Labor Relations in a Globalizing World 9780801455520

Table of contents :
Contents
About the Authors
Preface
Part 1. The Strategic Level Of Labor Relations
1. A Framework for Analyzing Labor Relations
2. Labor, Management, And Government Interactions
3. The Law And Legal Systems
4. The Role Of The Economic, Technological, and Demographic Environments
Part 2. The Middle (Functional) Level of Labor Relations
5. Employment Systems—Informal, Bureaucratic, and Human Resource Management
6. Employment Systems—Informal, Bureaucratic, and Human Resource Management
7. Dispute Resolution Procedures
Part 3. The Workplace Level of Labor Relations
8. Workplace Labor Relations
9. Employment Outcomes
Part 4. Special Topics
10. Labor Relations In The Public Sector
11. Global Pressures: Multinational Corporations, International Unionism, And NGOs
12. Economic Development Strategies And Policies
Glossary
Index

Citation preview

LABOR RELATIONS IN A GLOBALIZING WORLD

Harry C. Katz, Thomas A. Kochan, and Alexander J. S. Colvin

LABOR RELATIONS IN A GLOBALIZING WORLD ILR Press an imprint of

Cornell University Press Ithaca and London

Copyright © 2015 by Cornell University All rights reserved. Except for brief quotations in a review, this book, or parts thereof, must not be reproduced in any form without permission in writing from the publisher. For information, address Cornell University Press, Sage House, 512 East State Street, Ithaca, New York 14850. First published 2015 by Cornell University Press First printing, Cornell Paperbacks, 2015 Printed in the United States of America Library of Congress Cataloging-in-Publication Data Katz, Harry Charles, 1951– author. Labor relations in a globalizing world / Harry C. Katz, Thomas A. Kochan, and Alexander J.S. Colvin. pages cm Includes bibliographical references and index. ISBN 978-0-8014-5381-6 (cloth : alk. paper) ISBN 978-0-8014-7989-2 (pbk. : alk. paper) 1. Industrial relations—Developing countries. 2. Comparative industrial relations. 3. Labor and globalization. I. Kochan, Thomas A., author. II. Colvin, Alexander James, author. III. Title. HD8943.K38 2015 331.09172′4—dc23 2014039571 Cornell University Press strives to use environmentally responsible suppliers and materials to the fullest extent possible in the publishing of its books. Such materials include vegetable-based, low-VOC inks and acid-free papers that are recycled, totally chlorine-free, or partly composed of nonwood fibers. For further information, visit our website at www.cornellpress.cornell.edu. Cloth printing

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To our many teachers

Contents

About the Authors Preface xi

ix

PART 1 The Strategic Level of Labor Relations 1. 2. 3. 4.

A Framework for Analyzing Labor Relations 3 Labor, Management, and Government Interactions 27 The Law and Legal Systems 53 The Role of the Economic, Technological, and Demographic Environments 79

PART 2 The Middle (Functional) Level of Labor Relations 5. Employment Systems—Informal, Bureaucratic, and Human Resource Management 105 6. The Negotiations Process and Structures 121 7. Dispute Resolution Procedures 165 PART 3 The Workplace Level of Labor Relations 8. Workplace Labor Relations 193 9. Employment Outcomes 217 vii

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CONTENTS

PART 4 Special Topics 10. Labor Relations in the Public Sector 249 11. Global Pressures: Multinational Corporations, International Unionism, and NGOs 265 12. Economic Development Strategies and Policies 297 Glossary 323 Index 337

About the Authors

Harry C. Katz is the Interim Provost of Cornell University and Dean and Jack Sheinkman Professor of Collective Bargaining at Cornell’s School of Industrial and Labor Relations (ILR). His major publications include Converging Divergences: Worldwide Changes in Employment Systems (with Owen Darbishire, 2000); Telecommunications: Restructuring Work and Employment Relations Worldwide (1997); and Shifting Gears: Changing Labor Relations in the U.S. Automobile Industry (1985). In 2011, Katz was named a Fellow of the Labor and Employment Relations Association for his scholarly contributions. He serves on the UAW Public Review Board. Dean Katz received his PhD in Economics from the University of California at Berkeley in 1977. Thomas A. Kochan is the George M. Bunker Professor of Management at MIT’s Sloan School of Management. Kochan is a past president of the Industrial Relations Research Association and the International Industrial Relations Association. In 1996, he received the Heneman Career Achievement Award. From 1993 to 1995 he served on the Clinton administration’s Commission on the Future of Worker/Management Relations, which investigated methods to improve the productivity and global competitiveness of the American workplace. His recent publications include Healing Together: The Kaiser Permanente Labor Management Partnership (2009) and Up in the Air: How Airlines Can Improve Performance by Engaging Their Employees (2009). Professor Kochan received his PhD in Industrial Relations from the University of Wisconsin in 1973. Alexander J. S. Colvin is the Martin F. Scheinman Professor of Conflict Resolution at Cornell University’s School of Industrial and Labor Relations ix

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A B OU T T H E AU T HOR S

(ILR). His recent publications include co-editing the Oxford Handbook of Conflict Management in Organizations (2014). He received his PhD in Industrial and Labor Relations from Cornell University in 1999 and his JD from the University of Toronto Faculty of Law in 1992. He was a faculty member at The Pennsylvania State University from 1999 to 2008. Professors Katz and Kochan (with Robert McKersie) are the coauthors of The Transformation of American Industrial Relations, which was awarded the Terry Book Award in 1988 as the most significant contribution to the field of management by the Academy of Management.

Preface

This book covers both generic labor relations issues and how those issues play out in emerging countries. There has never been a text that does so. A new approach is needed given the importance of emerging countries in the global economy and the fact that globalization has shifted the nature of labor relations so that explicitly international factors such as global supply chains, multinational corporations, nongovernmental organizations, and cross-national labor rights and union campaigns are now central determinants. Using the perspective of industrial relations, this book focuses on workplace outcomes in settings where such outcomes constitute economic activity that leads to the production of goods and services in emerging countries. We draw lessons from how the United States and other advanced industrial countries have structured their labor relations systems at different points in time in order to provide a menu of options for management, labor, and government leaders in emerging countries. Throughout the book we use the term “emerging” countries, yet we include in our coverage countries such as China, Korea, and Brazil that might be better labeled as “transitional” economies, given the advanced levels of economic development they have already achieved. We label the countries we analyze “emerging” because the labor relations practices and procedures used in those countries are more recent in origin and are in many ways in a state of flux. We analyze how labor relations functions in emerging countries in a way that is useful to practitioners, policy makers, and academics. This requires, for example, that we take account of the fact that labor relations are much more political in nature in emerging countries than they are in advanced xi

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PR EFAC E

industrialized countries. We also address the traditional role played by statedominated unions in emerging countries and the recent increased importance of independent unions, which in many of those countries have emerged as alternatives to traditional unions. These independent unions tend to promote firm- or workplace-level collective bargaining, in contrast to the more traditional top-down systems. The informal sector is also much more prevalent in emerging countries. Collective representation forms and methods of conflict resolution also are more varied in emerging countries not only because they sometimes include works councils but also because concerns about labor rights have led to the involvement of various nongovernmental organizations and other interest groups in workplace matters. In the informal sector, where formal collective negotiations may be absent, nongovernmental organizations perform representation and negotiations roles. This book makes use of the three-tiered structure of labor relations developed by Kochan, Katz, and McKersie in our analysis of the transformation of U.S. labor relations. However, in this book the three-tiered framework is adapted to take account of the greater role political factors play in labor relations and the increasing role played by nongovernmental organizations and international agencies, such as the World Bank and the International Monetary Fund. In addition, in this book much attention is paid to the role of multinational corporations and cross-national union and labor rights campaigns and to nongovernmental organizations, both because the importance of these factors has increased in all countries in recent years and because these factors are especially important in emerging countries. We continue to make use of the three-tiered framework not because we are blindly wedded to it but because the framework, when appropriately modified, provides a helpful way to understand how labor relations actually works—what factors shape bargaining power, how bargaining power is exercised, and how political and international forces shape the nature and use of power in emerging countries. This text provides many illustrations and examples. In particular, we highlight in the text and in numerous box illustrations examples from China, India, Brazil, and South Africa. We focus on these four key countries in particular because each of them is a sizeable contributor to the global economy, is the leading economy in their respective regions of the world, and has features that illustrate phenomena and processes that are common in other emerging countries. Events in those countries also nicely illustrate some of the dynamics found in their respective regions. This book will be suitable for undergraduates, master students, practitioners, and policy makers who work in the labor relations domain. With the

Preface

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spread of democracy in Asia and Latin America, formerly state-dominated labor movements have begun to be more assertive and more independent forms of unions are emerging. This has led to the nascent spread of real collective negotiations in many countries and stimulated greater interest in the practice and operation of labor relations. In developing this book we have benefited much from very helpful advice provided by Russell Lansbury, Ming-Wei Liu, and Mark Anner, who served as outside reviewers. As with the many other books we have worked on together, Fran Benson has been a source of much wisdom and encouragement. We are also grateful to Theresa Woodhouse, who helped prepare the manuscript. We also thank our students—Chad Gray, Paulo Ferreira, Sohil Khurana, Rachel Price, Julia Hollreiser, and Nicole Palmadesso—who provided able research assistance. Although in our analysis we draw lessons from the experiences and labor relations systems that prevail in advanced industrialized countries, recognizing the important cultural and historical differences that exist across countries, we are not heavily prescriptive. Rather, we strive to provide the analytic base from which labor relations actors and citizens in various emerging countries can make choices about how to carry out labor relations. At the same time, we frequently note that labor relations choices critically influence the work lives of employees and the performance of economies. As a result, we feel compelled to remind the parties that their labor relations choices have moral as well as profound economic consequences. While past practices regarding worker safety and work conditions leave much to be desired in some countries and economic pressures often present difficult trade-offs, we are hopeful that this book can contribute to the due process related to and concern for economic opportunity and equality that have begun to spread across the globe.

LABOR RELATIONS IN A GLOBALIZING WORLD

PART 1

The Strategic Level of Labor Relations Chapter 1. A Framework for Analyzing Labor Relations Chapter 2. Labor, Management, and Government Interactions Chapter 3. The Law and Legal Systems Chapter 4. The Role of the Economic, Technological, and Demographic Environments

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A Framework for Analyzing Labor Relations

A PERSPECTIVE DRAWN FROM THE FIELD OF INDUSTRIAL RELATIONS

Whether we are at work or at leisure, we are affected by the conditions under which we work and the rewards we receive for working. Work plays such a central role in our lives and in society that the study of relations between employee and employer cannot be ignored. This book traces how labor, management, and governments acting as individuals or as groups have shaped and continue to shape the employment relationship. Employment is analyzed through the perspective of industrial relations, the interdisciplinary field of study that concentrates on individual workers and groups of workers, unions and other forms of collective representation, employers and their organizations, and the environment in which these parties interact. The discipline of industrial relations differs from other disciplines that study work because of its focus on labor-management interactions. Thus, this book describes how unions and other forms of collective representation (such as works councils) influence working conditions and workplace outcomes and helps explain, for example, why workplaces have high wages in one situation and low wages in another. It also identifies how effective labor-management relations can contribute to improved economic performance, both in specific workplaces and enterprises and in the national economy. Although the agricultural sector in emerging countries involves work and the production of food, we do not address the relationship between those who work on farms and those who own or manage those farms. Even though 3

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many of the concepts addressed in this book have some relevance in describing agricultural work, work of that type is sufficiently distinct from other forms of work to warrant separate consideration. The study of labor relations focuses on the key participants involved in the employment relationship, the role of industrial conflict, and the performance of unions and other forms of collective representation. This chapter defines these key components of labor relations and describes how this book analyzes them.

THE PARTICIPANTS

The key participants (or parties) involved in labor relations in emerging countries are management, labor, government, international agencies, and nongovernmental organizations (NGOs).1 Management

The term management refers to individuals or groups who are responsible for promoting the goals of employers and their organizations. Management encompasses at least three groups: (1) owners and shareholders of an organization; (2) top executives and line managers; and (3) labor relations and human resource staff professionals who specialize in managing relations with employees, unions, and other forms of collective representation. Management plays key roles in negotiating and implementing a firm’s work practices and employment outcomes. Labor

The term labor encompasses both employees and the unions and other entities that represent them. Employees are at the center of labor relations. They influence whether the firms that employ them achieve their objectives, and they shape the growth and demands of the entities that represent them. Government

The term government encompasses (1) national, regional, and local political processes; (2) the administrative agencies responsible for making and enforcing public policies that affect labor relations; and (3) roles and activities through which the interests of the public are represented. Government policy shapes how labor relations proceeds by regulating, for example, how workers form unions, what rights unions may have, and how workplace disputes are resolved.

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5

International Agencies and Nongovernmental Organizations

Labor relations in any country are greatly influenced by the globalization of economic activity. This raises the importance of two sets of institutions: international (quasi-governmental) agencies and NGOs. Key international agencies, such as the World Bank and International Monetary Fund (IMF), influence the economic policies and economic development strategies of emerging countries in part through the loans they provide and the conditions attached to those loans. The World Trade Organization (WTO) also is critical because its policies affect tariffs, import and export quotas and rules, and other issues that influence the flow of goods and services across national boundaries. The International Labour Organization (ILO) establishes standards and principles for employment through negotiations that involve the employers, governments, and union representatives that make up its governing body. These international agencies both constrain and support emerging countries as they design and implement labor relations policies and practices. History shows that these quasi-government agencies frequently propose and seek different (and sometimes conflicting) objectives related to labor relations. The ILO, for example, influences international labor standards through conventions and recommendations. Once ILO conventions are ratified by a country, they become legally binding international treaties, whereas the organization’s recommendations are simply nonbinding guidelines for its members. The ILO also has proclaimed a set of four basic principles for workers that it calls core labor standards. The ILO calls on all its member countries to comply with these core standards, regardless of whether those countries have formally ratified the relevant conventions. The core labor standards are (1) freedom of association and the right to collective bargaining; (2) the elimination of forced and compulsory labor; (3) the abolition of child labor; and (4) the elimination of discrimination in the workplace. The ILO has mechanisms for monitoring compliance with its labor standards, such as the Committee of Experts on the Application of Conventions and Recommendations and the Committee on Freedom of Association. The latter receives complaints against any state deemed to be in violation of the principle of freedom of association. However, despite the existence of these mechanisms, the ILO faces difficulties in enforcing the core labor standards, since it lacks effective means to sanction countries that do not comply with these standards. The IMF and the World Bank have more tools to effectively influence the design of national labor policies. Although the IMF’s primary goal is to ensure international monetary stability in order to facilitate international trade and

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the World Bank seeks to provide sustainable private sector investment in emerging countries, promoting these objectives ends up affecting national labor policies. This occurs because both the IMF and the World Bank can and sometimes do impose conditions on critically needed loans. Whether they like the recommended labor policies or not, governments often adhere to IMF and World Bank recommendations related to labor relations in order to gain access to these loans. The World Bank and the IMF have favored government policies that promote labor market flexibility, which often comes down to giving employers more authority to hire, fire, and regulate work hours. In recent years, the IMF and the World Bank have also promoted pension system cuts and pay cuts and layoffs in the public sector. These policies generally place the burden of economic adjustment on workers and unions.2 In reaction to the World Bank and the IMF’s promotion of labor market flexibility, various international labor federations and unions tried unsuccessfully to compel the WTO to incorporate adherence to the ILO’s core labor standards in its policy recommendations. The labor movement has argued that violations of labor rights in export sectors constituted unfair trade advantages that should have triggered WTO trade sanctions.3 Labor supporters reactivated efforts to get the IMF and the World Bank to promote the ILO’s core labor standards after high unemployment followed the 2008 financial crisis in many countries. In recent years, as discussed in box 1.1, in response to further criticism for inappropriately promoting labor market flexibility, the World Bank modified the construction of a key indicator used to compare country economic performance to include measures related to workers’ rights.

BOX 1.1 How the World Bank’s Employing Workers Indicator and Doing Business Report Were Modified in Response to Criticisms The Doing Business report is the most popular World Bank publication. When the first edition was published in September 2003, the World Bank defined it as a report “investigating the scope and manner of regulations that enhance business activity and those that constrain it.” One of the goals of the report, which compared data from 130 different countries, was to motivate reforms through country benchmarking.

A Framework for Analyzing Labor Relations

Among the five indexes the 2003 report measured, countries were evaluated on their rules about the hiring and firing of workers, based on the argument that rigid employment regulation is associated with more poverty in developing countries. Countries were ranked according to the flexibility of their hiring and firing rules, and the report presented reforms that established the employment “at will” rule or that eliminated limits on fixed-term contracts as examples of good reform practices. During the following years, other measures were added to the Employing Workers Indicator (EWI), but always with the basic idea of ranking countries according to the extent to which they promoted flexibility in the labor market. In the 2007 report, the United States and the Marshall Islands shared the top EWI ranking. Concerned that the Doing Business report was leading to socially and economically harmful labor reforms, the International Confederation of Free Trade Unions (ICFTU) and later the International Trade Union Confederation (ITUC) sent ten statements to the World Bank from 2004 to 2008 that called attention to the fact that the Doing Business reports by the World Bank and the IMF were promoting the destructive deregulation of labor markets in many countries. The ILO also attacked the Doing Business report’s methodology and the absence of concrete evidence showing that labor market deregulation was associated with employment growth and higher economic performance. In 2009, responding to these and other critics, the World Bank decided to review the EWI and convened a consultative group to provide advice on appropriate changes to the EWI and suggestions for a new Worker Protection Indicator (WPI). As a result, in 2011, the World Bank removed the EWI as a guidepost from its Country Policy and Institutional Assessment questionnaire and instructed its staff not to use the indicator as a basis for providing policy advice or evaluating country development programs. Moreover, rankings in the EWI were abandoned, and since 2008 tables showing the extent to which each country had ratified ILO core labor standards was also a part of the report. Currently, the EWI continues to be a part of the World Bank report, but the indicator includes assessment of alignment with the four key ILO labor rights conventions. Sources: H. Murphy, “The World Bank and Core Labour Standards: Between Flexibility and Regulation,” Review of International Political Economy 23, no. 2

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(2013): 1–33; P. Bakvis, “World Bank Orders Suspension of Doing Business Labour Market Deregulation Indicator,” Transfer: European Review of Labour and Research 15, no. 2 (2009): 319–322; World Bank, Doing Business 2004: Understanding Regulations (Washington, D.C.: World Bank Group, 2003); World Bank, Doing Business 2011: Making a Difference for Entrepreneurs (Washington, D.C.: World Bank Group, 2011); World Bank, Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises (Washington, D.C.: World Bank Group, 2013).

