EMPLOYMENT MATTERS
A lunchtime seminar series about
employment relations and
the world of work
http://www.dti.gov.uk/er/emar/events.htm
Why Efficiency is
Not Enough:
Employment Relations
with a Human Face
Professor John W. Budd
Industrial Relations Center
Carlson School of Management
UNIVERSITY OF MINNESOTA
Employment Relations Seminar
Dept. of Trade & Industry
London
Tuesday, June 29, 2004
2
Adapted From
John W. Budd
Employment with a
Human Face:
Balancing Efficiency,
Equity, and Voice
ILR Press Imprint of
Cornell University
Press, 2004
3
Overview
Employment should be productive, but it is not simply an
economic transaction. Employees deserve fair treatment
(equity) and input into decision-making (voice). Efficiency,
equity, and voice are therefore the key analytical dimensions of
the employment relationship. Achievement of economic
prosperity, respect for human dignity, and equal appreciation
for the competing human rights of property rights and labor
rights further require that efficiency, equity, and voice be
balanced. Public policies, business practices, and union
strategies need to promote this balance and create employment
relations with a human face.
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Ask Yourself
 What do you want to get out of working?
 How do you want to be treated?
 How do you want your job conditions
determined?
 What does your employer want from
you?
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Common Responses
 What do you want to get out of working?
£ (or € or $), benefits, self-worth, accomplishment,
friendship
 How do you want to be treated?
fairly, with respect
 How do you want your job conditions determined?
talk with supervisor
 What do employers want?
high-quality work, productivity, loyalty
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But…
 Contrast your answers with academic, policymaking,
and corporate perspectives on work:
 Economics: Work is purely an economic transaction
endured to earn income
 Human Resource Management: Designing policies to
create productive employees
 Balance Sheets (and Government Budgets):
Employees are costly factors of production
 Debates over family leave, minimum wages, trade
unions, and global labor standards reduce to analyses of
labor costs and competitiveness
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Efficiency, Efficiency,
Efficiency
 Contemporary discourse is dominated by Efficiency
 Standard economic theory is the basis of the
Liberal Market Economy:
Well-Defined
Property
Rights
+
Free
Market
Transactions
=
Aggregate
Welfare
Maximization
(Efficiency!)
 Competition is assumed to prevent bad jobs (Milton
Friedman)
 Marginal Productivity Justice—whatever the market
produces must be fair
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Beyond Efficiency
 But what about a concern for how workers are
treated?
 Decent Work (International Labor Organization,
1999)
 A Fair Globalization: Creating Opportunities For
All (World Commission on the Social Dimension of
Globalization, 2004)
 Rerum Novarum / On the Condition of Workers
(Pope Leo XIII, 1891)
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My Premise
 Work is a fully human activity in a democratic society
 Employees seek income, and intrinsic rewards
 Employees want and are entitled to fair treatment
 Employees want and are entitled to participate in
decision-making
 Efficiency is not enough
 Efficiency is important, but it should not be the
only goal
 Rather, employment relations with a human face
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Employment Relationship
Objectives
 Efficiency
 Economic performance—the effective use of
scarce resources (competitiveness,
productivity, quality, economic prosperity)
 Equity
 Fair employment standards for outcomes and
treatment (justice and nondiscrimination)
 Voice
 Meaningful input into decisions (discretion,
free speech, industrial democracy)
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Analytical Framework
VOICE
Employment
research should be
rooted in the
objectives of the
employment
relationship.
?
?
?
EFFICIENCY
EQUITY
Analyze how policies, practices, laws, behaviors, etc.
contribute to efficiency, equity, and voice.
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Workplace Governance
Voice
Union and
Nonunion
Representation
and
Participation
Free Markets
Efficiency
HRM
Worker
Control
Laws
Equity
13
Globalization
Voice
International
Representation
and Solidarity
(e.g., European
Works Councils)
Free Trade
Efficiency
Corporate
Codes of
Conduct
International Labor
Standards
Equity
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Comparative IR Systems
Voice
Free
Speech
Social
CoPartnership
Strong
determination
Voluntarism
Enterprise
Unionism
Sectoral Bargaining
Award System
Weak
New Deal System
Voluntarism
Efficiency
Equity
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The Balancing Imperative
 Equity and voice can enhance efficiency, but…
 Global competitiveness (efficiency) can reduce
wages and benefits (equity) and weaken unions
and works councils (voice)
 Legislated minimum standards and unions
(equity and voice) might reduce efficiency
 Should efficiency (property rights) trump equity and
voice (labor rights) ?
 Property rights and labor rights are conflicting
human rights
 Efficiency, equity, and voice should be
balanced
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The Importance of
Balancing Competing
Interests
Healthy Competition
/ Individual Freedom
Pluralist
Industrial Relations
Healthy
Competition /
Individual Freedom
Neoclassical Economics
Balance of
Power Between
Employers and
Employees
Optimal
Outcomes
Balance of
Power Between
Employers and
Employees
Optimal
Outcomes
John W. Budd, Rafael Gomez, and Noah M. Meltz (forthcoming) “Why a Balance is Best: The Pluralist Industrial
Relations Paradigm of Balancing Competing Interests,” in Bruce E. Kaufman, ed., Theoretical Perspectives on
Work and the Employment Relationship (Champaign, IL: Industrial Relations Research Association).
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Achieving a Balance
 Pluralist Industrial Relations School of Thought

Labor is more than a commodity or factor of production

Inequality of bargaining power between employers and
employees in imperfect labor markets

Mixed motive employment relationship conflict: Inherent
conflict of interest between employers and employees on at
least some issues (mutual gains are possible on other issues)

Employee voice is important in a democratic society
 Thus, non-market institutions are needed to help
balance efficiency, equity, and voice

For both positive and normative reasons
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The Liberal
Market or
Neoclassical
Economics
Distortionary
Vision of
Labor Policies
and
Institutions
Harper’s
Weekly (July
14, 1894, front
cover)
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The Human
Resource
Management
Unnecessary
Vision of
Labor Policies
and
Institutions
Forbes
(December 1,
1928, p. 29)
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The Pluralist Industrial Relations Balancing Vision of
Labor Policies and Institutions
Survey (February 7, 1914, front cover)
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Policy Framework
Create social
norms and design
policies, practices,
laws, institutions,
etc. to balance
efficiency, equity,
and voice and
create employment
relations with a
EFFICIENCY
human face.
VOICE
EQUITY
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Globalization
Voice
International
Representation
and Solidarity
(e.g., European
Works Councils)
Free Trade
Efficiency
Corporate
Codes of
Conduct
International Labor
Standards
Equity
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Employment Relations
with a Human Face
 Employment scholarship and policymaking needs a
renewed focus on the objectives of the employment
relationship
 Efficiency is important…but it is not enough
 Employment research should analyze efficiency,
equity, and voice
 Laws and institutions should fulfill the economic and
human needs of a democratic society and foster
broadly-shared prosperity
 Policymakers need to create employment relations
with a human face
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Contact Info
Professor John W. Budd
Industrial Relations Center
University of Minnesota
3-300 Carlson School of Management
321 19th Avenue South
Minneapolis, MN 55455-0438 USA
e-mail: jbudd@umn.edu
Phone: (612) 624-0357
Fax: (612) 624-8360
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DISCUSSION