INDUSTRIAL RELATION
Dony Eko Prasetyo, S.IP.
Definition IR
• Industrial relations encompasses a set of
phenomena, both inside and outside the
workplace, concern with determining and
regulating employment relationship
What is Industrial Relations?
A particular set of phenomena associated with
regulating the human activity of employment
• The making and administering of the institutions
and rules of work regulation
• Socio-industrial conflict (in all its forms) and its
resolution
• Explicit and implicit bargaining between
employees and employers
Industrial Relations
• Much of Industrial Relations at lower level of
study place considerable emphasis on factual
approach.
- Author concentrated their efforts in describing
situations as they saw it
- they produce guide book rather than theories
and explanations. Eg. Describing union
structure, laws etc.
• In studying IR it is easier to study and to discuss
through ‘frame of reference’.
Frame of reference; each person perceive and interpret
events by mean of conceptual structure of
generalizations or contexts postulate about what is
essential, assumptions as what is valuable, attitude
about what is possible and ideas about what will
work effectively.
It constitutes the frame of reference of that person.
THE NATURE OF IR
Approaches to industrial relations
Approaches to organisations
Unitary
Pluralistic
Marxist
Authoritarian
Co-operation
Evolution
Paternalism
Conflict
Approaches to industrial relations
Revolution
Input
Conflict
(differences)
Human
resource
management
Conversion
Institutions
and
processes
Systems
Output
Regulation
(rules)
Social action
Wider approaches to industrial relations
Labour market
Comparative
Control of
the labour
process
Unitary: Human resource
management
Management or manipulation?
• Focus
– Strategic & integrated managerial approach to the management of
people
– HRM support for achieving business aims and objectives
• Mechanisms
– Individualism (human relations, organisational psychology)
– Integrating planning, monitoring and control of human resources (not
just employees)
– Securing employee commitment or organisation’s aims & objectives
(performance based rewards, employee involvement)
Unitary: Human resource management
• Antara ciri-ciri HRM (Amstrong)
– Pekerja perlu diurus, secekap dan seketat mungkin, seperti juga
sumber-sumber lain supaya dapat memaksima nilai tambah.
– Perlu ada satu sistem, bantu-membantu dalam bentuk komunikasi contoh: team briefing, dll.
– Penggunaan teknik penglibatan pekerja contoh: QCC
– Memberi penekanan terus terhadap qualiti contoh: TQM
– Flexible dalam penyusunan kerja - kos efektif dalam penggunaan
buruh.
– Penekanan terhadap temawork.
– Strategi latihan: Pekerja diberi latihan dalaman sendiri untuk
menyesuaikan dengan teknoligi yang digunakan, daripada mengambil
pekerja yang telah ada skill. Ini meningkatkan pengantungan pekerja
pada majikan dengan cara mengasingkan mereka mengikut pekerjaan.
Unitary: Human resource management
Berbagai contoh yang dapat kita lihat bagaimana pihak pengurusan boleh
menggunakan berbagai kaedah untuk mengekploitasikan dan menurunkan
tahap keupayaan buruh. Antara nya;
• Buruh, buruh hanya mahir dalam sebahagian dari proses kerja tertentu
contoh: hanya line tertentu.
• Flexible company, ada pekerja tetap - untuk jangkamasa panjang. Pekerja
kontrak sementara - ikut keperluan syarikat. Dengan membahagi kan
buruk kepada dua kategori berlakunya proses divide and rule.
• Responsible autonomy: Satu kaedah pengurusan saintifik, di mana
pekerja diberi sedikit hak untuk mengawal kerja mereka sendiri, tetapi
ianya dalam bidang yang pengurusan lihat dapat capai objektif organisasi
dan dapat meningkat keberkesanan organisasi - majikan lebih untung.
• Personal Control : dimana orang yang diatas bertanggung jawab terhadap
kerja dan aktibiti orang bawahan.