NGOs are organizations that operate as quasi-political or social organizations that work to improve labor rights and working conditions in emerging and less-developed countries. A key focus of a number of NGOs in recent years has been on improving workers’ safety in the apparel sector in the face of the deadly fires and building collapses that have unfortunately plagued that sector. NGOs exercise their influence through lobbying, mounting pressure campaigns, generating and circulating information, and in some cases, engaging in direct negotiations and/or collaboration with employers, unions, and governments. NGOs often focus on promoting and improving one particular labor right or work condition or on serving one disadvantaged segment of the work force. GoodWeave, for example, is an NGO that has helped bring about significant reductions in child labor (see box 1.2). The important roles that NGOs play in promoting labor rights and other examples of active NGOs are discussed more fully in chapter 11.

BOX 1.2 GoodWeave International: An Example of an NGO Focused on Reducing Child Labor In the 2010 International Labour Organization publication United States Policies to Address Child Labor Globally, the authors write, “It would cost $760 billion to end child labor, but the benefits to the economy would be more than six times that—an estimated $5.1 trillion in economies where child laborers are found.” Child labor has been a rampant and common practice in various South Asian economies because of a variety of factors that include traditional or historical norms, lack of government oversight, government corruption, and the inability of

A Framework for Analyzing Labor Relations

international entities such as the United Nations to oversee these practices. Thus, several nongovernmental organizations have been established for the purpose of working to eradicate child labor in select industries in South Asia. One of the most celebrated and influential NGOs that expressly works to eliminate child labor is GoodWeave International. Founded in 1994, GoodWeave works to end child labor in the South Asian rug industry by establishing a child-labor-free certification program through which the organization works with businesses, retailers, and importers to demand only child-labor-free rugs from manufacturers in India, Nepal, and Afghanistan. The United States, the United Kingdom, and Germany also participate in the program as consumers of rugs from these countries. GoodWeave ensures that fewer rugs produced with child labor are bought and sold in these countries through the following techniques: 1. Standard-Setting—GoodWeave has established a standard for ending child labor in the production and consumption of rugs. These standards include absolutely no child labor in production of the rugs, environmental criteria for businesses and importers, minimum wage legislation, and benefits for all workers, including health care coverage. 2. Monitoring and Certification—Local inspectors are paid by GoodWeave through subsidies by local governments and private donations to visit licensed manufacturers on a surprise and random basis. Employers that meet GoodWeave’s standard of no child labor are given certification labels for all of their rugs. 3. Rehabilitation and Education for Child Laborers—GoodWeave inspectors rescue child laborers from employers. They then offer children various programs for rehabilitation, therapy, access to education, and eventual job placement. In order to pay for the expenses of such programs, exporters have a contract with GoodWeave by which they pay 0.25 percent of the export value of each rug, while importers pay 1.75 percent of their shipment value to GoodWeave. These funds are vital for schooling and rehabilitation programs for these young children. 4. Child Labor Prevention—GoodWeave provides several programs to prevent child labor in manufacturing companies and to raise awareness among consumers in developed countries about the toll

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of child labor on the development of these children. Such programs include providing subsidies for daycare, after-work education programs, early childhood education, and sponsorship for at-risk children to attend school. 5. International Governance and Accountability—In conjunction with GoodWeave, local and national governments form representative councils in both producer and consumer countries that serve to enforce the no-child-labor standards that GoodWeave has maintained. These councils enforce the issuing of certifications from GoodWeave. As a result of these programs, GoodWeave reports that “since 1995, 11 million child-labor-free carpets bearing the GoodWeave label have been sold worldwide, and the number of ‘carpet kids’ has dropped from 1 million to 250,000.” While GoodWeave has been remarkably successful, the child labor and human trafficking industries still flourish, and corruption in government oversight and regulation continues in many South Asian countries. Sources: “Child-Labor-Free Certification,” GoodWeave, http://www.good weave.org/about/child_labor_free_rugs; “One in a Million: GoodWeave’s Campaign to End Child Labor,” GoodWeave, http://www.goodweave.org/ child_labor_campaign/about.

ASSUMPTIONS ABOUT LABOR AND CONFLICT More Than Just a Commodity

One of the most important assumptions guiding the study of labor relations is the view that labor is more than a commodity, more than a marketable resource. For instance, because workers often acquire skills that are of special value to one firm and not to another, the possibilities for them to earn as much in the labor market as they can at their existing employer are limited. In addition, changing jobs often costs workers a lot: moving locations can be expensive and can also entail large personal and emotional costs. For these reasons and others, labor is not as freely exchanged in the open competitive market as are nonhuman market goods. Furthermore, labor is more than a set of human resources to be allocated to serve the goals of the firm. Employees are also members of families and communities. These broader responsibilities influence employees’ behaviors and intersect with their work roles.

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A Multiple-Interest Perspective

Because employees bring their own aspirations to the workplace, labor relations must be concerned both with how the policies that govern employment relations and the work itself affect workers and their interests and the interests of the firm and the larger society. Thus, the study of labor relations takes a multiple-interest perspective, which includes a particular perspective on the nature and role of labor conflict. The Inherent Nature of Conflict

A critical assumption underlying analysis of labor relations is that there is an inherent conflict of interest between employees and employers. That conflict arises out of the clash of economic interests between workers seeking high pay and job security and employers pursuing profits. Thus, conflict is not viewed as pathological. Although conflict is a natural element of employment relations, society does have a legitimate interest in limiting the intensity of conflicts over work. Common and Conflicting Interests

There are also a number of common interests between employers and their employees. Both firms and their work forces can benefit, for example, from increases in productivity through higher wages and higher profits. At the workplace there is no single best objective that satisfies all the parties. The essence of an effective employment relationship is one in which the parties successfully resolve issues that arise from their conflicting interests and successfully pursue joint gains. Collective negotiations are one among a variety of mechanisms for resolving conflicts and pursuing common interests related to work. In fact, collective negotiations compete with alternative employment systems. Not all employees, for example, perceive deep conflicts with their employers or want to join unions. In dealing with their employers, some workers prefer individual over collective actions. Other workers choose to exercise the option of exit (quitting a job) when dissatisfied with employment conditions rather than choosing to voice their concerns, either individually or collectively.4 One of the roles of public policy is therefore not to require one form or another of collective representation for all workers but to provide a fair opportunity for workers to choose whether one means or another is what they prefer to use to resolve conflicts and to pursue common interests with their employer. Since many of the goals of the major actors—workers, unions, employers, and the government—may conflict, it is not possible to specify a single

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overriding measure of the effectiveness of labor relations. Focusing on any single goal would not accommodate the multiple interests of workers, employers, and society. THE THREE LEVELS OF LABOR RELATIONS ACTIVITY

This book uses a three-tiered approach to analyzing the operation of labor relations.5 Figure 1.1 provides the framework for this approach. This framework argues that various factors—the economic context and the actions of governments, NGOs, and international agencies—shape the context in which labor relations occurs. The framework also argues that there are three tiers (or levels) at which labor relations takes place. The top tier of labor relations, the strategic level, includes the strategies and structures that have long-term influences on employment levels and work conditions. Business strategies are critical factors because they influence investment and product strategies, which in turn shape employment systems and workplace outcomes. Businesses also influence the strategic direction of labor relations through their interactions with unions, governments, international agencies, and NGOs. Unions also take strategic actions related to their

INTERNATIONAL AGENCIES

Strategic level

EXTERNAL ENVIRONMENT

Functional level

Workplace level

GOVERNMENT ACTIONS AND POLICIES

Union strategies and structures Bargaining structure

NGOs

Management strategies and structures NEGOTIATIONS PROCESS

NEGOTIATIONS OUTCOMES

Work Organization Employee motivation and participation Conflict resolution

Figure 1.1. The three-tiered approach to the study of labor relations in emerging countries

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representation strategies and their interactions with governments, international agencies, and NGOs. Governments are also critical strategic actors in their direct role as employers in the public sector and by shaping the laws and public policies that influence labor relations in both the private and public sectors. In recent years a number of NGOs and international agencies also have come to play critical roles in labor relations in emerging economies. The middle tier of labor relations activity, the functional level, involves the process and outcomes of collective negotiations. Strikes, bargaining power, bargaining structure, and wage determination processes all feature prominently at this level. The bottom tier of labor relations activity, the workplace level, involves activities through which workers, their supervisors, and their representatives relate to one another on a daily basis. At the workplace level, adjustment to changing circumstances and new problems occurs regularly. A typical question at this level, for example, is what form of conflict resolution is used to deal with disputes that arise between workers and managers. It is through the joint effects of the environment and the actions of the parties in this three-tiered structure that a labor relations system either meets the goals of the parties and society or comes up short. THE INSTITUTIONAL PERSPECTIVE

The perspective that guides our analysis of labor relations was first developed by institutional economists at the University of Wisconsin. John R. Commons (1862–1945) identified the essence of institutional economics as “a shift from commodities, individuals, and exchanges to transactions and working rules of collective action.”6 Commons and his fellow institutionalists placed great value on negotiations and compromise among the representatives of labor, management, and society. The thinking of institutionalists was heavily influenced by Sidney and Beatrice Webb, two British economists and social reformers who were members of the Fabian socialist society. They viewed unions as a means of representing the interests of workers through the strategies of mutual insurance, collective bargaining, and legal enactment.7 In following the Webbs, the institutionalists rejected the arguments of Karl Marx, who had argued that the pain of the exploitation and alienation the capitalist system inflicted on workers would eventually lead to the revolutionary overthrow of the system. Marx believed that workers would eventually develop a class consciousness that would pave the way for revolution and the ultimate solution to their problems—a Marxian economic and social system.

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Marx supported unions in their struggles for higher wages, but he believed that they should simultaneously pursue the overthrow of the capitalistic system. There were, however, some interesting similarities in the views of Commons, Marx, and the Webbs. Like Marx and the Webbs, Commons and other institutional economists rejected the view of labor as a commodity, for two fundamental reasons. First, the institutionalists saw work as being too central to the interests and welfare of individual workers, their families, and their communities to be treated simply as just another factor of production.8 Second, the institutionalists echoed the Webbs and Marxist theorists by arguing that under conditions of “free competition,” most individual workers deal with the employer from a position of unequal bargaining power. That is, in the vast majority of employment situations, the workings of the market tilt the balance of power in favor of the employer. The institutionalists concluded that labor required protection from the workings of the competitive market and that unions could materially improve the conditions of the worker. This led them to advocate two basic labor policies: legislation to protect the rights of workers to join unions and legislation on such workplace issues as safety and health, child labor, minimum wages, unemployment and workers’ compensation, and social security.9 Thus, in addition to making scholarly contributions, the institutionalists served as early advocates of the legislative reforms that sought to bring improvements in working conditions, including fair wages. THE PERFORMANCE OF LABOR RELATIONS

The performance of a labor relations system can be assessed by looking at how well it serves the goals of the parties including the public interest. Labor’s Goals

To see if a labor relations system is meeting labor’s goals, we can examine wages, benefits, safety conditions, and employee job satisfaction. Workers are also concerned with the quality of their work and the effects the organizations they work for have on the ecological environment and on other social outcomes. Management’s Goals

Management is concerned with the effects of labor relations practices on labor costs, productivity, profits, product quality, and the degree of managerial control. Management also has goals for various human resource issues, such as

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employee turnover, motivation, and performance. All of these indicate the extent to which labor relations practices aid or hinder employers’ quests for competitiveness in the product market. Society’s Goals

Identifying the goals of labor relations for the public and the government is a more difficult task. Government labor policies seek to maintain industrial peace and protect workers’ rights. In addition, the government is concerned with how labor relations affect economic growth, inflation, unemployment, and working conditions such as safety and health, equal employment opportunity, and income security. A free labor movement is important to any political democracy. So it is also necessary to assess whether a government’s public policies and private actions are producing a labor relations system that strengthens democracy at the workplace and in the society at large. THE ROLE OF THE INFORMAL SECTOR IN EMERGING COUNTRIES

In emerging countries, the informal sector constitutes a much larger share of employment than is the case in more advanced and mature economies. In many emerging countries, about half of the employed urban population works in the informal sector. Informal employment is particularly high among migrants who are new entrants to the urban labor force in developing countries. These migrants often create their own employment or work in small-scale family-owned enterprises. Self-employment is also common in the informal sector and involves activities such as street vending or workers such as mechanics, carpenters, small artisans, barbers, and personal servants. Unfortunately, common informal activities often also include prostitution or drug sales.10 The informal sector is characterized by a large number of small-scale production and service activities that are individually or family-owned and use simple, labor-intensive technology. Usually the self-employed who work in this sector have low levels of formal education, are generally unskilled, and lack financial resources. Moreover, workers in the informal sector commonly do not enjoy job security, unemployment insurance, or pensions. Many workers in this sector also are recent migrants from rural areas who are unable to find employment in the formal sector. Their motivation is often to obtain sufficient income for survival, relying on their own resources to create work. Often as many

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members of the household as possible are involved in income-generating activities, including women and children, and they often work very long hours. A large fraction of urban informal workers inhabit shacks and small cinderblock houses that they themselves have built in slums and squatter settlements that commonly lack even minimal public services such as electricity, water, sewers, transportation, and education and health care services. Some informal sector workers are even less fortunate; they are homeless and are living on the street. They find sporadic temporary employment in the informal sector as day laborers, but their incomes are insufficient to provide even the most basic shelter. Since informal employment often entails self-employment or employment in very small organizations, it does not involve the sort of labor-management interactions that are the main focus of labor relations. At the same time, especially given the poor work conditions that are common in the informal sector, labor rights and the impact of government employment regulations are critical issues. Although our analysis recognizes the important economic role of the informal sector and efforts to improve work conditions in that sector, there is not much exercise of various key labor relations factors such as bargaining power or negotiations processes in the informal sector. THE PLAN OF THE BOOK

The chapters that follow analyze labor relations by simultaneously moving across and downward through figure 1.1. The framework in figure 1.1 is broader and more dynamic than most models of labor relations. In particular, it emphasizes the range of choices management, labor, and government policymakers have in responding to environmental changes (such as increased competition or changes in technology) instead of viewing these changes solely as constraints. The following discussion provides a more elaborate description of the terms used in figure 1.1. This material also sketches out in more detail the topics included in each chapter and their connections. The reader may wish to return to this material from time to time as a review strategy to put the individual topics and chapters in perspective. THE ENVIRONMENT

Labor, management, and governments have complex interactions with each other, especially in emerging countries. These interactions are determined by factors such as whether a labor party and/or other political parties aligned

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with the labor movement exist in the country. Governments set the stage for labor relations by shaping laws and public policies that regulate work conditions, how workers and managers interact, and how unions and other forms of collective representation function. Governments also sometimes take direct action to intervene in strikes and other labor disputes in emerging countries. Governments matter as strategic actors in part through their influence on the state of the economy (i.e., macroeconomic policies). Government policies also influence the degree of competition that exists in a particular industry (i.e., whether the industry is a monopoly or an oligopoly or is competitive), which, as we will discuss, influences labor and management’s power in that industry. Governments also are critical actors in guiding working conditions in the public sector and in determining which economic activities will take place in public enterprises and which will take place in private enterprises. Recent increases in privatization and the denationalization of formerly public or stateowned enterprises, such as airlines, telecommunications companies, and public works (oil exploration, water, or energy generation), have heavily influenced workplace outcomes in those sectors. The World Bank, the IMF, and other international agencies have played significant roles in shaping economic and trade policies in emerging counties in recent years. Their roles have come to the fore in particular as countries have had to adopt one form or another of structural adjustment policies that often involve reductions in government ownership and public employee pay and public pensions; in some cases, these policies restrict union rights. NGOs also been active in the burgeoning labor rights movement, putting pressure on employers and governments to improve work conditions, including workplace safety. Given the direct and indirect influence that political processes have on labor relations in emerging countries, our analysis of how labor, management, and government interactions affect labor relations comes early on, in chapter 2. The political power management has, for example, might influence public policies toward strikes or whether the government intervenes to limit a strike. Or unions might successfully lobby the government for improvements in pensions or vacation policies and thereby have less reason to address those issues at the firm or workplace level. The labor movement has been at the forefront of the sweeping political changes that have occurred in a number of countries in recent years, as discussed in chapter 2. In these countries, where the labor movement is as much concerned with political change as it is with determining working conditions on the factory floor, the role labor plays deserves special attention.

