture also make it difficult for unions to expand their reach Diversity also reduces group cohesion Workers in low wage countries may not support demands for higher wages for their global brethren Communications are difficult, and mergers are immensely complex

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Examples of Multinational Unionism

Despite the impediments to international solidarity, some multinational unionism has followed the multinational expansion of firms International trade secretariats provide information to member unions and coordinate across national borders

- These are autonomous agencies that cover particular industries

For example, the International Metalworkers Federation includes members from less developed as well as highly industrialized nations The International Federation of Free Trade Unions (ICFTU) included affiliated unions that represent 48 million workers, while the World Federation of Trade Unions (WRTU) once represented 134 million workers in Communist unions; coordination between the two was impeded by politics

The global expansion of trade is leading unions to communicate more extensively with unions in other countries

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The Expansion of Intentional Trade Through Trade Pacts

- The European Union (EU) and the North American Free Trade Agreement (NAFTA) are examples of efforts to increase trade - NAFTA took effect in 1994, and removes tariffs and trade barriers among the U.S., Mexico, and Canada over a 15-year period NAFTA is criticized by labor unions, claiming Mexicos low wages cause U.S. job loss NAFTA includes Transitional Adjustment Assistance to train workers who lose jobs In 2005, the U.S. Department of Labor certified $165 million for NAFTA-TAA worker benefits

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The International Labor Rights Movement

A variety of organizations seeking to protect international labor rights have been energized by the effects of globalization Activists worry that globalization will create a downward spiral in labor and social conditions Fair trade initiatives on coffee and other consumer goods are increasing in order to support decent working conditions, limiting child labor, and strengthening unionism in developing countries Some U.S. unions are using political channels to reduce outsourcing

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The European Union

- Formerly referred to as the European Economic Community

Goals of Integration
Eliminate trade barriers in the 25 member countries
- The number rose to 27 in 2007 with the entry of Romania and Bulgaria

Allow free movement of workers, products, and investments across national borders Labor relations are to be harmonized A single currency in most states

Pre-Integration Structure of Industrial Relations

Unionization rates varied from about 10% in France to 79% in Sweden Hourly labor rates range from about $29.91 in Germany to $4.71 in the Czech Republic

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EU Regulation of the Social Dimension

The social dimension includes the regulations, directives, and and laws that govern employment in the EU
- The Social Charter was issued in 1989 Gives workers the right to form and join unions and to strike Provides for freedom of movement and equal treatment for men and women Member countries make specific policies Avoids full harmonization of labor regulations - Other directives were also adopted that address layoffs, bankruptcies, and mergers - EU wide work council rule adopted in 1994 But it does not provide for formal council power

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Labors Concerns about Integration

- Unions are concerned that harmonization of labor standards will lower those standards
Similar to what happened to American trade unionists as they confronted the expansion of markets, transportation, and communications systems across the U.S. at the start of the 20th century As Commons noted, fears of competition from expanding markets are well founded

- At the same time, raising the standards of low wage countries could help unions
Even the U.K. unions want integration, to meet German standards of representation

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Management Concerns over European Integration

Managements tend to benefit from a reduction in trade restrictions
- Market integration can simplify the many regulations and practices in different countries Integration could also ease industrial relations and enhance management discretion - However, integration has simultaneously created a centralized regulatory process that might give unions more bargaining leverage to counter managements moves Management prefers that labor regulation be left to member nations rather than the EU

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Industrial Relations in Developing Countries

- Workers in countries that lack democratic governments also lack the rights enjoyed in western industrialized nations - If unions do exist, they are dominated by government and/or employers Industrial Relations and Political Change in Poland - In 1980, worker protests led to the birth of Solidarity - Under Russian pressure, the Polish government later repealed the unions mandate and jailed Lech Walesa, its founder - As communism came under increasing pressure, Solidarity was again allowed to register as a trade union in 1989 A new constitution and democratically elected parliament followed, with Walesa elected as the new president The weak economy of the early 1990s and privatization led to a lack of support for Solidarity; over 20 years, trade union density declined from 80% to 15% in 2004

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Industrial Relations and Political Change in Korea

Trade unions in Korea have not attained the status of Solidarity - The post WWII history of Korea is marked by authoritarian rule and labor union protests - Collective bargaining has taken hold in some large firms such as Hyundai, but weaker in small firms - Korea had union protests in 1990 and again in 1997, when the government tried to increase labor flexibility Even though Koreas economy was growing more than twice as fast as the U.S., managements felt compelled to increase productivity The election of political prisoner Kim Dae-jung eased labor concerns Thus, political democratization is intimately linked to industrial relations changes and economic events in Korea

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Comparative Economic and Industrial Relations Performance

There are long standing debates as to whether any economic system outperforms others Also, debates on the contribution of industrial relations to economic performance
- In the 1980s, the German and Japanese systems were praised - In the 1990s, the U.S. system was praised for its flexibility and entrepreneurialism As unemployment dropped to historic lows, some claimed that traditional markets had been replaced by boundaryless careers (i.e., frequent job changes) - When the dot.com bubble burst in 2000, the U.S. system was criticized for giving too much authority to corporate executives, and that unions were unable to reign them in

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Summary
- There are substantial differences in industrial relations in the industrialized countries
In the U.S., collective bargaining is highly decentralized; written contracts and grievance procedures are important In Germany, codetermination provides workers with parallel representation from unions and work councils In Japan, enterprise unions are dominant and represent both white and blue collar workers - Disputes are settled and information exchanged through a variety of consultative procedures - Annual bonuses are an important part of compensation - There is now a trend to decentralization