• Bureaucratic control: berasaskan polisi , peraturan dan undang-undang di
tempat kerja
Pluralist: Input-output model
Input
CONFLICT
Function:
Identify Differences
of interest
Types:
1. Micro-level organisation
tensions
2. Macro-level society
values & issues
Forms of expression:
1. Hidden individual
2. Overt constitutional
3. Industrial pressure
Conversion
RECONCILIATION
Conducted through:
1. Processes
2. Institutions
3. Levels
Output
REGULATION
Rules:
1. Substantive or
procedural
2. Internal or external
to the organisation
3. Varying degrees of
formality
Marxist: Control of the labour process
B.M
B.B.G
BARANG PASARAN
CAPITALS
Mesin,
Alatan dan
Buruh
•
•
B.M = Barang Mentah
B.B.G = Barang Boleh Guna
Marxist ( Control of labour process)
Proses Kawalan Buruh ( Control of labour process)
• Thomson mendefinasikan proses buruh ‘labour process’
sebagai satu cara dimana bahan
• mentah ditukar oleh buruh dengan menggunakan alat-alatan
atau mesin, pertama kepada
• barang-barang untuk digunakan dan kemudian di bawah
sistem kapitalis ianya ditukar
• kepada barangan yang boleh ditukar didalam pasaran.
• Thomson - Asas Theory ini ialah:
• 1. “Social Relation” yang wujud antara
pekerja – dimana ianya akan menghasilkan
keupayaan (kekuatan) dan kapasiti ini diambil
oleh kapitalis sebagai satu jalan (cara) untuk
mengeluarkan barangan yang bernilai, dan
tidak secara langsung buruh juga dianggap
sebagai barangan (komoditi).
4 unsur wujud daripada teori ini:
– Perhubungan Buruh - modal satu bentuk ekploitasi keuntungan biasanya lebih pada modal.
– Logik timbun - tambah (acumulation) iaitu pemodal akan
cuba tingkatkan proses pengeluaran dan turunkan kos
pengeluaran.
– Tertingkat pengeluaran, bertambah faktor kawalan sama
ada secara am/khusus.
– Pemodal akan menggunakan berbagai kaedah sistematik
untuk mendapat kerjasama dan budi bicara pekerja untuk
meningkat pengeluaran keuntungan lebih pada pemodal.
Marxist: Control of the labour
process
• Focus
– The way ‘capital’ controls ‘labour’
• Mechanisms of management control
–
–
–
–
Scientific management or deskilling
Segmentation of labour (core & periphery)
Bureaucratic control (policies, procedures & rules)
Responsible autonomy (self-control or adoption of
management values as integral part of job?)
• Employee response
– Resistance (restrictive practices)
– Collectivism (joint regulation)
System of industrial relations
Industrial relations system
Political
Legal
Environments
Economic
structure
Attitudes
Values
Interests
Attitudes
Values
Interests
Roles
Organisational
hierarchy of
management
Other levels of the
industrial relations
‘system’
Government and State Agencies
Social
Cultural
Organisational
hierarchy of
management
Power
Choice
Industrial relations system (1)
Power
Choice
Power
Choice
Rule-making process
Internal rules
Output
(substantive rules)
Input
(conflict)
Roles
Control/
order
Power
Disorder
Productive system
Market
Technology
Environments
Environments
Attitudes
Values
Interests
Roles
Introduction
• We need to consider some general points about the field of
international industrial relations. First, it is important to
realize that it is difficult to compare industrial relations
systems and behavior across national boundaries; an
industrial relations concept may change considerably when
translated from one industrial relations context to another.
• Cross-national differences also emerge as to the objectives of
the collective bargaining process and the enforceability of
collective agreements.
Cont’d
• Schregle has observed:
“A comparative study of industrial relations shows that
industrial relations phenomena are a very faithful expression
of the society in which they operate, of its characteristic
features and of the power relationships between different
interest groups. Industrial relations cannot be understood
without an understanding of the way in which rules are
established and implemented and decisions are made in the
society concerned.”
Cont’d
• Poole has identified several factors that may underlie these
historical differences:
– the mode of technology and industrial organization at critical stages of
union development
– methods of union regulation by government
– ideological divisions within the trade union movement
– the influence of religious organizations on trade union development
– managerial strategies for labor relations in large corporations.
Cont’d
• Union structures differ considerably among Western
countries. These include industrial unions, which represent all
grades of employees in an industry; craft unions, which are
based on skilled occupational groupings across industries;
conglomerate unions, which represent members in more than
one industry; and general unions, which are open to almost
all employees in a given country.
(cont.)
Trade union structure in leading
western industrial societies
Cont’d
• These differences in union structures have had a major
influence on the collective bargaining process in Western
countries. Some changes in union structure are evident over
time.