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The external environment sets the context for labor relations and strongly influences workplace outcomes and collective negotiations. It includes several key dimensions: the laws that regulate unions and conflict resolution, the economic environment, demographic factors, and the technological context. In chapter 3 we analyze the role of laws and public policies that are shaped by national, regional, and local governments. In some countries, public policies regulate many aspects of employment terms, while in other countries public policies regarding pay, vacation, pensions, or other employment conditions are extremely limited. As discussed in chapter 3, the ILO plays an especially important role in helping governments design labor policies in emerging countries through the principles and standards it pronounces and disseminates and through technical assistance activities. Among the laws that are examined in detail in chapter 3 are those that regulate how unions are formed and the rights those unions have. Some countries also have laws that provide for forms of worker representation at the workplace through elected works councils. Furthermore, various employment rights concerning discrimination and due process affect work conditions, and these rights vary significantly across countries. All of these types of public policies are examined in chapter 3. As chapter 4 outlines, the other environmental factors (the economic, technological, and demographic environments) influence labor relations through their effects on the bargaining power labor or management has. For example, the economic environment will influence the power labor and management have, and the power the parties have will in turn determine the outcomes of collective negotiations. Workers and unions, for example, have more bargaining leverage and are able to win higher wages during contract negotiations when it is easier for striking workers to find temporary or alternative employment. In this way, an aspect of the macroeconomy (the unemployment rate) influences workers’ bargaining power and one outcome of bargaining (the wage settlement). Today, many product and labor markets are global in scope. This makes it easier for firms to locate or to move work across national boundaries and serves as an illustration of how globalization affects labor relations. As the book traces how the various components of the environment affect the negotiations process and outcomes, the discussion moves across the middle tier of the framework outlined in figure 1.1. At the same time, it is important to be aware of how the strategies and structures of labor, management, and government shape the middle tier of labor relations activity and how they affect the workplace. The framework starts at the top by first considering the role played by the strategies labor, management, and governments use.

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THE STRATEGIC (TOP) TIER

At the top tier are the strategies and structures that guide the long-run direction of labor relations. Management Strategies

The strategies of management are critically important in shaping the evolution of labor relations. For instance, is a company’s top management willing to negotiate with employee representatives over the long term or is it fundamentally committed to exercising unilateral authority? Does management see the advantage of the internal flexibility that can be achieved by working with employee representatives to promote flexible work organizations and adaptive training? Is management interested in investing in the skills of its current employees, or is it attracted more by outsourcing strategies and other approaches that rely on low pay? For multinational companies (MNCs) that purchase goods and services that go into their final products from multiple countries, additional strategic questions come into play. How much discretion and variation should be allowed in their operations in different countries? Should the MNC have a global labor strategy and if so, what should it include? How much responsibility should the MNC take for the labor practices and outcomes in companies and contractors in its global supply chain? Labor Strategies

Labor’s strategies also have a critical influence on the course of labor relations. For example, is there a labor party that tries to promote workers’ interests in the political arena or is the labor movement aligned with particular political parties? Is labor focused on forming unions at the workplace level or does labor prefer to emphasize sector-, industry-, or company-level bargaining? Is a given union leadership committed to maintaining a distanced and adversarial posture in negotiations or is it interested in exchanging new forms of flexible work organization for greater control over the design of the production process? Or does the labor movement put primary emphasis on social protests and political leverage and in improving work conditions through government regulation or public legislation? Where the latter strategy prevails, there may be low levels of union representation but extensive coverage of collectively negotiated employment terms through legislative extension of those terms. Government Strategies

Governments also matter, particularly in the long run, through the economic development strategies they promote. For example, the location of a nation’s industries in global supply chains is heavily influenced by the skill and

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education levels of a country’s work force. These in turn are strongly influenced by public policies, including public investments in education. We postpone analysis of the long-run effects of government policy on economic development until chapter 12 because addressing these matters first requires that we develop a more complete understanding of how labor relations works. THE FUNCTIONAL (MIDDLE) TIER

Chapter 5 analyzes the various employment systems that exist in emerging countries. Employment and work practices typically cluster into distinct patterns and are not randomly associated. Pay practices tend to link with and reinforce particular employment security, work organization, and complaint procedures. The parties must thus choose between a set of distinct work patterns. The informal employment pattern prevails among self-employed people who sell their wares on street corners or those who are involved in manufacturing garments and other goods through homework. Generally, the informal sector is unregulated or is characterized by weak enforcement of public laws and policies. The bureaucratic pattern includes more structured forms of determining pay and procedures for processing complaints. As described in chapter 5, there are “low-end” and “high-end” versions of some of the employment patterns. For example, the bureaucratic pattern exists in a low-end form in the supply firms that are used in the apparel sector and in industries where the outsourcing of core production work has spread. In contrast, in the public sector, where bureaucratic practices prevail, the work conditions, including pay and safety conditions, are more advantageous to workers. As described more fully in chapter 5, unionized variants of the bureaucratic employment pattern are often found in firms that make use of the high-end versions of that pattern. In the human resources management pattern, professional and technical employees commonly gain the benefit of work practices that are shaped to fit individual needs and are tailored to ensure that highly skilled employees will be recruited and retained. Many multinational firms use a human resources management approach, and some use a Japanese variant of this pattern that is oriented more to the needs and goals of an organization, as opposed to those of individuals. Negotiations Processes and Impasse Resolution

Where there is a union or other forms of collective representation, the middle tier of activity includes a role for negotiation processes, the subject of chapter

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6. A critical factor that shapes the form and often the outcomes of any negotiations that occur between labor and management is the particular structure the parties use in their negotiations. For example, are a number of different employers covered by a single collective agreement? Does a given company bargain with one union or with many? Do the workers a given union represents have diverse or with homogeneous skills? The Negotiations Process

At the heart of union-management relations is the negotiation of a collective agreement. If a union or unions represent a group of workers, a critical phase in their relationship is the bargaining process used to negotiate a collective agreement. The negotiations process is a complicated affair that involves the use of tactics, strategies, and counterstrategies by both labor and management. Given the mixed-motive nature of collective bargaining, the parties are often torn during negotiations between their “distributive” and “integrative” impulses, as described in chapter 6. Analysis of the process of negotiation in chapter 6 considers the following issues: 1. How can the dynamics of the negotiations process be described and explained? 2. What causes strikes to occur in some negotiations and not in others and to vary in frequency and intensity over time and across industries? 3. What roles do union and business strategies play in shaping the negotiation process? 4. How can the parties increase the joint gains that could benefit both labor and management? Chapter 6 examines the complete cycle of negotiations, starting with the presentation of opening offers and demands and proceeding through the signing of the final agreement. Although management strategies are important, so are the various structures management uses to organize itself for negotiations. Chapter 6 also includes consideration of how management organizes its labor relations staffs. Impasse Resolution

When labor and management reach an impasse in contract negotiations, a variety of techniques can be (and have been) used to settle the dispute. Chapter 7 describes various impasse resolution techniques and some of the strengths and weaknesses of each.

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THE WORKPLACE (BOTTOM) TIER

The management of conflict and the delivery of due process are two of the key activities that occur on a continuous basis at the workplace level of labor relations activity. In chapter 8 we examine the various ways labor relations conflicts are resolved in emerging countries. Wage, employment security, and health and safety outcomes are also shaped by interactions between labor and management that occur at the workplace level. For example, how large is the impact of unions on wages? Does this vary by industry or type of employee or over time? In chapter 9 we discuss the measurement issues that arise when one sets out to clarify these impacts and summarize the existing evidence on how unions impact workplace outcomes. We also review how government policies affect workplace outcomes more directly through, for example, minimum wage laws and health and safety regulations. SPECIAL TOPICS

Chapters 10, 11, and 12 address selected topics that complete our understanding of labor relations in emerging countries. Public Sector Labor Relations

The rules and procedures governing public sector labor relations, examined in chapter 10, differ from those used in the private sector in virtually all countries. The public sector employs employees at a variety of national, regional, and local levels. Public employees include public school teachers, police, firefighters, and the office staffs of various governments. In the past, in the public sector in many emerging countries also included a number of state-owned enterprises that existed as monopoly providers in sectors such as telecommunications, mail, oil, and water. Public employees are often covered by separate laws and are often subject to different conflict resolution procedures, and in a number of countries they have more limited negotiation and union representation rights. Chapter 10 includes a review of trends in the size and form of the public sector, a review made necessary by the recent downsizing that has been driven by privatization and other structural adjustment policies. International Unions, NGOs, and Multinational Corporations

International trade and competitiveness have moved to the forefront of public attention. At the center of these developments is the increasing influence of

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MNCs through their greater investments in emerging countries and the expanded role global supply chains play. How MNCs shape their labor relations policies and practices and whether decision-making authority regarding labor relations is left in the hands of local or country managers or is put under the control of regional or global managers are some of the issues chapter 11 addresses. Concern about the effects of globalization and the increasing influence of MNCs has spurred unions to act regionally and globally in a more coordinated manner. This has led to various cross-national union- and worker-led campaigns and, in a few industries, international collective negotiations. Chapter 11 examines the consequences of the increased cross-national activities of corporations, unions, and NGOs. Economic Development Strategies and Policies

Chapter 12, the concluding chapter, assesses economic development strategies and policies and their long-term effects on the evolution of labor relations. The key question addressed here is whether particular approaches to economic development can provide superior economic performance while also promoting workers’ rights and well-being.

Summary The framework presented in figure 1.1 provides a way to understand how various factors typically influence labor relations in emerging countries. It also gives appropriate recognition to the particular historical events at play in each country. With the benefit of this framework we can see the role of the common processes that affect employment systems and the interactions between labor, management, and governments within countries. A full understanding of labor relations requires recognition of the influence of both common factors and country-specific events and actors. One cannot gain an understanding of recent labor relations developments without recognizing the interactions that occur between labor, management, and governments. Chapter 2 reviews those interactions, highlighting common trends while also providing illustrations of how events have played out in practice. In the next chapter, as in subsequent chapters, we make heavy use of examples from four countries—China, India, Brazil, and South Africa. We frequently refer to examples from these countries because each has a large economy and provides illustrations of the diversity that exists across countries in terms of how labor relations occur. To provide context for these

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country-specific examples, the next chapter includes an overview of the core features and the key recent trends in the labor relations systems in each of these four countries.

Discussion Questions 1. Name the actors, generally and specifically, who are involved in labor relations. 2. Figure 1.1 is essential in understanding how this book is arranged and proceeds in its analysis of labor relations. Describe the three tiers of this framework. 3. One of the fundamental aims of labor relations is reducing conflict between employees and employers. What are some basic assumptions about labor and conflict in the field of labor relations and in this book? 4. What are some of the ways we judge the effectiveness of collective negotiations in terms of the goals of the different actors involved in the process? 5. How do international agencies affect labor relations in emerging countries?

Related Web Sites LabourStart (global labor news source): http://www.labourstart.org/2013/ LaborNet 2000 Directory of Labor Unions on the Internet: http://www.labornet .org/links/directory.html Cornell University’s School of Industrial and Labor Relations: http://www.ilr .cornell.edu/

Suggested Supplemental Readings Dunlop, John T. Industrial Relations Systems. New York: Holt, 1958. Kaufman, Bruce. The Origins and Evolution of the Field of Industrial Relations. Ithaca, N.Y.: Cornell University Press, 1993. Kochan, Thomas A., Harry C. Katz, and Robert B. McKersie. The Transformation of American Industrial Relations. 2nd ed. Ithaca, N.Y.: Cornell University Press, 1994. Todaro, Michael P., and Stephen C. Smith. Economic Development. 11th ed. Boston: Addison-Wesley, 2012. Webb, Sidney, and Beatrice Webb. Industrial Democracy. London: Longmans, Green and Co., 1920.

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Notes 1. See John T. Dunlop, Industrial Relations Systems (New York: Holt, 1958). 2. M. Anner and T. Caraway, “International Institutions and Workers’ Rights: Between Labor Standards and Market Flexibility,” Studies in Comparative International Development 45, no. 2 (2010): 151–169. 3. Mark Anner, “The International Trade Union Campaign for Core Labor Standards in the WTO,” WorkingUSA 5, no. 1 (2001): 43–63. 4. See Albert O. Hirschman, Exit, Voice, and Loyalty: Responses to Declines in Firms, Organizations, and States (Cambridge: Harvard University Press, 1970). 5. For a summary of the theoretical and empirical research on which this model is based, see Thomas A. Kochan, Harry C. Katz, and Robert B. McKersie, The Transformation of American Industrial Relations, 2nd ed. (Ithaca, N.Y.: Cornell University Press, 1994). 6. John R. Commons, Institutional Economics: Its Place in the Political Economy (New York: Macmillan, 1934), 162. 7. Sidney Webb and Beatrice Webb, Industrial Democracy (London: Longmans, Green and Co., 1920). 8. Commons, Institutional Economics, 559. 9. For a discussion of the policies advocated by the early institutionalists and ultimately passed in the wave of New Deal legislation, see Joseph P. Goldberg, Eileen Ahern, William Haber, and Rudolph A. Oswald, Federal Policies and Worker Status since the Thirties (Madison, Wisc.: Industrial Relations Research Association, 1977). 10. The description of the informal sector in this section draws heavily from Michael P. Todaro and Stephen C. Smith, Economic Development, 11th ed. (Boston: Addison-Wesley, 2012).

2

Labor, Management, and Government Interactions

AN OVERVIEW OF HOW LABOR, MANAGEMENT, AND GOVERNMENTS INTERACT

Labor, management, and government engage in complex interactions in emerging countries, and these interactions strongly influence the evolution of labor relations in those countries. For example, unions and other workers’ movements in some countries have aligned with a particular political party or in some cases are the core constituents of a labor party that is active in the political arena. This chapter will discuss cases where particular unions were aligned with the governing leaders or party. Another way unions and workers have influenced governments is through their involvement in protests or other political actions that are part of democratization campaigns or movements. As will be discussed in this chapter, some of these efforts to promote democracy have succeeded in recent years and have led to major political transformations in particular countries. On the other hand, governments in some countries have acted to sharply curtail trade union activities and power. They have done so by outlawing union activities or by directly intervening to stop a strike or an effort to organize a union. In some countries, although unions are allowed, they are controlled by governments or are sharply constrained in what they can do. We describe some of those cases and in doing so differentiate between independent trade unions and those dominated by a government. In Latin America, governments have at times dominated unions through a process called incorporation. 27

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Governments also significantly affect labor relations in companies and sectors that are government owned or run. Historically, nationalization of the telecommunications, airlines, or banking industries or resource extraction enterprises, for example, has influenced the labor relations and employment conditions in those companies and sectors (as discussed in chapter 10). And as discussed in chapter 3, governments also have a significant influence on labor relations through the laws and public policies that regulate the conduct of labor relations, in particular through laws that regulate the right to strike and other union activities. Management and the interest groups that represent employers are also often active participants in political processes in emerging countries that strive to promote employers’ interests. For example, in some countries, the business community is strongly aligned with particular political parties or is part of a governing coalition. Management can use its influence to promote the labor laws it favors or policies related to taxes, trade, and other economic issues. We also discuss how tripartite discussions involving government, labor, and management takes place in some countries as a vehicle for addressing economic and social policy issues and specific labor relations matters. Another key external actor in labor relations are NGOs and various other groups in civil society. These groups have been particularly active in pushing for improvements in workers’ and union rights and employment conditions, as have various international agencies. We address the influence of NGOs, other civil society groups, and international agencies in detail in chapter 11, as the influence of these groups is interconnected with global pressures exerted by multinational corporations and international unionism, topics that also are further developed in latter parts of this text.

THE ROLE OF THE NATIONAL GOVERNMENT IN LABOR RELATIONS

The role of the national government in labor relations varies greatly, both across countries and over time. China provides an important example of a country where the national government and the Communist Party play a central role in the functioning of the economic system and employment relations. Yet the role of the national government and the Communist Party has changed over time, particularly as a result of the economic reforms that led to a greater role for market forces, as described in box 2.1.

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BOX 2.1 China: The Evolving Role of the Government and the Communist Party Prior to market-oriented economic reforms, China had a planned economy in which the national government was the single employer. In the planned economy, the government set up detailed national- and firm-level plans that included production and wage levels. Communist Party secretaries were the primary figures in enterprises; they helped maintain the influence and political power of the Communist Party and oversaw economic and social activities in enterprises. In this system, since the Communist Party (and the national government) claimed to represent the interests of the working class, there was no representative role for trade unions. Economic reforms introduced from the 1980s on led the national government and the Communist Party to gradually withdraw from the micromanagement of workplaces. This is particularly true for the private sector, where employers were given autonomy in business operations and employment, although within the constraints provided by laws. In state enterprises, management no longer needs to fulfill political functions for the government. Nonetheless, the government still maintains considerable influence in state enterprises, particularly through its appointment of top managers. Appointed managers still hold the status of Communist Party officials and can be transferred to other Communist Party or government posts at any time. In addition, the national government in China continues to act as a regulator, arbitrator and mediator, and inspector in the employment system. The Chinese government’s role in labor disputes, for example, is discussed in chapters 3 and 7. Source: Mingwei Liu, “China,” in Comparative Employment Relations in the Global Economy, ed. C. Frege and J. Kelly (New York: Routledge, 2013).