• The lack of familiarity of multinational managers with local
industrial and political conditions has sometimes needlessly
worsened a conflict that a local firm would have been likely to
resolve.
• Increasingly, multinationals are recognizing this shortcoming
and admitting that industrial relations policies must be flexible
enough to adapt to local requirements.
• This is evidently an enduring approach, even in firms that
follow a non-union labor relations strategy where possible.
Key issues in international
industrial relations
• Industrial relations policies and practices of multinational firms
– Because national differences in economic, political and legal systems
produce markedly different industrial relations systems across countries,
multinationals generally delegate the management of industrial
relations to their foreign subsidiaries. However, a policy of
decentralization does not keep corporate headquarters from exercising
some coordination over industrial relations strategy.
– Generally, corporate headquarters will become involved in or oversee
labor agreements made by foreign subsidiaries because these
agreements may affect the international plans of the firm and/or create
precedents for negotiations in other countries.
– Multinational headquarters involvement in industrial relations is
influenced by several factors, as detailed below.
Cont’d
– The degree of inter-subsidiary production integration.
• High degree of integration was found to be the most important
factor leading to the centralization of the industrial relations
function within the firms studied.
• Industrial relations throughout a system become of direct
importance to corporate headquarters when transnational sourcing
patterns have been developed, that is, when a subsidiary in one
country relies on another foreign subsidiary as a source of
components or as a user of its output.
• In this context, a coordinated industrial relations policy is one of the
key factors in a successful global production strategy.
Cont’d
– Nationality of ownership of the subsidiary.
• A number of studies have revealed that US firms tend to exercise greater
centralized control over labor relations than do British or other European
firms.
• US firms tend to place greater emphasis on formal management controls
and a close reporting system (particularly within the area of financial
control) to ensure that planning targets are met.
• Foreign-owned multinationals in Britain prefer single-employer bargaining
(rather than involving an employer association), and are more likely than
British firms to assert managerial prerogative on matters of labor
utilization.
• Further, Hamill found US-owned subsidiaries to be much more centralized
in labor relations decision making than British-owned. Hamill attributed
this difference in management procedures to the more integrated nature
of US firms, the greater divergence between British and US labor relations
systems than between British and other European systems, and the more
ethnocentric managerial style of US firms.
Cont’d
– International human resource management
approach.
• The various international human resource management
approaches utilized by multinationals; these have
implications for international industrial relations.
• An ethnocentric predisposition is more likely to be
associated with various forms of industrial relations
conflict.
• Conversely, it has been shown that more geocentric firms
will bear more influence on host-country industrial
relations systems, owing to their greater propensity to
participate in local events.
Cont’d
– MNE prior experience in industrial relations.
• European firms have tended to deal with industrial
unions at industry level (frequently via employer
associations) rather than at firm level.
• The opposite is more typical for US firms. In the USA,
employer associations have not played a key role in the
industrial relations system, and firm-based industrial
relations policies are the norm.
– Subsidiary characteristics.
Cont’d
• Research has identified a number of subsidiary characteristics to be relevant
to centralization of industrial relations.
• First, subsidiaries that are formed through acquisition of well-established
indigenous firms tend to be given much more autonomy over industrial
relations than are greenfield sites set up by a multinational firm.
• Second, according to Enderwick, greater intervention would be expected
when the subsidiary is of key strategic importance to the firm and the
subsidiary is young.
• Third, where the parent firm is a significant source of operating or
investment funds for the subsidiary, that is, where the subsidiary is more
dependent on headquarters for resources, there will tend to be increased
corporate involvement in industrial relations and human resource
management.
• Finally, poor subsidiary performance tends to be accompanied by increased
corporate involvement in industrial relations. Where poor performance is
due to industrial relations problems, multinationals tend to attempt to
introduce parent-country industrial relations practices aimed at reducing
industrial unrest or increasing productivity.
Cont’d
– Subsidiary characteristics (cont.).
• Third, where the parent firm is a significant source of operating or
investment funds for the subsidiary, that is, where the subsidiary is
more dependent on headquarters for resources, there will tend to
be increased corporate involvement in industrial relations and
human resource management.
• Finally, poor subsidiary performance tends to be accompanied by
increased corporate involvement in industrial relations. Where poor
performance is due to industrial relations problems, multinationals
tend to attempt to introduce parent-country industrial relations
practices aimed at reducing industrial unrest or increasing
productivity.
Cont’d
– Characteristics of the home product market.
• An important factor is the extent of the home product market.
• If domestic sales are large relative to overseas operations (as is the
case with many US firms), it is more likely that overseas operations
will be regarded by the parent firm as an extension of domestic
operations.
• This is not the case for many European firms, whose international
operations represent the major part of their business.
• Lack of a large home market is a strong incentive to adapt to hostcountry institutions and norms.
• Since the implementation of the Single European Market in 1993, there has
been growth in large European-scale companies (formed via acquisition or
joint ventures) that centralize management organization and strategic
decision-making.
• However, processes of operational decentralization with regard to industrial
relations are also evident.
Cont’d
– Management attitudes towards unions.
• An additional important factor is that of management attitudes or
ideology concerning unions.
• Knowledge of management attitudes concerning unions may
provide a more complete explanation of multinational industrial
relations behavior than could be obtained by relying solely on a
rational economic model.
• Thus, management attitudes should also be considered in any
explanation of managerial behavior along with such factors as
market forces and strategic choices.
• Denmark has the highest level of union membership, the USA has
the second lowest and France has the lowest in the Western world.
Key issues in international
industrial relations (cont.)
• Industrial relations policies and practices of multinational firms
(cont.)
– Although there are several problems inherent in data collection for a
crossnational comparison of union-density rates, several theories have
been suggested to explain the variations among countries. Such theories
consider economic factors such as wages, prices and unemployment
levels, social factors such as public support for unions and political
factors. In addition, studies indicate that the strategies utilized by labor,
management and governments are particularly important.
Key issues in international
industrial relations (cont.)
• Industrial relations policies and practices of multinational firms
(cont.)
– Another key issue in international industrial relations is industrial
disputes. Hamill examined strike-proneness of multinational subsidiaries
and indigenous firms in Britain across three industries. Strike proneness
was measured via three variables – strike frequency, strike size and
strike duration. There was no difference across the two groups of firms
with regard to strike frequency, but multinational subsidiaries did
experience larger and longer strikes than local firms. Hamill suggests
that this difference indicates that foreign-owned firms may be under
less financial pressure to settle a strike quickly than local firms – possibly
because they can switch production out of the country.
Key issues in international
industrial relations (cont.)
• Industrial relations policies and practices of multinational firms
(cont.)
– Overall, it is evident that international industrial relations are influenced
by a broad range of factors. Commenting on the overall results of his
research, Hamill concluded that:
“General statements cannot be applied to the organization of the labor
relations function within MNEs. Rather, different MNEs adopt different
labor relations strategies in relation to the environmental factors
peculiar to each firm. In other words, it is the type of multinational
under consideration which is important rather than multinationality
itself.”
Trade unions and international
industrial relations
• Trade unions may limit the strategic choices of multinationals in
three ways: (1) by influencing wage levels to the extent that
cost structures may become uncompetitive; (2) by constraining
the ability of multinationals to vary employment levels at will;
and (3) by hindering or preventing global integration of the
operations of multinationals.
– Influencing wage levels.
• Although the importance of labor costs relative to other costs is decreasing,
labor costs still play an important part in determining cost competitiveness
in most industries.
• Multinationals that fail to manage their wage levels successfully will suffer
labor cost disadvantages that may narrow their strategic options.
Cont’d
– Constraining the ability of multinationals to vary employment levels at
will.
• For many multinationals operating in Western Europe, Japan and Australia,
the inability to vary employment levels at will may be a more serious
problem than wage levels.
• Many countries now have legislation that limits considerably the ability of
firms to carry out plant closure, redundancy or layoff programs unless it can
be shown that structural conditions make these employment losses
unavoidable.
• Frequently, the process of showing the need for these programs is long and
drawnout.
• Plant closure or redundancy legislation in many countries also frequently
specifies that firms must compensate redundant employees through
specified formulae such as 2 weeks’ pay for each year of service. In many
countries, payments for involuntary terminations are substantial, especially
in comparison with those in the USA.
Cont’d
– Constraining the ability of multinationals to vary employment levels at
will (cont.).