How National Governments Can Shape Labor Relations: The Case of Incorporation in Latin America

In the early twentieth century, modern labor movements in Latin America coalesced and became influential through a process called incorporation. In

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the incorporation process, national governments became the primary shapers of labor conflict and labor policy by creating systems of participation and representation for workers and the working class. Before the periods of incorporation, governments and employers primarily relied on repression to deal with workers’ demands for social rights and economic improvements. Through incorporation, governments, either through political parties (such as the Institutional Revolutionary Party [PRI] in Mexico) or populist leaders (such as Juan Perón in Argentina), sought to pacify rising labor militancy and at the same time ensure the political support of urban industrial workers by establishing negotiations systems, passing labor-friendly legislation, and offering political appointments to union leaders particularly in the 1950s through the 1970s. Unions grew in size and power after periods of incorporation, and in many Latin American countries they became political partners and helped shape national economic and social policies. Through unionization, workers gained significant improvements in their living conditions such as social security, pensions, and steady wage increases. Union leaders were appointed to prestigious government posts. National governments and political parties gained political support during electoral campaigns and a loyal and energetic membership. Employers profited from the economic growth that accompanied industrial peace and protection from foreign competition. By the 1970s, however, cracks had appeared in the initial systems of incorporation. Military dictatorships in Argentina, Chile, Brazil, and Uruguay jailed and killed union leaders, imposed legislation that curtailed collective bargaining and the right to strike, and reduced the power of labor unions in the workplace. By the 1980s a combination of hyperinflation, high national debt, and pressure from foreign economic competition had pushed many political leaders (many of whom had formerly been aligned with or who had come from traditional labor-based parties) to embrace neoliberal economic policies. These types of policies favored multinational companies over domestic employers (often through the privatization of state enterprises); reduced spending on social security, pensions, and wages; and sought the political favor of business leaders rather than unions. Union leaders were often caught between opposition to neoliberal reforms and their ties to political parties and leaders as a legacy of the incorporation period. While economic liberalization has weakened the power of unions in many countries, unions remain influential political and social actors throughout Latin America. Incorporation helps explain why labor unions have remained key political and social institutions. It also helps explain the close relationship between labor movements and political parties, such as the PRI in Mexico,

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despite the shift of many political parties to neoliberal or more businessfriendly economic policies. Despite losses in membership and bargaining power, unions remain key actors in the political life of many emerging countries. The Recent Push by Governments for Market Reforms and Liberalization

Since the 1990s, multinational corporations in most emerging countries have been moving toward greater market liberalization and openness to international trade and investments. The push for market liberalization has often been associated with a decline in government ownership and, related to this, a decline in the share of the work force in the public sector or working in state-owned enterprises. In association with a greater reliance on markets to set employment terms, many governments have made it easier for firms to lay off workers and have reduced mandated benefits such as vacations and pensions. This has come in tandem with reductions in various social welfare benefits, such as unemployment insurance and health care. In some countries the push for the reduction in government ownership or public benefits has come at the urging of the IMF, the World Bank, or other international development agencies. A frequent scenario has been the introduction of market reforms and liberalization during an economic or financial crisis, although the policy changes introduced in emergency periods often have persisted far beyond any financial or economic emergency.

UNIONS AND POLITICS

Unions and other entities that support workers’ and union rights have not been passive as governments have promoted market liberalization. To appreciate the influence of parties in promoting improvements in workers’ rights and working conditions we first consider how unions commonly are involved in politics in emerging countries. In a number of countries, labor unions are aligned with particular political parties. Union leaders may even serve simultaneously as political party officials. In these cases, the union may be more oriented toward promoting a political agenda than toward promoting improvements in working conditions. The close interaction between unions and political parties in India is described in box 2.2, including recognition of the key role that unions played in the struggle against colonial rule and thereby in the introduction of democracy to the country.

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BOX 2.2 The Nexus of Trade Unions and Politics in India One of the defining characteristics of the union movement in India is its close affiliation with political parties. In India, as in other colonized emerging countries, unions played a major role in the struggle against colonial rule. Some of those who led the freedom struggle also led the union movement, including Mahatma Gandhi and Subhash Chandra Bose. As a result, political leadership in early twentieth century— particularly during the interwar years—promoted a large welfare state. This close association of unions and political parties resulted in a constitution that emphasized “justice, liberty, and equality for all” and an activist role for the state in guaranteeing these rights. In the mixed (public/private) economy after independence, the state pursued socialist objectives, assigning public sector enterprises a dominant role in the nation’s quest for high economic growth. This policy nationalized critical industries such as insurance, banking, and mining, and the government made new investments in large-scale public enterprises. As they adapted to a nascent democracy, politicians needed the votes of the working classes, and political parties formed alliances with unions. For their part, union leaders felt that if they aligned with political parties—particularly the ruling party—they would be better able to defend their members’ interests vis-à-vis management. Although the alliance between unions and political parties has served the mutual interest of both sides in many ways, there have been some negative consequences. First, unions became fragmented whenever there was fragmentation in the political parties. Within states, for instance, the Indian National Trade Union Congress became divided whenever there was a division in the ranks of the Congress Party. The communist union movement also became divided because of divisions in the party. Second, union unity suffered because of political polarization. In India, the public sector suffers most if the ruling party in a state is different from the party ruling at the center. The state government machinery has often been used to take on the central public sector in an attempt to settle scores with the central government. This has been possible because in most cases, with the exception of such sectors as banking, insurance, atomic energy, space, petroleum, oil field, railway, and mining/quarrying, the state government is the appropriate authority for

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enforcing labor laws and maintaining labor relations and law and order. Not infrequently, labor relations issues also become law-and-order problems. By delaying action or using discretion rather unwisely, governments at both central and state levels have enormous power to influence the dynamics at the local/enterprise/establishment level. Third, in the context of liberalization and globalization, having their own party in power is becoming a liability for unions because political parties of all ideological hues tend to follow policies of wooing investors and encouraging cost-based competition, and workers bear the brunt of those neoliberal policies. Source: C. S. Venkata Ratnam and Anil Verma, “Employment Relations in India,” in International & Comparative Employment Relations: Globalisation and Change, 5th ed., ed. Greg J. Bamber, Russell D. Lansbury, and Nick Wailes (Australia: Allen & Unwin, 2011), 333–334.

Democratization The labor movement has played key roles in the introduction or deepening of democracy in a number of emerging countries. (A similar role was played in a number of European countries in earlier periods.) Events in South Africa and Korea are described in boxes 2.3 and 2.4 below. A common theme in these and other countries is that the labor movement and unions often have aligned with student groups and other active members of civil society and in the process have propelled democracy. In the case of South Africa, pressure from these groups helped end apartheid. This leads many to question what will happen if union membership continues to decline, possibly to the point that the political influence of unions is greatly weakened. What forces or social groups, if any, will then replace the positive contribution unions make as a defender and proponent of democracy?

BOX 2.3 The Role of Unions and Labor Protests in Bringing an End to Apartheid in South Africa Apartheid was a racial segregation system enforced by the South African government from 1948 to 1994. Under apartheid, the rights of black and mixed-race South Africans were severely restricted. The National Party controlled the economic and social systems of South Africa during the apartheid period.

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Founded in 1912, the African National Congress (ANC) was a major force of opposition to the apartheid system. Throughout the first forty years of resistance, the ANC focused on using legal tactics and nonviolent direct action as its method of protest. However, the perseverance of apartheid even in the face of these tactics led the ANC to shift to advocating violent resistance activities, such as bombings of government facilities, as long as these tactics avoided civilian deaths. Then labor protests emerged as a key challenge to apartheid. Black trade unions and eventually trade unions that organized white workers led these protests. During apartheid, the government sought cheap labor on mines and farms, which led to the formation of a migrant labor system among the black population and a set of laws reserving specific and separate job sets for workers based on race. In response to such legislation, unions such as the South African Congress of Trade Unions (SACTU) emerged in the 1960s, only to be brutally oppressed by the state. However, in the late 1960s, leaders of the Black Consciousness Movement, who realized the potential of union activity, joined with unions to take more aggressive actions to try to bring an end to apartheid. A turning point came in 1973 at a large industrial complex in Durban, South Africa. On January 9, all 2,000 workers at the Coronation Brick and Tile plant went on strike, demanding wage increases and presenting an elected committee to negotiate with management. The resulting wage settlement spurred widespread union activity throughout the city of Durbin and then in many parts of South Africa. Transport and then municipal workers followed suit, and within one month, 30,000 workers in Durban were on strike. The apartheid system, which depended on black labor to keep its economy running, was facing a serious challenge to its continuation for the first time. The Durban-inspired strike wave led to the establishment of several large trade union federations, including the Federation of South African Trade Unions (FOSATU) and the Congress of South African Trade Unions (COSATU). Subsequent strikes organized by these federations led the South African government to launch investigations of wage levels and eventually to pass amendments to the Labour Relations Act, which defined unfair labor practices and permitted the legal formation of black trade unions. Significantly, worker militancy was based in the manufacturing, commerce, construction, transport, and communication sectors. These sectors were the most feasible to organize because the rising cost of white

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labor meant that employers were increasingly dependent upon black African workers. On the whole, the manufacturing and service industries constituted the highest-paid sectors in the economy, reflecting the developing power and strategic location of black semi-skilled labor. Meanwhile, because Colored and Indian working-class minorities were incorporated into the labor relations system (albeit as racial subordinates), the newly emerging democratic trade unions premised their initial growth upon the organization of African labor. Although the new unions faced severe repression and were always challenged by the availability of a mass of surplus labor because of a very high level of unemployment among black workers, they managed to survive, grow, formalize, make wage gains, and erode the foundations of despotism in the workplace. The apartheid regime faced a severe challenge to its authority in 1973, when the United Nations General Assembly denounced apartheid, followed by a vote of the UN Security Council to impose an embargo on the sale of arms to South Africa in 1976. Facing growing international pressures, the National Party instituted several reforms, and in 1994 a new constitution was adopted that enfranchised blacks and other nonwhite racial groups through democratic elections. A key step in the final end of apartheid was the release from prison of Nelson Mandela, a leader of the anti-apartheid movement, who became the head of the first post-apartheid democratically elected government. Although Mandela had been imprisoned for twenty-seven years, he was able to live a long and highly influential life (he died at age 94 in 2013). Although many factors contributed to the ending of apartheid, it is clear that unions and labor protests contributed much to this transformation. Sources: “Apartheid,” History.com, http://www.history.com/topics/apartheid; Lester Kurtz, “The Anti-Apartheid Struggle in South Africa (1912–92),” International Center on Nonviolent Conflict, June 2010.

BOX 2.4 The Role of Korean Unions in Democratization and Political Change The post–World War II history of Korea was marked by authoritarian rule by governments in league with the military. Nevertheless, violent

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political protests erupted periodically to challenge that rule. Labor unions have played leading roles in those political protests. In 1960, trade unions played an important part in the violent protests that culminated in the fall of the government of Syngman Rhee. Later, in 1980, violent protests again swept the country as workers demanded workers’ and union rights and improved wages and working conditions. In 1987, Roh Tae-Woo, the ruling Democratic Justice Party’s presidential candidate (and eventual victor in a subsequent election) pledged his support for popular elections to determine a new president of the Republic of Korea. The subsequent democratization process unleashed popular protests and demands among Koreans, particularly in the trade union movement. A massive strike wave followed, along with a rapid rise in union membership. On May 2, 1990, for example, there were violent protests in the port city of Ulsan when 30,000 workers from affiliated Hyundai companies held rallies at work sites to protest a massive police raid that had occurred earlier on strikers at the Hyundai Heavy Industries Company. Workers’ protests were in part directed at existing trade unions and union leaders. Although an array of unions was affiliated with the Korean Confederation of Trade Unions, protesting workers opposed the complicity that had existed between these unions and the government and employers. Workers not only demanded higher wages and better working conditions but also sought procedures that would allow the emergence of unions that were independent from government and managerial dominance. The protest wave cooled down in the early 1990s, but then another wave of labor protest occurred in early 1997, spurred by government efforts to change Korea’s labor laws in order to bring more flexibility to the labor market and address problems related to international competition that had begun to surface. Labor protests erupted in January 1997 after a secret session of the National Assembly (held without the elected members of the opposition parties and with the support of the president of Korea) imposed a harsh bill that, among other things, made it easier for firms to lay off employees. A three-week strike wave followed with strikes concentrated among workers at large firms, including Hyundai Motor Car Company. The strike wave cooled and was followed by months of negotiations that

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often took place behind the scenes. These negotiations led to a new labor law bill that was adopted in March 1997 with the support of the opposition and the government. In recent years, changes to labor laws in Korea have included legalization of collective negotiations for public school teachers and the creation of an unemployment fund. As discussed in chapter 9, Korea has also witnessed a sharp rise in the number of irregular and nonstandard workers in recent years. While the labor movement has not been happy with all of these developments, unions have tried to influence events through normal democratic political channels. Sources: Wonduck Lee and Joohee Lee, “Will the Model of Uncoordinated Decentralization Persist? Changes in Korean Industrial Relations after the Financial Crisis,” in The New Structure of Labor Relations: Tripartism and Decentralization, ed. H. Katz, W. Lee, and J. Lee (Ithaca, N.Y.: Cornell University Press, 2003), 143–165; and Byoung-Hoon Lee, “Employment Relations in South Korea,” in International & Comparative Employment Relations: Globalisation and Change, 5th ed., ed. Greg J. Bamber, Russell D. Lansbury, and Nick Wailes (Australia: Allen & Unwin, 2011), 281–306.

Another critical role that unions play in emerging countries is their efforts to promote favorable social protections and labor rights. In recent years, as unions have come to realize the importance of informal sector workers for economic activity and development and the harsh working conditions in that sector, some unions have increased their efforts to organize and represent workers in that sector. And as discussed more fully in chapter 11, union efforts here often link with the efforts of various NGOs and self-help workers’ organizations. See especially box 11.7, which describes several NGOs operating in India that have taken on some union-type activities, for example, by negotiating for wage increases while also pressing governments for basic social benefits and reforms. EMPLOYERS

Employers and the business community also take actions that shape and influence the course of labor relations in emerging countries. Employers can exert this influence through political lobbying of governments that is done on an individual and personal level, in some cases facilitated by family ties, or through employer associations. These associations include industry or trade associations or chambers of commerce. In some countries employers or segments of the business community are supporters of a particular political party.

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The business community typically looks to governments to promote trade and markets and to take actions that favor employers through tax policies or expenditures. Employers generally prefer laws and regulations that make it difficult for unions to organize and limit the rights of any unions that do exist. Employers in some countries use their power to suppress union formation and limit union power. In Mexico, for example, “protection contracts” are common. These are agreements between employers and employer-dominated unions that provide minimal protection for workers covered by a contract and discourage the formation of independent unions.1 Employers also typically prefer that governments make only limited efforts to raise wages and improve working conditions and commonly use their political influence toward these ends. Employers can also hire contract or temporary workers to undermine existing unions or decrease interest in union formation, as those workers often are hard to enlist as union members because of the unstable nature of their employment and fear of reprisals. However, as discussed more fully in chapter 12, some employers have come to appreciate that improvements in working conditions and in workers’ and union rights can be part of an economic development strategy that is oriented toward creating a highly skilled and motivated work force and is linked to business strategies that are based on using sophisticated technologies and producing high-quality goods. TRIPARTITE INTERACTIONS BETWEEN GOVERNMENT, LABOR, AND MANAGEMENT

In some countries and at some moments there has been one form or another of tripartite discussions involving representatives of government, labor, and management. Often the central focus of these tripartite discussions is wages, although at times discussions have included labor laws and other social and economic policy issues and reforms. Box 2.5 highlights the history of tripartite discussions in India. In chapter 12, we look at other examples of how tripartite discussions have addressed economic development policies.

BOX 2.5 Tripartite Discussions in India about National Economic and Wage Policy During his speech to the 2013 Indian Labor Conference, Indian prime minister Manmohan Singh proclaimed that “further dialogue with

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Trade Union leaders appears necessary, including tripartite discussions. We have set up a Group of Ministers under the Finance Minister to go into the whole gamut of demands raised by the Trade Unions.” This affirmation of tripartite discussions between the Indian federal government, state governments, and trade unions signifies the importance of tripartite discussions in the Indian labor movement. This has been the case since the first days of independence in 1947. In 1948, the Indian Parliament passed the Minimum Wages Act, which set up India’s first government-sanctioned tripartite committee, the Committee on Fair Wage. This committee consisted of representatives of the government (which at the time was led by the Indian National Congress Party) and the Central Trade Union Organizations (CTUO) and was formed to establish wage structures in the country by introducing public policies about living wages, minimum wages, regional minimum wages, and wage fixation. Prior to 1948, representatives of the Indian National Congress had formed the Standing Labor Committee and had held three Tripartite Labor Conferences, in 1943, 1944, and 1946. Although India was still under British sovereignty and these conferences were not sanctioned by the government, many of the issues that were addressed by the Minimum Wages Act of 1948, such as the establishment of state and regional wage boards for the purpose of regulating wages in different industries, were first discussed in the pre1947 Standing Labor Committee. After the passage of the Minimum Wages Act, the next most significant Indian labor conference occurred in 1957. During these proceedings, the Congress Party and the CTUO revised the Minimum Wages Act by specifying that 20 percent of any total regional minimum wage must be sufficient to cover workers’ fuel, lighting, and other miscellaneous expenses and that the wage should cover the price of housing as determined by the government’s Industrial Housing Scheme. One aspect that is unique to the Indian government’s labor relations policies with regard to tripartite discussions is that since India has over 2,000 ethnic groups, India tends to hold regional tripartite discussions that encompass states with similar demographics, religious groups, and economies rather than overarching federal policies. For example, in the 1985 labor conference report, the government and labor leaders agreed to form the Regional Labor Ministers’ Conference, which “made a number of recommendations which include reduction in disparities in minimum wages in different states of a region, setting up inter-state

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Coordination Council, consultation with neighboring states while fixing/revising minimum wages etc.” Five regional committees constitute the Regional Labor Minister’s Conference and represent all twentyeight states and seven territories. A recent example of tripartite discussions in India is the discussion at the 2007 Indian labor conference of ILO Convention 188, which deals with increasing, safeguarding, and expanding safety and health practices for all workers in the fishing and maritime industry. To facilitate ratification of the convention, the Task Force for the Gap Analysis of Work in the Fishing Sector Convention was formed, which set policy workshops between workers in the fishing industry, union leaders, nongovernmental organizations, and representatives of the Ministry of Labour & Employment and the Ministry of Agriculture. After the task force did research and took in the input of all those who would be affected by the increased regulations for fishing work that make up Convention 188, the Indian government ratified the convention in 2009. Another recent example of a tripartite discussion in India was the 2010 National Trade Union Conference on the Ratification of the ILO Core Labour Standards. During this tripartite discussion between the Indian National Congress, major central trade union organizations in India, and global union federations (international organizations of trade unions in specific industries), the unions lobbied the federal government to ratify conventions 138 and 182, which deal with the elimination of child labor and federal government enforcement of child labor laws in villages and less industrialized areas, where federal enforcement is lacking. This tripartite discussion is a clear example of trade unions and leaders in the labor movement using resolutions and conventions of the ILO to lobby and compromise with the government in making political and economic changes. Additionally, the trade unions sought to persuade Parliament to implement the UN’s Millennium Goal 2, which seeks to increase the rate of children attending primary school in the developing world from 82 percent to 90 percent. Sources: Manmohan Singh, “PM’s Address at 45th Session of the Indian Labour Conference,” May 17, 2013, http://pib.nic.in/newsite/PrintRelease.aspx? relid=96045; “Minimum Wages Act, 1948,” http://labour.nic.in/upload/ uploadfiles/files/Divisions/wage_cell/4fd9bebab42a0mwact.pdf; “Thirty Sixth Session of the Tripartite Committee on Conventions,” New Delhi, September 25, 2012, Government of India, Ministry of Labour and Employment,

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http://labour.gov.in/upload/uploadfiles/files/latest_update/what_new/5056a 62160211Agendaof36thCOCNIC.pdf; “Conference Resolution,” National Trade Union Conference on the Ratification of ILO Core Labour Standards, August 24–26, 2012, New Delhi, http://www.ilo.org/wcmsp5/groups/ public/---ed_dialogue/---actrav/documents/publication/wcms_145074.pdf.

BRIEF DESCRIPTIONS OF THE LABOR RELATIONS SYSTEMS AND KEY CONTEMPORARY ISSUES IN BRAZIL, CHINA, INDIA, AND SOUTH AFRICA

The sections that follow provide brief descriptions of the key features of the labor relations systems in Brazil, China, India, and South Africa and highlight the key issues that have surfaced in those countries. It is, of course, difficult to accurately summarize these complex labor relations systems. Readers can find more complete descriptions of the systems and contemporary issues in the sources provided at the end of this chapter. Readers also may find it useful to revisit these summaries when a specific current issue or event is discussed in later sections of this book. Brazil

The end of the military dictatorship and the enactment of the 1988 constitution ushered in the contemporary era in Brazilian employment relations.2 The key change for Brazilian labor relations was that the state no longer significantly intervened in the internal affairs of unions, as it had in the past. Following the return to democracy after 1988, the new constitution of Brazil and the labor code granted private and public sector workers the right to form trade unions (with the exception of the members of the military, uniformed police, firefighters, and some other state employees). Public sector workers could organize and, with certain limitations, strike. Labor reforms gave job security to union leaders, reduced the maximum work week from 48 to 44 hours, increased overtime pay from 20 to 50 percent, and added profit-sharing provisions to the human resource practices of firms. There was a growth in union membership after these constitutional reforms. Most of the new union members were civil servants who had previously been prohibited from forming unions. This growth in membership was accompanied by a significant increase in the number of unions, reflecting a growing fragmentation of the union movement.

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At the same time, core aspects of the traditional Brazilian corporatist-style labor relations system remained unchanged and continue to this day. These include limits on union formation to one union per economic activity per territorial unit and a union tax that requires all workers in the unionized economic or sectoral category (e.g., metal workers, chemical workers) to pay a union tax regardless of whether they are union members. A portion of this union tax is paid to union federations and confederations. Some unions refused to accept the income from the union tax, preferring instead to rely exclusively on voluntary union membership dues. Several efforts have been made since the early 1990s to promote tripartite negotiations involving representatives of the government, management, and unions, but none of these efforts have had significant or lasting effects. In the first decade of the twenty-first century, tripartite discussions were also used to promote labor law reform during the presidency of Luiz Inácio Lula da Silva, a former union leader. However, in these discussions major divisions emerged, not only between employers and the unions but also between the unions. For example, unions were divided about whether to reform the “union exclusivity” rule that allowed only one union per sector and per territory. Some unions had gained representation rights several decades earlier in key sectors and firms, and as their membership levels declined, they saw any change to the law as detrimental to their interests, since they stood to lose representation rights. Trade unions in Brazil have maintained their membership strength over the last decades and have enjoyed increased political influence as the Workers’ Party entered its third term in office in 2011 with President Dilma Rousseff. The overall rate of unionization has held steady at around 18–21 percent of the work force. Approximately twice this number of workers is covered by collective bargaining agreements. While overall the unionization rate has remained steady, the rate of unionization in the manufacturing sector has been in decline. In contrast, public sector unionism has risen since the enactment of the 1988 constitution. At the same time, there has been a growth in national trade union centers and a proliferation of small unions and unions that remain outside the purview of the country’s main labor confederations. These developments have contributed to a fragmentation of the labor movement. Yet behind these general trends, the neoliberal reforms that began in the 1990s, notably privatization and economic openness, have transformed and weakened the Brazilian labor movement. In particular, increased market liberalization and industrial restructuring significantly affected the geography of industrial production in Brazil. Many major new plants that were built in the

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1990s and early 2000s were situated outside the core industrial district of greater São Paulo, in regions where unions were weaker and wages were lower. China

China’s economic reforms, now in their fourth decade, have transformed the country from a planned economy to a mixed economy in which elements of both market mechanisms and central planning remain prevalent.3 While market mechanisms have become increasingly important in resource allocation, the state still plays a critical role in economic coordination, and its role has even been strengthened since the 2008 global financial crisis. Market-oriented reforms have significantly changed China’s employment structure. In contrast to a significant decline in employment in the agricultural sector, employment in the industry and service sectors has sharply increased (see table 2.1). Employment in state-owned enterprises has dropped from 60.4 percent of total formal employment in 1978 to 14.5 percent in 2010, whereas employment in the private sector, including private-owned enterprises, foreign-invested enterprises, and township and village enterprises, has rapidly increased. Along with the change in the employment structure there has been a transformation in labor relations in China. Under the planned economy, the Chinese labor relations system was extremely rigid and centralized. In general, workers in state-owned enterprises and collective-owned enterprises enjoyed lifetime employment, egalitarian wages, and cradle-to-grave welfare benefits that provided free housing, medical benefits, pensions, and various social and entertainment needs. Over the last three decades, however, the so-called iron rice bowl has gradually been smashed. First, there has been a change from lifetime to contract-based employment. Management now has the autonomy to hire and fire employees, though legal procedures have to be followed and there are still significant limits on large-scale dismissals in state-owned enterprises. Second, the state-administered reward system has been moving toward full autonomy of management in terms of wages. Although the state still intends to influence wage levels and wage growth at the macroeconomic level and in state-owned enterprises, this influence has been declining. Third, contributory social insurance schemes, including pensions; medical, unemployment, work injury, and maternity insurance; and housing funds, have been introduced to replace the former cradle-to-grave welfare system. However, these benefit schemes have been introduced to varying degrees across sectors and regions, and a huge number of workers—especially migrant workers—do not receive social benefits.

401.5 498.7 647.5 680.7 720.9 746.5 761.1

70.5 62.4 60.1 52.2 50.0 44.8 36.7

Agricultural (%)

17.3 20.8 21.4 23.0 22.5 23.8 28.7

Industry (%) 12.2 16.8 18.5 24.8 27.5 31.4 34.6

Service (%) 123.4 197.9 256.0 337.2 318.8 362.2 450.8

Total formal employment (in millions) 60.38 45.43 40.42 33.39 25.41 17.91 14.45

State-owned units (%) 16.60 16.80 13.86 9.33 4.70 2.24 1.32

Collectiveowned units (%)

0.66 2.83 7.55 16.08 20.89

Privateowned units (%) 0.03 0.26 1.52 2.01 3.44 4.05

Foreigninvested enterprises (%)

22.91 35.27 36.20 38.14 40.21 39.40 35.25

Township and village enterprises (%)

0.12 2.27 8.22 13.68 15.90 13.53 15.54

Individualowned businesses (%)

Sources: Adapted from a table in Mingwei Liu, “China,” in Comparative Employment Relations in the Global Economy, ed. C. Frege and J. Kelly (New York: Routledge, 2013). The data is from the China Statistics Yearbooks, various years. Note: Foreign-invested enterprises include investments from Hong Kong, Taiwan, and Macao.

1978 1985 1990 1995 2000 2005 2010

Total Employment (in millions)

Table 2.1. China’s changing employment structure, 1978–2010 (selected years)

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The All-China Federation of Trade Unions (ACFTU), the single official union in China, has a pyramidal top-down structure consisting of three tiers: the national, regional, and primary levels. At the bottom level, primary unions are organized according to the principle of enterprise unionism, while regional level unions are set up both along industrial lines and within geographical boundaries, in a structure that parallels that of the government administration. Trade unions at all levels are under the leadership of the Communist Party, and this structure has largely remained unchanged since the 1950s. The ACFTU plays a dual role; it represents the interests of both the state and labor. At the workplace, unions traditionally perform two functions: they promote production and deal with social welfare issues. The Chinese labor dispute resolution system is characterized by “mediation, arbitration, and two trials.” When a labor dispute arises, the parties may bring the case before the enterprise labor dispute mediation committee. The second stage is arbitration, which is mandatory before the case can go before a court. If either party is dissatisfied with the arbitral award, he or she may enter the third stage and bring the case to a court unless the case is of a certain type (e.g., claims for a small amount of unpaid wages). If either party is dissatisfied with the court verdict, they may appeal to a higher court, whose verdict is final. The number of labor dispute cases brought to arbitration sharply increased after the 2008 labor law reform. Voluntary mediation has been emphasized as the preferred method of resolving labor disputes by the government. More mediation organizations have been established, especially at the community level, and the mediation function of regional union federations has been significantly strengthened. India

India has long had an interventionist state. This is codified in the key labor relations law in India, the Industrial Disputes Act of 1947. Under this law, the state can prohibit even a legal strike and refer any industrial dispute to compulsory arbitration or adjudication without the consent of employers or unions. However, following the balance-of-payment crisis in 1991, the government of India embarked upon economic reforms that shifted the focus in national economic policies from import substitution to exports.4 The economic policies of liberalization, privatization, and globalization marked a new beginning for the Indian economy, which up to that point had been based on an inward-looking socialist-style import substitution strategy. This shift in economic policies has been successful. The country’s GDP growth increased from a low rate of increase of 2–3 percent per year before the 1980s

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to an average of 8 percent per year for a decade and half starting in the early 1990s. The trade union movement in India is highly fragmented. Until the 1980s, most trade unions in India were affiliated with a political party through a national federation (these are also known as central trade union organizations). For instance, the Indian National Trade Union Congress is affiliated with the Congress Party while the All India Trade Union Congress is affiliated with the Communist Party of India. There are about 400 million workers in the Indian labor market. Of these, only about 7 percent are employed in the formal sector. The remaining 93 percent are employed in agriculture or in small- and medium-size enterprises in the informal sector of the economy. Historically, politically affiliated unions have shown little or no interest in organizing workers in the informal sector and have concentrated their resources on organizing and representing workers in the formal sector in both the public and private sectors. In recent years, many workers in the informal sector or those employed as casual and contract workers in the formal sector have formed their own politically independent unions, sometimes with the help of nongovernmental organizations (see box 11.7). Of the total labor force of around 400 million in India, about 28 million are employed in the public sector and are covered by various pay commissions that decide on their wage levels. The commissions are government appointed and hear representations from employer associations and trade unions. Thus, negotiations over wages in the public sector in India take place within the limits and terms set by the pay awards sanctioned by the pay commissions. The average duration of collective agreements in the public sector is now around ten years. In the private sector, however, collective agreements usually last two or three years. In some sectors of the economy, negotiations over wages and conditions of work take place at the industry or sector levels. For example, banking and insurance, ports and docks, and coal mining all have industry-level collective negotiations.

South Africa The early history of labor relations in South Africa was heavily influenced by the apartheid system, which kept blacks and mixed-race people politically disenfranchised and out of skilled and higher-paying jobs.5 By 1994, however, the democratic union movement had established itself as a major force in the labor relations system in South Africa. The country’s 201 registered unions had a membership of 2.89 million, and 50 unregistered unions had a

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membership of 528,000 workers, bringing the total union membership to 3.2 million, or 27 percent of the economically active population. COSATU, by far the largest union confederation, had some 15 affiliate unions and 1,317,496 members (compared to some 400,000 at its inception in 1985). The second large union confederation was the National African Congress of Trade Unions, which had around 327,000 members in eighteen affiliates and was aligned with a political party (the Pan-Africanist Congress) whose internal struggles had reduced its influence. Three other union confederations (the Federation of Salaried Staff Associations, the Federation of Independent Trade Unions, and the South African Confederation of Labour), represent a mix of white-collar unions, white unions, and long-established craft unions and account for a large proportion of the remainder of trade union membership. South Africa’s Labour Relations Act of 1995 (LRA) sought to replace the adversarial culture that had characterized labor relations with a new policy of codetermination that had five key features. First, it brought all employees together in a single system that provided for collective bargaining that would take place in bargaining councils. These were to replace the industrial councils that had been established in 1924 to serve as forums for bargaining at the industry level but had barred labor unions with black members from participating. Critically, such participation enabled the new unions to have a say in working conditions throughout an entire industry, even covering employers with whom no formal recognition agreement had been concluded and/or factories where a union had little presence. Importantly, the LRA extended the right to participate in bargaining councils to farm, domestic, and public employees; under the industrial council system, these workers had been excluded. Second, the LRA promoted collective bargaining by guaranteeing rights to unions in the workplace, such as giving them with access to employer premises, granting them the right to meet and the facilities to do so, and allowing them to have closed shops (compulsory union membership agreements) under certain conditions. It also compelled employers to disclose information relevant to collective bargaining to unions that represented the majority of workers in a workplace. In addition, the act protected the right of employees to strike, picket, and engage in sympathy strikes, although it also introduced compulsory procedures and timetables for dispute resolution. The LRA also sought to promote centralized bargaining and a coherent system of bargaining councils. Key to these goals was the extension of collective agreements to all firms and workers in an industry, for otherwise agreements could be undermined by nonparticipating employers. Accordingly, the minister of labor was bound by the act to extend an agreement at the request

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Table 2.2. Number of trade unions and trade union membership in South Africa, 1994–2010

(selected years) Year

Number of registered unions

Total trade union membership (in registered unions)

Registered trade union members as a proportion of total workers

1994

213

31.0

2000 2005 2010

464 n.a. 200

(2,470,481) 2,980,481 3,552,113 3,112,000 3,057,772

29.0 25.3 23.3

Source: Adapted from a table in Roger Southall, “South Africa,” in Comparative Employment Relations in the Global Economy, ed. C. Frege and J. Kelly (New York: Routledge, 2013).

of a council to all firms and workers in an industry if the agreement met certain requirements, notably that the concerned parties covered a majority of employers and employees. Nonetheless, despite the strong thrust of the LRA in favor of centralized bargaining, the number of bargaining councils has steadily diminished, from seventy-seven in 1996 to forty-seven in 2010. This is despite the establishment of five councils in the public sector (which previously had been outside the system) and a small number of new councils in the private sector. Management increasingly favors decentralized bargaining in South Africa. The growth of informal employment has also served to undermine various councils and contributed to decentralization in bargaining. Events at the Marikana mines in 2012, when police opened fire on striking miners, killing thirty-four and wounding seventy, illustrated well many of the recent tensions in the South African labor relations system. The unofficial strike at the Lonmin mine involved some 3,000 workers. Workers had demanded a pay increase of up to 50 percent, a demand was well in excess of an existing agreement already in place between COSATU’s National Union of Mineworkers (NUM) and Lonmin and was reflective of a far more generalized sense of workers’ discontent with wages and working conditions that reached across the entire platinum mining belt. Crucially, it appears that the NUM had lost the confidence of the workers, who had repudiated the pleas of union representatives who were sent to negotiate with them about returning to work. Into its place stepped the leadership of the Association of Mineworkers and Construction Union (AMCU), a breakaway union from the NUM that was not recognized by the employer and that pushed its way forward as the workers’ representative. The volatility of the situation, which was compounded by strikers’ violence against those who wanted to work and against NUM officials, was ratcheted up by the

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initial refusal of the employer, the NUM, and the government to talk to the AMCU, arguing that it lacked formal status. Ultimately, however, in the aftermath of the shooting, the impasse gave way to concession, and eventually—some six weeks after it had begun—the strike was brought to a close when Lonmin conceded a hefty 22 percent pay increase after negotiations involving both the AMCU and the NUM. However, this agreement failed to prevent labor unrest from spreading rapidly, and employers, unions, and the government alike scrambled to douse fires throughout the mining sector. Marikana appears to represent a major challenge to the established labor relations system. First, it indicated the development of a yawning gap between miners and the leadership of the NUM (its officials were accused of living comfortably while failing to service the union’s membership). Second, it exposed an increasing gap between workers and the ANC in government; the latter’s leaders were accused of siding with management and being careless of their core constituency. Third, it raised major questions about the role of the police, who were widely accused of reverting to an apartheid-style reliance upon brute violence on behalf of the state. Finally, it posed serious problems for employers, who were ambivalent about the strike’s consequences. The Marikana strike was cited by some advocates as a good reason to overhaul the LRA and for the employers to be given the right to negotiate with minority unions alongside majority ones, a call that some unions opposed.