• Trade unions may influence this process in two ways: by lobbying their own
national governments to introduce redundancy legislation, and by
encouraging regulation of multinationals by international organizations such
as the Organization for Economic Cooperation and Development (OECD).
• Multinational managers who do not take these restrictions into account in
their strategic planning may well find their options severely limited. In fact,
recent evidence shows that multinationals are beginning to consider the
ability to dismiss employees to be one of the priorities when making
investment location decisions.
Cont’d
– Hindering or preventing global integration of the operations of
multinationals.
• Many multinationals make a conscious decision not to integrate and
rationalize their operations to the most efficient degree, because to do so
could cause industrial and political problems.
• General Motors as an example of this ‘sub-optimization of integration’. GM
was alleged in the early 1980s to have undertaken substantial investments
in Germany at the demand of the German metalworkers’ union (one of the
largest industrial unions in the Western world) in order to foster good
industrial relations in Germany. One observer of the world auto industry
suggested that car manufacturers were sub-optimizing their manufacturing
networks partly to placate trade unions and partly to provide redundancy in
sources to prevent localized social strife from paralysing their network.
Cont’d
– Hindering or preventing global integration of the operations of
multinationals (cont.).
• This suboptimization led to unit manufacturing costs in Europe that were 15
per cent higher, on average, than an economically optimal network would
have achieved:
“Union influence thus not only delays the rationalization and integration of
MNEs’ manufacturing networks and increases the cost of such adjustments
(not so much in the visible severance payments and ‘golden handshake’
provisions as through the economic losses incurred in the meantime), but
also, at least in such industries as automobiles, permanently reduces the
efficiency of the integrated MNC network. Therefore, treating labor
relations as incidental and relegating them to the specialists in the various
countries is inappropriate. In the same way as government policies need to
be integrated into strategic choices, so do labor relations.”
The response of trade unions to
multinationals
• Trade union leaders have long seen the growth of
multinationals as a threat to the bargaining power of labor
because of the considerable power and influence of large
multinational firms.
• While it is recognized that multinationals are ‘neither uniformly
anti-union nor omnipotent and monolithic bureaucracies’, their
potential for lobbying power and flexibility across national
borders creates difficulties for employees and trade unions
endeavouring to develop countervailing power.
• There are several ways in which multinationals have an impact
upon trade union and employee interests. Kennedy has
identified the following seven characteristics of MNEs as the
source of trade union concern about multinationals:
The response of trade unions to
multinationals (cont.)
–
–
–
–
Formidable financial resources.
Alternative sources of supply.
The ability to move production facilities to other countries.
A remote locus of authority (i.e. the corporate head office management
of a multinational firm).
– Production facilities in many industries.
– Superior knowledge and expertise in industrial relations.
– The capacity to stage an ‘investment strike,’ whereby the multinational
refuses to invest any additional funds in a plant, thus ensuring that the
plant will become obsolete and economically non-competitive.
The response of trade unions to
multinationals (cont.)
• Another issue reported by trade unions is their claim that they
have difficulty accessing decision-makers located outside the
host country and obtaining financial information.
• The response of labor unions to multinationals has been
threefold: to form international trade secretariats (ITSs), to
lobby for restrictive national legislation and to try to achieve
regulation of multinationals by international organizations.
– Alternative trade secretariats (ITSs).
• There are 15 ITSs, which function as loose confederations to provide
worldwide links for the national unions in a particular trade or industry (e.g.
metals, transport and chemicals).
• The secretariats have mainly operated to facilitate the exchange of
information.
The response of trade unions to
multinationals (cont.)
– International trade secretariats (ITSs) (cont.).
• One of the fastest growing of the ITSs is the European Regional Organization of
the International Federation of Commercial, Clerical, Professional and Technical
Employees (generally known by its initials, Euro-FIET) which is focused on the
service sector.
• The long-term goal of each ITS is to achieve transnational bargaining with each
of the multinationals in its industry.
• Each ITS has followed a similar program to achieve the goal of transnational
bargaining. The elements of this program are (1) research and information, (2)
calling company conferences, (3) establishing company councils, (4) companywide union–management discussions and (5) coordinated bargaining. Overall,
the ITSs have met with limited success, the reasons for which Northrup
attributes to (1) the generally good wages and working conditions offered by
multinationals, (2) strong resistance from multinational firm management, (3)
conflicts within the labor movement and (4) differing laws and customs in the
industrial relations field.