Summary This chapter has provided an overview of how labor, management, and governments interact in emerging countries. Even though these interactions are heavily influenced by the historical and political traditions in each country, some common themes arise. A key issue that underpins labor, management, and government interactions in emerging countries is the fact that how to create and sustain more democratic and stable labor relations is a major political and economic issue in these countries. While in some countries unions have been dominated by governments or sharply limited in their influence, history suggests that the outlawing of truly independent unions (i.e., unions that are free from the dominance of governments or employers) does not eliminate labor conflict and in some ways only postpones and intensifies it. In the end, all countries are forced to wrestle with how to structure labor relations in a way that provides workers with enough representation to satisfy them while also maintaining social stability and economic growth. We return to these policy issues in chapter 12.

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This chapter has also provided summary descriptions of the labor relations systems that operate in Brazil, China, India, and South Africa. Readers may find it useful to refer back to these summary descriptions when issues or examples related to these specific countries appear later in the text. For now our task is to more fully describe how a labor relations system works and the various forces and factors that shape its evolution. We begin by examining the laws and legal systems that shape labor relations in emerging countries.

Related Web Sites “About the World Bank”: http://www.worldbank.org/en/about “About the IMF”: http://www.imf.org/external/about.htm “Labor Rights in Mexico”: http://www.usleap.org/usleap-campaigns/labor-rights -mexico “Organizational Structure of the All-China Federation of Trade Unions”: http:// english.acftu.org/template/10002/file.jsp?cid=64&aid=213

Discussion Questions 1. What is meant by the term “incorporation” and how does such incorporation affect labor relations? 2. Give an example of how the labor movement helped promote democracy in a particular country. 3. What are some of the ways governments commonly affect labor relations in emerging countries? 4. How do employers and the business community influence the course of labor relations in emerging countries?

Suggested Supplemental Readings Anner, Mark. Solidarity Transformed: Labor’s Responses to Globalization and Crisis in Latin America. Ithaca, N.Y.: Cornell University Press, 2011. Bamber, Greg J., Russell D. Lansbury, and Nick Wailes, eds. International & Comparative Employment Relations: Globalization and Change. 5th ed. Australia: Allen & Unwin, 2011. Frege, Carola, and John Kelly, eds. Comparative Employment Relations in the Global Economy. New York: Routledge, 2013. Notes 1. Susan Schurman and Adrienne Eaton, “Trade Unions Organizing Workers Informalized ‘from Above’: Case Studies from Cambodia, Colombia, South Africa, and Tunisia,” 36, report

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to the Solidarity Center, January 2013, http://smlr.rutgers.edu/research-centers/research -partnership-with-solidarity-center. 2. This section draws heavily from Mark S. Anner and João Paulo Cândia Veiga, “Brazil,” in Comparative Employment Relations in the Global Economy, ed. Carola Frege and John Kelley (New York: Routledge, 2013), 265–284. 3. This section draws heavily from Mingwei Liu, “China,” in Comparative Employment Relations in the Global Economy, ed. Carola Frege and John Kelley (New York: Routledge, 2013), 324–247. 4. This section draws heavily from Vidu Badigannavar, “India,” in Comparative Employment Relations in the Global Economy, ed. Carola Frege and John Kelley (New York: Routledge, 2013), 305–323. 5. This section draws heavily from Roger Southall, “South Africa,” in Comparative Employment Relations in the Global Economy, ed. Carola Frege and John Kelley (New York: Routledge, 2013), 348–366.

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The Law and Legal Systems

THE ROLE AND IMPORTANCE OF THE LAW AND LEGAL SYSTEM

This chapter examines how legal systems and the law influence labor relations. The law is a primary mechanism through which governments affect and regulate the conduct of labor relations. We focus on both collective labor law, which regulates unions and collective negotiations (what is referred to as labor law in the United States), and individual labor law, which regulates individual employment contracts and establishes employment standards (what is referred to as employment law in the United States). Legal systems are primarily national in scope, since the ability to enact and enforce laws is a basic function of a sovereign state. As a result, the primary reference point for understanding the impact of law on labor relations is the specific laws of the country in question. However, in recent decades international labor law has also assumed increased prominence in labor relations. Labor law is important both for regulating the process of union formation and establishing collective negotiations (this is referred to as the constitutive function of labor law) and for regulating and influencing the relative bargaining power of the parties (this is referred to as the power-broker function of labor law). In this chapter we will examine both the constitutive and the powerbroker functions of labor law and consider how law operates across the threetiered framework of labor relations. SOURCES OF LEGAL SYSTEMS AND THE LAW

As a function of its national sovereignty, each country establishes its own system of laws to govern its territory, its population, and the economic activity 53

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that occurs within its boundaries. The foundation of legal systems in most countries is a written constitution (the British concept of an unwritten constitution of historical conventions, understandings, and past practices is the most famous exception to this). Constitutional law establishes the system of government for a country and commonly enunciates the foundational individual and (in some countries) social rights of its citizens. While constitutional law provides the broad structure of the legal system, specific statutes or legal codes provide the more detailed labor laws that govern the relationship between employers and employees. Within this system of statutes or codes, the complexity and range of issues of labor relations typically require further elaboration through more specific regulations and decisions of courts, tribunals, and administrative agencies. These substantive laws are enforced by various actors, including the courts, government officials such as labor ministry officials and inspectors, and private parties such as lawyers, unions, and NGOs. All of these elements combine to form the labor law system of a country that the actors in the labor relations system must understand and operate within. Legal systems can be divided into two broad categories: common law systems and civil systems. Common law systems trace their origin to the British legal system and are found in countries that were historically part of the British Empire, such as the United States, Australia, and India. Common law systems are premised on judicial interpretation of the law based on precedents of decisions in past cases. The original English common law developed prior to and in the absence of statutes. Even as statutes came to be enacted in many areas, common law rules based on case law continue to be important. For example, in the United States the common law test continues to be the default rule for determining employment status under most statutes. Civil law systems trace their origin to Roman law and (more recently) to the Napoleonic Code, which was adopted widely in continental European countries and their colonies during the nineteenth century. Civil law systems are premised on general codes of law that govern economic and social activity. Under a civil law system, the role of the judge is to decide a case by direct reference to and application of the legal code instead of basing decisions on precedents from past cases, as in the common law systems. In addition to the broad differences between common law and civil law systems, national labor law systems reflect the specific history and influences of individual countries. For example, Japan became a civil law system in the 1890s when it adopted a new civil code explicitly modeled on the German civil code, which was in turn based on the Napoleonic Code. Subsequently, elements based on U.S. labor law were introduced into Japanese labor law in the late 1940s during the period of U.S. occupation following World War II.

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By contrast, India has a legal system based on common law because of the influence of its long period of British rule. Even though it has been over half a century since India gained its independence, current Indian labor law includes elements that reflect the legacy of labor law from the colonial period. We also see similarities in labor law systems in different regions of the world. For example, the systems of labor law in the countries of South and Central America have many similarities, due in part to the legacy of their common Spanish and Portuguese colonial histories but also due to cultural, economic, and political links between the countries. INTERNATIONAL LABOR LAW

A long-standing body of international labor law is composed of generally recognized principles that have been elaborated primarily through the work of the International Labour Organization (ILO). This body of labor law has received increased attention in recent years as concern has grown about respect for basic labor rights in an era of globalization and transnational production chains. International labor law has also become an important component of regional economic systems such as the European Union or the North American Free Trade Agreement, and it is an element of increasing numbers of bilateral trade agreements between individual countries. The ILO is the primary international agency tasked with developing international labor law standards. Originally founded in the 1919 under the League of Nations, the ILO is now an agency of the United Nations. It is structured as a tripartite organization with representatives of government, employers, and organized labor from each of its member countries. The guiding principles of the ILO were set out in the 1944 Declaration of Philadelphia, which became part of the constitution of the ILO. The Declaration of Philadelphia echoes the basic principles of the field of industrial relations that we discussed in chapter 1, including the ideas that (a) labor is not a commodity; (b) freed of expression and association are essential to sustained progress; and (c) poverty anywhere constitutes a danger to prosperity everywhere. Central to the work of the ILO is the drafting and promulgation of conventions designed to guide the development of labor laws of its member nations. The two central conventions for labor relations and collective bargaining are Convention 87, Freedom of Association and the Right to Organise, and

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Convention 98, Right to Organise and Collective Bargaining. For an ILO convention to come into force, it must be ratified by the individual member nations. The degree to which Conventions 87 and 98 have been adopted is a key marker of the influence of the ILO on the development of national labor law and of the spread of international standards in labor law. One hundred fifty-two countries had ratified Convention 87 by the beginning of 2014 and 163 had ratified Convention 98. Two notable exceptions are the United States and China; despite their many other differences, neither country has ratified these two key conventions on labor relations and collective bargaining.

BOX 3.1 Provisions of ILO Conventions 87 and 98

Convention 87: PART I. FREEDOM OF ASSOCIATION

Article 1 1. Each Member of the International Labour Organisation for which this Convention is in force undertakes to give effect to the following provisions.

Article 2 2. Workers and employers, without distinction whatsoever, shall have the right to establish and, subject only to the rules of the organisation concerned, to join organisations of their own choosing without previous authorization.

Article 3 3. (1) Workers’ and employers’ organisations shall have the right to draw up their constitutions and rules, to elect their representatives in full freedom, to organise their administration and activities and to formulate their programs. 3. (2) The public authorities shall refrain from any interference which would restrict this right or impede the lawful exercise thereof.

The Law and Legal Systems

PART II. PROTECTION OF THE RIGHT TO ORGANISE

Article 11 11. Each Member of the International Labour Organisation for which this Convention is in force undertakes to take all necessary and appropriate measures to ensure that workers and employers may exercise freely the right to organise.

Convention 98: Article 1 1. (1) Workers shall enjoy adequate protection against acts of anti-union discrimination in respect of their employment. 1. (2) Such protection shall apply more particularly in respect of acts calculated to— (a) make the employment of a worker subject to the condition that he shall not join a union or shall relinquish trade union membership; (b) cause the dismissal of or otherwise prejudice a worker by reason of union membership or because of participation in union activities outside working hours or, with the consent of the employer, within working hours.

Article 2 2. (1) Workers’ and employers’ organisations shall enjoy adequate protection against any acts of interference by each other or each other’s agents or members in their establishment, functioning or administration. 2. (2) In particular, acts which are designed to promote the establishment of workers’ organisations under the domination of employers or employers’ organisations, or to support workers’ organisations by financial or other means, with the object of placing such organisations under the control of employers or employers’ organisations, shall be deemed to constitute acts of interference within the meaning of this Article.

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Sources: ILO Convention 87: Freedom of Association and Protection of the Right to Organise, http://www.ilo.org/dyn/normlex/en/f?p=NORML EXPUB:12100:0::NO:12100:P12100_INSTRUMENT_ID:312232:NO; ILO Convention 98, Right to Organise and Collective Bargaining Convention, http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0:: NO:12100:P12100_ILO_CODE:C098.

In 1998, the ILO adopted the Declaration on Fundamental Principles and Rights at Work. This declaration formally recognized four categories of rights at work as fundamental workers’ and human rights. They are: (a) freedom of association and the effective recognition of the right to collective bargaining; (b) the elimination of all forms of forced or compulsory labor; (c) the effective abolition of child labor; and (d) the elimination of discrimination in respect of employment and occupation. The adoption of the declaration has been influential in promoting an international consensus that these four categories constitute core labor standards that apply in all countries. Some critics worry that by enunciating these four specific categories as core labor standards, the ILO is implying that other labor standards such as minimum wages and workplace health and safety are not equally fundamental. Others have argued that labor rights other than those listed in the declaration should also be considered as core labor standards.1 Among the main activities of the ILO is monitoring compliance with international labor standards. Individual member nations must make annual reports to the ILO about the measures they have taken to implement its conventions. In addition, the ILO conducts investigations in response to complaints of noncompliance with ratified conventions. These investigations can lead to reports that indicate whether a member country is in violation of its duties under a convention and, in serious cases, a determination of violation of treaty obligations. A major limitation of the ILO’s investigations and monitoring of compliance with international labor standards is the lack of effective enforcement mechanisms beyond moral suasion and the pressure of international public opinion. In recent years the ILO has begun to experiment with new approaches to protecting labor rights in emerging countries. One particularly promising initiative is the ILO’s Better Work program, which provides certification for factories that comply with labor rights as outlined in ILO conventions. Box 3.2 describes the origins of this program in a pilot project in Cambodia.

The Law and Legal Systems

BOX 3.2 Better Factories Cambodia Historically, the economy of Cambodia had been dominated by agriculture. However, since the mid-1990s, the country has experienced rapid industrialization, especially in the garment industry, which is infamous for its sweatshop working conditions. In January 1999, the United States made an effort to improve working conditions in the garment industry in Cambodia by providing economic incentives. The U.S.Cambodia Textile Agreement established a three-year trade agreement between the two countries: Cambodia’s garment export quota to the United States would be increased if the country’s garment factories improved working conditions and furthered compliance with core labor standards. The ILO was brought in to monitor and evaluate progress in Cambodian factories. This agreement led to the ILO Garment Sector Working Conditions Improvement Project, the objective of which was to reduce poverty and improve working conditions in the Cambodian apparel industry by encouraging compliance with ILO core labor standards and Cambodian labor law. Three years later, in 2004, the project was renamed Better Factories Cambodia (BFC). BFC has a tripartite structure that includes the representatives of the Cambodian government, apparel manufacturers, and unions in the Project Advisory Committee (PAC). The PAC approved a 500-item checklist that encapsulates decent working conditions and that ILO inspectors use to conduct evaluations. Teams of two inspectors arrive unannounced at voluntarily registered factories and monitor the workplace for two days. The results are compiled in a report that is subsequently recorded in an Information Management System (IMS). Manufacturers are entitled to dispute evaluations. International buyers can than access reports in the IMS, which enables them to exercise corporate social responsibility when deciding which factories to use. Semi-annual summary synthesis reports are publicized that allow all consumers to follow trends in the Cambodian garment industry. BFC activities have evolved to include not only monitoring but also training, advisory services, research, and social change initiatives. Training is offered to managers to develop their human resources practices and leadership techniques and to workers to inform them of their rights in the workplace. Following an inspection, BFC sends out advisors to

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establish Performance Improvement Consultative Committees (PICC), which are composed of both management and workers and are responsible for formulating a plan for improvement and discussing labor issues. BFC furnishes stakeholders with research results that explain the impact of the program. Most recently, the BFC has instituted social change initiatives to resolve workplace issues such as fainting and to educate workers about labor law. These extensions of BFC activities demonstrate its objective to not only make factory working conditions safer and more humane but also to bolster productivity and job satisfaction. In January 2007, the ILO partnered with the International Finance Corporation to launch the broader Better Work program, building on the BFC’s experience. Similar to BFC, the objective of Better Work is to enhance compliance with internationally recognized labor standards and country-specific labor laws in order to improve working conditions while at the same time maintaining (and even increasing) productivity and global competitiveness. Better Work officials assess factory compliance, develop labor-management relations, and engage stakeholders (including governments, producers, unions, employees, and buyers) in improving working conditions. Better Work first operated in the apparel industries of Jordan, Lesotho, and Vietnam. The program has since been expanded to include Haiti, Indonesia, Nicaragua, and Lesotho. Although BFC has been hailed as a success, the real effect on garment workers remains to be determined definitively. Workplace injuries and illnesses, factory fires, and even building collapses are still common. Critics point to the ILO’s lack of enforcement. Unlike the U.S.Cambodia Textile Agreement, the BFC and Better Work are not directly linked to specific trade quotas. Instead, these programs rely on international buyers to contract exclusively with high-compliance factories. The only incentives for buyers to do so are a sense of social corporate responsibility and whatever consumer pressure can be brought to bear on their brands. Source: Axel Marx, Private Standards and Global Governance: Legal and Economic Perspectives (London: Elgar, 2012).

CONSTITUTIONAL LAW

National constitutions provide the basic structure of government and establish the legal system in most countries. Constitutional law issues typically focus on

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questions such as election processes, the powers granted to different parts of the government, and the rights of individual citizens. For labor relations this may include questions of which branch or level (in federal systems) of government has the power to regulate labor relations and the rights of individual workers, especially public employees, in relation to the government. In addition, some countries, particularly those with systems based in civil law, go further and embed other general social rights, which may include basic principles of labor law, in their national constitutions. An example of this approach of including positive social rights in a national constitution is Article 123 of the Mexican constitution, which provides a positive right to employment: “Every person has the right to dignified and socially useful work. To achieve this, the creation of jobs and social organization will be promoted conforming to the law.” This broad right to employment in Article 123 is followed by a series of more detailed provisions concerning, among other issues, minimum wages, the right to organize unions, and protections against unfair dismissal. These provisions are important for labor relations throughout the economy because the Mexican constitution applies to private actors, not just to the public sector. In contrast, in the United States and in most other countries with common law legal systems, constitutional provisions typically apply only to the government and other public sector actors, thereby sharply limiting the relevance of constitutional laws for private sector labor relations in these countries. Another example can be found in Canada, where a Charter of Rights and Freedoms that includes freedom of association is included in the constitution. The Canadian Supreme Court used this constitutional protection to reverse the attempt of a provincial government to void a collective agreement with a public employees’ union and impose different terms and conditions of employment.2 In Brazil, as in a number of other Latin American countries, provisions related to labor and union rights are included in the national constitution. For example, Article 8 of the Brazilian constitution provides that “the law may not require authorization of the State for a union to be founded, except for authorization for registration with the competent agency, it being forbidden to the Government the interference and intervention in the union.” These constitutional provisions provide specific protections against government interference with union activity that cannot be overridden by statutes. However, this does not mean that complete freedom of association guaranteed by labor laws exists in Brazil. For example, the union registration system that is allowed under Article 8 permits a labor law structure that constrains and directs the nature of union organization and activity.

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COLLECTIVE LABOR LAW

Collective labor law refers to the laws governing unions and collective negotiations in the unionized sector of the economy. Governments regulate unions and collective negotiations for a number of reasons, including protecting the right to freedom of association, promoting positive economic development, and avoiding the negative social and economic consequences of labor relations problems. Although the specific rules and structures vary widely across countries, all collective labor law systems perform two generic functions. Katherine Stone has described these as the constitutive function and the power-broker function of labor law.3 In its constitutive function, collective labor law provides the rules for organizing unions and establishing collective bargaining policies. This includes rules about union membership and internal union activities and policies that obligate employers to recognize union representation for purposes of collective negotiations. In its power-broker function, collective labor law establishes rules for conducting collective negotiations and regulating industrial conflict that influence the relative bargaining power of the parties. This includes rules about the use of strikes, lockouts, and other economic weapons by the parties and provisions for government intervention to help resolve labor disputes. How a nation’s labor law performs each of these two functions is an important factor that influences the status of unions and the relative bargaining power of workers in that country. The Constitutive Function of Collective Labor Law

The first key task in the constitutive function of collective labor law is to determine the legal status of unions. An important stage in the economic and political development of many countries has been a change from treating unions as entities that lack legal status to recognizing them as legitimate representatives of workers. In the United States this occurred in the 1840s, when the courts moved away from viewing unions as illegal criminal conspiracies and toward viewing unions as legal entities that would be judged by the content of their actions. Over time most countries developed systems in labor law for formally recognizing and in some cases registering unions as legal organizations entitled to represent workers. Despite widespread recognition of the importance of legally recognizing the status of unions as organizations, the particular procedures for recognizing unions vary widely even among the advanced countries. In North America, the United States and Canada use a system that legally recognizes a union when majority support for the union exists among a designated group of

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workers, such as the employees at a particular factory or service establishment. This is determined through secret ballot elections or, in some Canadian provinces and some U.S. state public sectors, by checking membership cards. This produces a system of exclusive representation in which the union represents all the workers in a workplace or none of them. Individual union membership is of little significance in this system and levels of union membership and coverage in collective negotiations are relatively similar. It also tends to produce vigorous contests in organizing campaigns when a union seeks to represent a group of workers, since the employer is faced with an all-or-nothing collective legal determination of union status. By contrast, in Britain, union recognition has traditionally been done on a voluntary basis; a statutory scheme for recognizing unions was not introduced there until the late 1990s as a supplement to the more typical voluntary recognition process. Union recognition procedures also vary in European countries that have systems based in civil law. For example, in Germany, unions exist as associations under the civil law system. Workers choose whether or not to join a union on an individual basis, much as they would any other voluntary association. The status of German unions as representatives of workers is a function of the collective agreements they sign with employers, most commonly under the auspices of employers’ associations that bargain with the unions on behalf of their employer members. Under this system, whether or not workers are covered by collective agreements is driven by whether or not the employer is a member of an employers’ association that has signed an agreement with the union rather than by whether the individual worker is a union member. Emerging countries have adopted systems that include some aspects of these models but also include other distinctive features for providing the constitutive function of labor law. In Latin American countries, independent labor unions generally have recognized status in labor law, but they are commonly required to register with the relevant government labor ministry to claim that status. The right of a union to represent workers is not determined on a majoritarian basis, as it is in North America; instead, the law often requires a minimum number of union members in the workplace. For example, in Mexican labor law, an employer is required to bargain with a union when it has twenty members employed in the employer’s workplace. Registration requirements for unions in Latin America can restrict how many unions employees can choose from to represent them. For example, in Brazil, which union represents employees is determined by the predominant activity of their employer, with a few exceptions, such as lawyers, engineers, or secretaries. So, for instance, in a textile industry, all the employees of the company

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will be represented by the union of textile workers of the territory, no matter what their profession is or what activities they perform for the company. Hence, blue-collar and white-collar workers in the same company are represented by the same union. Moreover, although the state in Brazil is prohibited by the constitution from intervening in union creation, so the government could not pass a law prohibiting workers from organizing a union, unions still have to be registered with the Ministry of Labor in order to be recognized as legal unions to guarantee that the union unity rule will apply to them. If two unions attempt to represent the same category of employees in the same territory, the one that registered earlier with the Ministry of Labor will keep the representation rights, although some discussions about territorial coverage and category definitions may still be resolved by the labor courts. In China, the situation is very different in terms of union recognition and status. Under the traditional communist system of government, the All-China Federation of Trade Unions (ACFTU) was the official representative of workers’ interests in the system. ACFTU leaders are appointed by the Communist Party at national and local levels and often are part of the human resource management staff in specific enterprises. Employers fund the ACFTU through a 2 percent payroll tax. Thus, the ACFTU is not a democratically elected or independent trade union. The ACFTU continues to hold a monopoly on legal recognition as the only official labor union in China. Efforts that are made to organize independent labor unions in China occur outside the framework of existing collective labor law, and independent unions lack legal status or the protections of labor law. At the workplace level, the official legal status of the ACFTU means that it is automatically entitled to representational rights and there is no need to determine membership support in order for it to act on behalf of employees in that workplace. As we will discuss more fully in later chapters, the roles of the ACFTU and of other emerging groups that seek to give voice to Chinese workers are evolving and are sources of considerable debate among labor, government officials, and Chinese legal and labor relations scholars. The Power-Broker Function of Collective Labor Law

In the power-broker function, collective labor law regulates the use of economic weapons by the parties and influences the bargaining power of each party in collective negotiations. One of the most basic ways that labor law can influence the relative bargaining power of the parties is by requiring them to engage in collective negotiations. The specific nature of a duty to bargain varies in scope and content among the countries that have adopted it as an

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element of their labor law. In the United States, a duty to bargain in good faith exists for both employers and unions once a union has won a representation election based on majority support of employees in a bargaining unit. By contrast, as mentioned earlier, in Mexican labor law, a duty to bargain arises when the union represents at least twenty employees in the workplace. At the far end of the spectrum, in New Zealand the duty to bargain arises when an individual employee is a union member. Another way that collective negotiations affect the relative bargaining power of the parties is by determining who is covered by bargaining. In American labor relations, unions often bargain on behalf of employees in individual workplaces. This reduces the relative bargaining power of the unit, as unions are less able to exert economic pressure on larger employers and are vulnerable to being forced into competition with other establishments that may be nonunion and pay lower wages. By contrast, the more centralized bargaining systems that are found in most European countries enhance union bargaining power by increasing the threat of economic action by the union and reducing the danger of labor cost competition between different employers or establishments. In Europe, labor law provides an important mechanism that supports a more centralized bargaining system. For example, in Germany, centralized bargaining is encouraged; collective agreements are binding on all members of employers’ associations, and because of extension laws, these agreements are implemented at the industry level if they cover a majority of the industry. Similarly, in South Africa, labor law supports more centralized bargaining structures that enhance the bargaining power of unions by providing for negotiations and agreements at the industry or sector level. By contrast, in India the lack of support in labor law for more centralized bargaining structures weakens the relative bargaining power of unions. In Brazil, collective negotiations mostly occur between employers’ associations and the legally registered union, which is determined by the main activity of the employers. The union typically negotiates a collective agreement for all the employees of the professional or economic category in a defined territory. The collective agreement is binding for the employer if it is signed by the employers’ association that represents the economic category of the company in a defined territory, regardless of whether or not the company is a member of the association. The agreement covers all workers, whether they are union members or not. It is also possible for the union to negotiate a specific agreement with one or more companies instead of negotiating with the employers’ association. Since each union represents workers in a certain territory, companies with plants in more than one city may have to use different collective agreements, negotiated with different unions, in each plant. These

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agreements may or may not have similar provisions, since unions representing the same employee category in different regions may be affiliated with different union centers and thus use different strategies and priorities. Collective labor law also influences bargaining power by regulating the use of economic weapons by the parties. Although the right to strike is recognized in the labor laws of most countries, in a number of nations limitations are placed on this right. These limitations are often argued to be based on considerations of the potential harm of labor conflicts to the public interest, though they also can significantly alter the relative bargaining power of employers and unions. For example, in the United States, the substantial limitations courts had placed on strikes through the use of labor injunctions were overturned in the 1930s by new labor laws that protected the right to strike. However, this shift in bargaining power in favor of unions was partly reversed when the U.S. Supreme Court in its decision in N.L.R.B. v. Mackay Radio & Telegraph Co., 304 U.S. 333 (1938) interpreted the National Labor Relations Act (NLRA) as allowing employers to hire permanent replacement workers to keep a factory operating during a strike, effectively taking away the jobs of the strikers. A further limitation on the right to strike and the bargaining power of unions is a provision added to the NLRA that bars secondary boycotts, strikes directed at employers other than the primary employer involved in collective negotiations. This limits the ability of unions to launch more widespread economic actions that could put pressure on business partners or allies of the primary employer involved in collective bargaining. The extent to which the right to strike is recognized and regulated varies widely in emerging countries. South Africa is an example of a country that explicitly recognizes the right to strike and places relatively few limitations on it in labor law. In Brazil, the right to strike is guaranteed by the constitution, but limitations on strikes that affect essential services or activities are allowed. In order to be legally protected in Brazil, the work stoppage must follow a series of procedural requirements, including that efforts to negotiate an agreement first be exhausted, that union members vote in favor of the strike at a union general assembly, and that forty-eight hours’ notice be given to the employer. Brazilian law also prohibits the termination of any employment contract during the strike. Replacement workers may be hired only in exceptional cases, such as an unacceptable refusal of unionized workers to attend to the maintenance of the equipment, devices, and services necessary to prevent any loss by the employer during or at the end of the strike or the prolongation of the strike after a new collective agreement has been reached by the parties or imposed by the labor courts. While wildcat strikes are considered illegal in

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Brazil, there is some debate about the legality of the union strategies of work to rule, sit-ins, secondary boycotts, solidarity, and political strikes, since the law does not expressly prohibit them. Unlike these other countries, Chinese labor law does not currently recognize a worker’s right to strike or engage in other forms of economic action. In this respect, collective labor law in China reflects the government’s policy goal of minimizing social unrest. The lack of legal protection obviously does not mean that strikes and other protest actions do not occur in China but rather that they lack explicit support in labor law and leave workers vulnerable to legal consequences for engaging in these actions. INDIVIDUAL LABOR LAW

Individual labor law includes the general set of laws that govern individual employment contracts and terms and conditions of work. Common subjects covered by a country’s individual labor laws include minimum wages, hours of work and overtime pay, unfair dismissal, employment discrimination, and workplace health and safety. Individual labor laws can serve as substitutes for or complements to the employment protections negotiated by unions in collective negotiations. In some areas, individual labor laws may serve as substitutes by establishing basic terms and conditions of employment that unions would otherwise have to use bargaining power to negotiate. For example, if a country guarantees all workers overtime pay at a time-and-a-half rate, then unions do not need to expend scarce bargaining power to obtain this at the negotiating table. However, there is also a danger to unions in that employees may come to view individual labor laws as a substitute for unions to such a degree that they no longer view union membership and collective negotiations as necessary for providing adequate workplace rights and protections. It is noteworthy that in many advanced industrialized countries, rates of union membership and collective negotiations have declined in recent decades over the same period that individual labor laws have expanded.4 On the other hand, individual labor laws can also operate as complements to the protections negotiated by labor unions. Unions can negotiate provisions in collective agreements that supplement the provisions of individual labor laws. For example, a union might negotiate supplements to public unemployment insurance or retirement systems or bargain for protections against categories of employment discrimination that are not covered by individual labor law statutes. Research has also found that unions help facilitate the ability of employees to take advantage of the protections of individual labor law through mechanisms such as providing information about

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the provisions of these laws and protecting employees from retaliation by management when they seek to enforce the provisions of laws.5 As with collective labor law, individual labor law has both constitutive and power-broker functions. In its constitutive function, individual labor law shapes the individual employment contract by answering questions such as who has formal status as an employee. In its power-broker function, individual labor law influences the relative bargaining power between individual employees and employers and affects the terms and conditions of employment. The Constitutive Function of Individual Labor Law

Who has formal status as an employee? For those who work in the formal sector of the economy in standard long-term employment relationships, this may seem like a simple question. These individuals clearly have status as employees and a well-defined employment relationship with a specific employer. However, for workers in the informal sector of the economy and for those who lack the conditions of a standard employment relationship, the issue of who labor law considers an employee and thereby receives the benefits of legal protections is a central concern. In its constitutive function, individual labor law addresses the issue of who is included in the benefits of formal employment status and, conversely, who is excluded from legal protections and benefits. Determination of who is an employee and who is an independent contractor can be a contentious issue. Resolving disputes over these issues is an important function of labor courts in many countries. Box 3.3 provides an example of how a Brazilian labor court resolved this issue in one case.

BOX 3.3 Brazilian Labor Court Employment Status Decision REGIONAL LABOR COURT OF THE SECOND REGION CASE NUMBER 0000454-91.2012.5.02.0029 APPEAL Appellant: Drogaria Onofre Ltda. Appellee: Leo Hashimoto Summary of the case: A worker, whom the defendant defined as an independent contractor, filed a lawsuit in order to be recognized as an

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employee, a status that would enable him to claim all the labor law protections for the employment relationship. The lower court granted him employee status and ordered the employer to pay some employment rights and social benefits guaranteed by law to all employees, such as an extra month’s wages each year. The defendant appealed to the regional labor court in an attempt to overturn the decision that considered the plaintiff an employee. Discussion of the case: The defendant had the burden of proving that the plaintiff was an independent contractor, thus denying the existence of the employment relationship. However, the defendant was not able to satisfactorily fulfill the requirements of this burden. There was no evidence to corroborate the defense theory that the plaintiff had pursued his activities as an independent contractor, since the alleged autonomy of the plaintiff or the substitutability of the service delivery could not be demonstrated. In Brazilian law, specifically Article 3 of the Consolidation of Labor Laws, an individual who personally works for another individual or entity on a regular basis and is subject to the direct orders and supervision of that individual or entity is considered an employee. The statements of the witnesses the plaintiff and the defendant brought to court were in agreement that the plaintiff had never been replaced by others. In addition, the work routines witnesses described fit that of an employee, not an autonomous independent contractor. A witness invited by the plaintiff declared that the plaintiff “worked onsite daily, from Monday to Friday; that the witness on average would work from 8:30 AM to 6:30 PM; that the plaintiff used to arrive before the witness and when the witness would leave, the plaintiff would remain on-site working.” Another witness stated that “the [plaintiff] reported to the owners of the company,” which denotes legal subordination, the main characteristic of the employment relationship, since the defendant could direct and supervise the working hours and tasks performed by the plaintiff. This witness also described the absence of flexibility and autonomy of the worker with regard to his workday. The payment element of the employee relationship was satisfactorily proved, given that the defendant stated that the plaintiff was paid for his services. Finally, with respect to the continuity element, even though the witnesses disagreed on the number of days the plaintiff worked per

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week—some said five, some said four days—that does not affect the factual and legal test for continuity. The continuity element requires only that the work performed is not sporadic. Disruption of work activities does not matter, provided there is some permanence in the delivery of service. In this context, given the fact that the plaintiff’s work situation matched the factual and legal elements contained in Article 3 of the Consolidation of Labor Laws, which characterizes the employment relationship, the original decision that the plaintiff was an employee was upheld. Source: Based on Tribunal Regional do Trabalho da 2ª Região, 10ª Turma, Recurso Ordinário, Processo Nº 0000454-91.2012.5.02.0029, Relator: Des. Marta Casadei Momezzo, October 7, 2013.

Many emerging countries have much larger informal economies than is typical in advanced industrialized countries. Status differences between workers are a crucial feature of the operation of labor markets in these countries. While individual labor laws provide relatively generous protections and benefits in many Latin American countries, these countries are also characterized by relatively large informal economies that sometimes employ as much as half of the labor force. For example, an estimated 42.2 percent of the workers in Brazil are employed in the informal sector, and these workers lack the protections of labor laws.6 Different types of status differentials divide the work forces of other countries, and efforts to address these problems in labor law have been mixed. Historically, South Africa suffered under the explicit legal racism of the apartheid system, which categorized workers’ labor law rights according to their racial group. After the end of apartheid and the emergence of multiracial democracy in South Africa, these formal status differentials in the law were eliminated. However, South Africa continues to struggle with the legacy of divisions in its society, and the progressive elimination of racial inequalities is a key concern of individual labor laws in that country. India has struggled with the issue of how to eliminate caste-based status differentials in society and the economy. The Indian constitution includes explicit prohibitions against discrimination based on caste; the more common prohibitions against discrimination based on race, sex, and religion; and a prohibition of the concept of “untouchability,” which affected those in the lowest rung of the caste system. However, discrimination based on caste lingers on, particularly in the

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large rural population, and efforts to eliminate it have included court rulings that provide remedies in this area.7 In China, one of the most important status differentials in employment is between local workers in cities and migrant workers from rural areas. Household registration, the attachment of an individual to a particular locale, is a key concept in Chinese law. A worker’s entitlement to social benefits derives from the region in which he or she is registered rather than where he or she works. This is causing major problems for the large population of Chinese workers who have migrated from rural areas to the cities in search of employment in the factories of the booming urban economy. Migrant workers who are employed in urban areas lack legal entitlement to social benefits from the cities where they work. The Power-Broker Function of Individual Labor Law

In its power-broker function, individual labor law sets or constrains terms and conditions of employment and influences the determination of the contents of the individual employment contract. It does these things both directly by setting standard or minimum terms for employment contracts and indirectly by regulating the process through which employment contracts are negotiated. One of the most common components of individual labor law are laws that establish minimum or standard wage levels. Most nations enact a law that sets a general minimum wage below which the hourly or daily wage is not supposed to fall. Additional elements of minimum wage laws sometimes include a lower minimum wage for younger workers, a provision that is designed to promote the employment of youth, and varying minimum wages for different industries. An important recent variant on the minimum wage concept is the idea of a living wage, the establishment of a minimum wage level that is sufficient to provide for the basic needs of a worker and his or her family. Supporters of the living wage idea argue that many existing minimum wages are too low to provide for the basic needs of life. Although living wage principles have not yet been incorporated in many laws, they have been adopted in some corporate codes of conduct and are included in international labor standards proposals. Another important area of minimum standards enactment is the regulation of hours of work. Some countries address this topic by enacting maximum daily or weekly hours of work. For example, in China, individual labor law establishes a maximum number of hours that an employee can be required to work in week, although enforcement of this requirement is very weak.