The response of trade unions to
multinationals (cont.)
– Lobbying for restrictive national legislation.
• On a political level, trade unions have for many years lobbied for restrictive
national legislation in the USA and Europe. The motivation for trade unions to
pursue restrictive national legislation is based on a desire to prevent the export
of jobs via multinational investment policies.
The response of trade unions to
multinationals (cont.)
– Regulation of multinationals by international organizations.
• Attempts by trade unions to exert influence over multinationals via international
organizations have met with some success. Through trade union federations
such as the European Trade Union Confederation (ETUC) and the International
Confederation of Free Trade Unions (ICFTU), the labor movement has been able
to lobby the International Labor Organization (ILO), the United Nations
Conference on Trade and Development (UNCTAD), the Organization for
Economic Cooperation and Development (OECD) and the European Union (EU).
• The ILO has identified a number of workplace-related principles that should be
respected by all nations: freedom of association, the right to organize and
collectively bargain, abolition of forced labor and non-discrimination in
employment.
The response of trade unions to
multinationals (cont.)
– Regulation of multinationals by international organizations (cont.).
• In 1977 the ILO adopted a code of conduct for multinationals (Tripartite
Declaration of Principles Concerning MNEs and Social Policy). The ILO code of
conduct, which was originally proposed in 1975, was influential in the drafting of
the OECD guidelines for multinationals, which were approved in 1976. These
voluntary guidelines cover disclosure of information, competition, financing,
taxation, employment and industrial relations and science and technology.
• There is also some controversy in the literature as to the effectiveness of the
OECD guidelines in regulating multinational behavior.
• This lack of agreement centers on assessments of the various challenges to the
guidelines.
• The best known of these challenges is the Badger case.
The response of trade unions to
multinationals (cont.)
– Regulation of multinationals by international organizations (cont.).
• A recent development with the OECD guidelines (which are addressed by 36
OECD and non-OECD governments) has been the follow-up procedures. The
system of National Contact Points promotes observance of the guidelines by
MNEs operating in or from the governments’ territories.
• Recognizing the limitations of voluntary codes of conduct, European trade
unions have also lobbied the Commission of the European Union to regulate the
activities of multinationals.
• Unlike the OECD, the Commission of the EU can translate guidelines into law,
and has developed a number of proposals concerning disclosure of information
to make multinationals more ‘transparent.’
Regional integration: the
European Union (EU)
• Regional integration such as the development of the EU has
brought significant implications for industrial relations. In the
Treaty of Rome (1957), some consideration was given to social
policy issues related to the creation of the European
Community. In the EU, the terms ‘social policy’ or ‘social
dimension’ are used to cover a number of issues including in
particular labor law and working conditions, aspects of
employment and vocational training, social security and
pensions.
(cont.)
Regional integration: the
European Union (EU) (cont.)
• There have been a number of significant developments in EU
social policy over the past four decades. The Social Charter of
the Council of Europe came into effect in 1965. In 1987, the
major objective of the implementation of the Single European
Act was to establish the Single European Market (SEM) on 31
December 1992, in order to enhance the free movement of
goods, money and people within the SEM. The social dimension
aims to achieve a large labor market by eliminating the barriers
that restrict the freedom of movement and the right of
domicile within the SEM. The European Community Charter of
the Fundamental Social Rights of Workers (often referred to
simply as the Social Charter) was introduced in 1989, and has
guided the development of social policy in the 1990s.
(cont.)
Regional integration: the
European Union (EU) (cont.)
• Multinationals are often accused of doing research and
development in developed countries and operating out of low
cost countries. A recent press release by the EU listing the top
100 Best Workplaces in the EU in 2003 provides some evidence
that this pattern may be changing to some extent in Europe
(see Table 9-3). Of these 100, the top ten companies were from
all over Europe. The global software giant Microsoft was listed
as one of the top 10 best workplaces in multiple countries
(Belgium, France, Germany and Ireland).
(cont.)
Regional integration: the
European Union (EU) (cont.)
• Disclosure of information and European Works
Councils
– The EU has introduced a range of Directives related to the social
dimension. Of the Directives concerned with multinationals, the most
contentious has been the Vredeling Directive (associated with Henk
Vredeling, a former Dutch member of the EU Commission). The Seventh
(Vredeling) Directive’s requirement of disclosure of company
information to unions faced strong opposition led by the then
conservative British government and employer representatives. They
argued that employee involvement in consultation and decision-making
should be voluntary. The European Works Councils (EWC) Directive was
approved on 22 September 1994 and implemented 2 years later.
Regional integration: the
European Union (EU) (cont.)
• Disclosure of information and European Works
Councils (cont.)
– Obviously, all firms operating in the EU will need to become familiar
with EU Directives and keep abreast of changes. While harmonization of
labor laws can be seen as the ultimate objective, Michon argues that the
notion of a European social community does not mean a unification of
all social conditions and benefits or, for that matter, of all social systems.
However, the EU does aim to establish minimal standards for social
conditions that will safeguard the fundamental rights of workers.
Pan-European pensions
• The EU Council of Ministers has approved the pension funds
Directive that sets standards for the prudential supervision of
pension plans in the EU. The Member States will need to
implement the Directive by the middle of 2005. The Directive
covers employer-sponsored, separately funded pension plans.
The Directive provides pension funds with a coherent
framework to operate within the internal market and allows
European companies and citizens the opportunity to benefit
from more efficient pan-European pension funds. Once
implemented, the Directive will ensure a high level of
protection for both members and beneficiaries of pension
funds.
(cont.)
Pan-European pensions (cont.)
• The greatest barrier to implementation of the pan-European
pensions is the taxation differences among Member States. The
consulting firm Mercer HR states in a report analysing the
viability of pan-European pensions that ‘The Directive does not
attempt to cover taxation issues which may need a separate
and more prolonged process though the EU legislative
institutions.’ Many Member countries’ tax laws do not
recognize contributions to foreign pension plans. This creates
unfavourable tax circumstances for employees working outside
their home countries and contributing to pension plans in their
host countries.
(cont.)
Pan-European pensions (cont.)
• The issue of social ‘dumping’
– One of the concerns related to the formation of the SEM was its impact
on jobs. There was alarm that those Member States that have relatively
low social security costs would have a competitive edge and that firms
would locate in those Member States that have lower labor costs. The
counter-alarm was that states with low-cost labor would have to
increase their labor costs, to the detriment of their competitiveness.
– There are two industrial relations issues here: the movement of work
from one region to another, and its effect on employment levels; and
the need for trade union solidarity to prevent workers in one region
from accepting pay cuts to attract investment, at the expense of workers
in another region.
– There is some, although not as much as was expected, evidence of
‘social dumping’ in the EU. It is likely that this issue will be a contentious
one in Europe for some time and multinationals need to be aware of this
debate when doing business in Europe.
(cont.)
Pan-European pensions (cont.)
• The impact of the digital economy
– Processes of knowledge acquisition used by MNEs are an emerging issue
in the USA where local technology workers are increasingly being paid
their normal salaries to train people from overseas eventually to do
their jobs. These newly trained professionals then replace their trainers.
This is in part an unintended consequence of the US non-immigrant visa
programme – particularly the L-1 classification that allows companies to
transfer workers from overseas offices to the USA for as long as 7 years.
Importantly, this visa classification allows companies to pay these
workers their home-country wage.
(cont.)
Pan-European pensions (cont.)
• The impact of the digital economy (cont.)
– The effect of these developments on the structure of markets and
organizations and established patterns of economic behavior will be
profound. The creation and loss of jobs, the content and quality of work,
the location of work, the nature of the employment contract, the skills
required and how often they can be obtained, the organization of work
and the functioning and effectiveness of worker and employer
organizations are all affected by the emerging era of digital globalization.
While the networking economy has opened new opportunities for job
creation, this does not necessarily mean an increase in knowledge or
skill requirements. Unskilled jobs, de-skilling and skill polarization in the
networking economy also exist.
(cont.)
Pan-European pensions (cont.)
• The impact of the digital economy (cont.)
– Only 15 per cent of the world’s population (living mostly in industrialized
countries) has access to ICT.80 This leaves a majority of the world’s
population technologically disconnected. As noted by the International
Labor Organization, ‘The digital divide exists not only between societies
but within societies.’ Internet usage is stratified and is much more
common among younger rather than older people, men rather than
women, urban rather than rural dwellers, and people with higher levels
of education and income.