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Others, such as the United States, do not limit maximum hours but instead create incentives for limiting hours by requiring overtime pay for hours worked beyond a certain daily or weekly amount. (For example, workers must be paid at one-and-a-half times the usual rate for hours worked in excess of forty hours in a week in the United States.) A closely related component of individual employment law is the establishment of basic holiday and vacation entitlements. Many countries require employers to observe national holidays; this may require them to close their businesses and provide time off work for employees. Depending on the country, there may also be separate or overlapping entitlements to time off work for annual vacations. So far what we have discussed are specific terms that are required in employment contracts. These enhance the bargaining power of employees since they do not need to be negotiated separately. Individual labor law can also structure how the employer and employee interact throughout the employment relationship. The most prominent example of this is employment discrimination law. These laws prohibit the consideration of factors such as race, religion, sex, and national origin in any employment decisions, such as hiring, compensation, promotion, and firing decisions. In some countries this list of prohibited grounds includes other factors such as age, disability, sexual orientation, family status, class, and caste. Employment discrimination laws can have a broad influence because they prohibit consideration of these criteria throughout the formation, conduct, and termination of the employment relationship. This includes prohibiting the mistreatment of employees based on specified grounds and provides the basis for prohibiting sexual harassment in the workplace. For example, Brazilian law has several protections against employment discrimination. Brazil’s constitution includes a “prohibition of any difference in wages, in the performance of duties and in hiring criteria by reason of sex, age, color or marital status” (Article 7, XXX) and prohibits discrimination due to disabilities or between classes of workers. Brazilian labor law also prohibits reference to gender, age, color, or family status in job postings and the use of any of these elements or pregnancy status in decisions about hiring, wages, promotions, or dismissals. Moreover, other laws make it a crime to create obstacles to employment because of disabilities and obstacles to hiring, promotion, and wage increases because of race or color. It is also illegal to demand a pregnancy test from an employee. Sexual harassment of subordinates by managers is also considered a crime under the Brazilian Criminal Code. Brazilian law also provides monetary compensation, the possibility of reinstatement, and punitive damages to employees who are victims of discrimination. Even though all these protections exist and legal quota policies

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for employees with disabilities are in place, these policies suffer from a lack of effective enforcement. Another important category of legal protections in the workplace is regulations related to workplace safety and health. These laws are part of individual labor law protections that all employees are entitled to, but they also have a collective element in that the regulations are often enforced at the workplace level. Employees will have an obvious direct interest in having a safe and healthy workplace. Workplace health and safety laws establish minimum requirements that all workplaces must meet. They also provide protections for employees who raise health and safety concerns; in this sense, they increase the bargaining power of employees who attempt to ensure the safety of their own workplaces. As noted earlier, this is an area where research has found that union representation increases the effectiveness of the health and safety provisions of individual labor law.8 LABOR LAW ENFORCEMENT

An old legal maxim states that it is a vain thing to imagine a right without a remedy. This principle certainly holds true for labor law. The labor laws of many countries include relatively strong formal protections of employees but relatively weak enforcement mechanisms, resulting in low levels of compliance. The United States is a prime example of this problem. Extensive research has documented how weak enforcement mechanisms have undermined the legal protections of the right to organize and contributed to the declining membership of American labor unions.9 Weak enforcement mechanisms are also a problem for collective and individual labor law in many emerging countries. PUBLIC POLICY OBJECTIVES OF LABOR LAW

One of the most important decisions nations make is how freedom of association and collective negotiations fit into their political system. One view that is deeply embedded in many Western governments is that the ability of individuals and groups to freely express and negotiate their rights and interests at work is a core feature that is essential to a democratic society. Two U.S. legal scholars put it this way: “One way of defining a free society may indeed be: a society the members of which are free to assert their individual interests collectively.”10 One of the most famous and important examples of this function of an independent labor movement was the role of the Solidarity trade union in opposing the Communist regime in Poland in the 1970s and 1980s. The development of this independent labor union and its opposition to the

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Communist government played a central role in the demise of Communist rule in Poland and throughout the rest of Eastern Europe. Yet not all governments include the rights to freedom of association and collective bargaining in their labor policies (or their economic and social policies). Approaches range from an outright ban on unions and collective actions (e.g., in various countries in the Middle East) to government-controlled unions (as in China) to allowing some sectors or occupations to unionize (e.g., outlawing collective actions for government employees or, as in Bangladesh, for employees in key export sectors) to expansive rights of association (as provided, for example, in the Canadian constitution). As we will note frequently in later chapters, outright bans or suppressions of freedom of association and collective actions at work become harder to maintain and justify as a nation’s economy develops and it becomes active in global trade. A similar range of choices can be observed across nations about which, if any, groups of employees have the right to strike, how strong the protections are for those who exercise this right, and what, if any, limits are put on strike activity. Some Western scholars have written eloquently about the importance of the right to strike as a logical extension of freedom of association. Milton Konvitz stated this well in an article that explored the philosophical bases for the right to strike: Without the power to affect the course of events, a person or a group lacks the responsibility to reach decisions. Power is the source of responsibility. Without the right to strike, unions will lack the foundation for voluntary negotiation and agreement. If a free labor agreement—free collective bargaining in a free enterprise system—is in the public interest, so is the right to strike, which makes the free labor agreement possible.11

Few, if any, countries allow an unlimited right to strike. Some ban strikes of public employees, especially employees who provide essential services, such as police, firefighters, military, and employees engaged in national security work or in situations where a strike might impose significant threats to the safety, health, or economic well-being of the nation. Others require unions and employers to use various dispute resolution procedures before they can legally strike. We will discuss these procedures in chapter 7. Thus, we must be careful not to view the rights to form unions and to strike as unconditional. The exercise of these rights can, of course, conflict with other objectives of the larger society, including the public’s interest in industrial peace and social stability.

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Even though society has an interest in limiting conflicts that create social costs and social inconvenience, the mere existence of public inconvenience is not sufficient grounds to limit labor and management’s right to negotiate and labor’s right to engage in a strike if they cannot agree. Labor relations scholars have offered three additional justifications for promoting and protecting collective negotiations. First, it is often argued that employees and employers have a better understanding of their needs, priorities, and problems than outsiders do. This suggests that more effective solutions to problems or compromises that are more workable and acceptable to the parties will be found in a bargaining process than in situations where third parties constrain the participants from pursuing their own interests. Second, and perhaps more important, the parties may lose the capability to resolve their own problems once they begin to rely on outsiders for resolving their differences. The notion here is that effective problem resolution is a dynamic process that requires continual contact between the parties in dispute. Third, there is good reason to believe that when employees feel as though they have a say in the determination of their working conditions, morale is raised and productivity is increased.

Summary This chapter described how the legal environment shapes the conduct of labor relations and influences the relative bargaining power of the parties. While labor law is still primarily national in focus, international labor law has become more important in recent decades. The International Labour Organization has helped spread the principle that core labor standards exist that are internationally recognized and should be part of each country’s national labor laws. International trade agreements and, in recent decades, international financial institutions have played increasingly important roles in pressuring national governments to modify labor law. The media awareness that accompanies globalization also puts national labor laws in the global spotlight and thereby pressures countries that want to participate in global trade to meet standards of internationally accepted labor law and human rights. The laws regulating labor relations include both collective labor law, which governs unions and collective negotiations, and individual labor law, which governs individual employment contracts and general workplace rights and protections. In each of these areas, labor law has both a constitutive function, determining how the relationship between the parties is structured, and a power-broker function, influencing the relative bargaining power between

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the parties. In the final chapter of this book we will discuss a third function that some argue should become a central part of national labor policy—one that seeks to improve the quality of labor relations in ways that contribute to economic growth and development and improvements in the standard of living.

Discussion Questions 1. Describe the ILO’s guiding principles and its Declaration on Fundamental Rights and Principles of Work. Discuss how the labor laws of different countries do or do not comply with these principles. 2. Collective labor law serves both constitutive and power-broker functions. Discuss how labor law can support or hinder union and labor relations activity through these functions. 3. In many countries the number and scope of individual labor laws is expanding. Do you think individual labor law supports or substitutes for the activities of unions and collective negotiations? 4. Discuss the public policy purposes of labor law. What are the purposes of labor law in your own country? Does this system of labor law successfully further these objectives?

Related Web Sites Better Work factory monitoring program: http://www.betterwork.org International Labour Organization: http://www.ilo.org NATLEX (national labor law database): http://www.ilo.org/dyn/natlex/natlex _browse.home NORMLEX (information about international labor standards: http://www.ilo.org/ dyn/normlex/en/f?p=NORMLEXPUB:1:0::NO:::

Suggested Supplemental Readings Atleson, James, Lance Compa, Kerry Rittich, Calvin Sharpe, and Marley Weiss. International Labor Law: Cases and Materials on Workers’ Rights in the Global Economy. St. Paul, Minn.: Thomson/West, 2008. Blanpain, Roger, Susan Bison-Rapp, William R. Corbett, Hilary K. Josephs, and Michael J. Zimmer. The Global Workplace: International and Comparative Employment Law. New York: Wolters Kluwer, 2012. Comparative Labor Law and Labor Policy Journal, published by the International Society for Labor Law and Social Security.

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Notes 1. Sarah H. Cleveland, “Why International Labor Standards?” in International Labor Standards: Globalization, Trade, and Public Policy, ed. Robert J. Flanagan and William B. Gould IV (Redwood City, Calif.: Stanford University Press, 2003), 129. 2. Health Services and Support—Facilities Subsector Bargaining Assn. v. British Columbia, 2007 SCC 27, [2007] 2 S.C.R. 391. 3. Katherine Van Wezel Stone, “Labor and the Corporate Structure: Changing Conceptions and Emerging Possibilities,” University of Chicago Law Review 55 (1988): 73. 4. Some have argued that this change represents a general shift toward an era of individual employment rights in labor relations. See Michael Piore and Sean Safford, “Changing Regimes of Workplace Governance, Shifting Axes of Social Mobilization and the Challenge to Industrial Relations Theory,” Industrial Relations 54, no. 3 (2006): 299–325; and Alexander Colvin, “American Workplace Dispute Resolution in the Individual Rights Era,” International Journal of Human Resource Management 23, no. 3 (2012): 459–475. 5. See, for example, David Weil, “Are Mandated Health and Safety Committees Supplement or Substitutes for Labor Unions?” Industrial and Labor Relations Review 52, no. 3 (1999): 339–360; and John W. Budd and Brian P. McCall, “The Effect of Unions on the Receipt of Unemployment Benefits,” Industrial and Labor Relations Review 50, no. 3 (1997): 478–492. 6. This estimate is based on: “Statistical Update on Employment in the Informal Economy,” International Labour Organisation (ILO) – Department of Statistics, June 2012. 7. The Indian Supreme Court has developed an important area of public interest litigation decisions, similar to the role of the U.S. Supreme Court in this respect. For example, in the case of Bandhua Mukti Morcha v. Union of India 1984 AIR 802, 1984 SCC(3) 161, the Supreme Court ordered a series of strong affirmative remedies to address the problem of bonded (forced) labor in the state of Haryana in a case brought by an NGO that advocated on behalf of bonded laborers. 8. David Weil, “Enforcing OSHA: The Role of Labor Unions,” Industrial Relations 30, no. 1 (1991): 20–36. 9. See, for example, Paul Weiler, Governing the Workplace (Cambridge, Mass.: Harvard University Press, 1990); and John-Paul Ferguson, “Eyes of the Needle: A Sequential Model of Union Organizing,” Industrial and Labor Relations Review 62, no. 1 (2008): 3–21. 10. Walter Oberer and Kurt Hanslowe, Labor Law: Collective Bargaining in a Free Society (St. Paul, Minn.: West Publishing, 1972), 42. 11. Milton R. Konvitz, “An Empirical Theory of the Labor Movement: W. Stanley Jevons,” Philosophical Review 62 (January 1938): 75.

4

The Role of the Economic, Technological, and Demographic Environments

THE IMPORTANCE OF BARGAINING POWER

This chapter examines how various forces in the environment influence labor relations in emerging countries. We focus in particular on how factors in the economic, technological, and demographic environments influence the bargaining power of both labor and management. In doing so we are moving downward in our three-tiered framework by examining how external environmental factors influence the functional level of labor relations. Bargaining power is a central concept in labor relations because it is the key determinant of bargaining outcomes related to wages and other work conditions. The influence of power is most evident in settings where employees are represented by unions because unions exercise their power through the formal mechanism of negotiations. And where there are negotiations, as we will discuss, there is always the threat of strike action (or strike-like actions) whether or not strikes are legal. The legality of strikes varies across countries and often also across different types of employees and employment relationships. A union will be better able to gain a high wage and other favorable contract terms when it has relatively high bargaining power. Often something in the environment determines whether a union has a lot of bargaining power in one situation and little power in another. Thus, we start this chapter with a discussion of how the environment influences bargaining power and the bargaining process. The text will show how a low unemployment rate (an aspect of the economic environment), for example, strengthens workers’ ability to hold out when they are on strike and thereby gives a union greater bargaining power. 79

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An examination of bargaining power in unionized settings will also clarify what factors determine wages and working conditions where employees are not represented by unions and even where the employment relationship is not formally structured. (As discussed in chapter 6, unstructured employment relationships exist in what are labeled informal employment systems.) Even in the absence of unions and collective negotiations, some types and sources of bargaining power exist. A CONCEPTUAL FRAMEWORK FOR ANALYZING THE ENVIRONMENT

This book uses as a framework an extension of the model proposed by John Dunlop. Dunlop theorized that three main influences shape the labor relations environment: (1) the economic context, (2) the technological context, and (3) the locus of power in the larger society.1 This book also considers the influence of the demographic context. The underlying theme is that labor and management can influence the environment and that the environment also influences them. The external environment both incentivizes and constrains labor and management in their efforts to meet their goals. Thus, it is important to consider how the environment shapes the power of both parties. The parties involved in the employment relationship also seek to mold their environment to better serve their needs. Thus, environmental influences are not entirely outside human control. For example, in recent years many employers have created global supply chains that typically involve increased outsourcing of production and use labor in a variety of countries and regions. They do so in large part to take advantage of a more favorable economic environment (such as lower labor costs or greater availability of resources). Many firms also have expanded internationally by investing abroad, forming partnerships with suppliers, or entering other types of joint ventures. These firms have directly shaped the economic environment for their labor relations. The ability of the parties involved to influence their environment is even more pronounced in the case of public policy because both labor and management work to influence the public policies that regulate their own behaviors. Thus, in the long run, the environment is to some extent influenced by the both parties involved in employment relationships. Only in the short run should the environment be viewed as external and relatively fixed.

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BARGAINING POWER DEFINED

The environment is particularly influential through the effects it exerts on the bargaining power of labor and management. Three aspects of bargaining power come into play: the total power, the relative power, and the political power of both labor and management. Total power concerns the total profits that are available to labor and management. The greater the total power is, the more profit is available for labor and management to divide up. Both labor and management prefer situations with greater total power. Relative power has to do with the relative strength of labor and management; in other words, the ability of either side to gain a larger share of a given amount of profit. Here the interests of labor and management conflict. Political power concerns the ability of labor or management to influence government actions—either the public policies governments adopt that influence labor relations or the actions governments take as an employer. Determinants of the Total Power of Labor and Management

The total power of management is heavily influenced by two factors—the degree of competition the employer faces and the state of the economy. The degree of competition means the amount of competition the employer faces from both domestic and international competitors. Firms that face few competitors and thereby have market power earn greater profits and thus have more resources for labor and management to divide up. In the most concentrated industries, a firm can become a monopoly and earn monopoly profits. In this case the total power of labor and management is at its maximum and bargaining is made easier by the fact that both high wages and high profits can be funded from the firm’s monopoly profits. The state of the economy influences total power by affecting the level of demand (i.e., sales) and profits. The interests of labor and management with regard to total power are similar as both sides prefer less competition and a strong economy. Determinants of the Relative Bargaining Power of Labor and Management

The relative bargaining power a union has is heavily influenced by the ability of the union and its members to withdraw their labor, usually (though not always) through a strike. Workers are more likely to win higher wages and other gains when they are willing and able to sustain a strike. Moreover, strikes are more likely to succeed if the cost of the strike to the employer is

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significant. Thus, the employer’s relative bargaining power is heavily influenced by his or her ability to withstand a strike. The simplest measure of relative bargaining power is the amount of strike leverage each party holds. Workers can also withdraw their labor through more informal actions, such as working to rule (following rules strictly rather than pursuing effective work practices), enacting a strategy called the “blue flu” (large-scale worker absenteeism), and other means of slowing production. The discussion that follows focuses on the effects of strikes that involve workers who fully withdraw their labor. However, many of the points raised carry over to less extreme forms of labor withdrawal. How Strike Leverage Influences Relative Bargaining Power The relative degree to which workers and the employer are willing and able to sustain a strike is their strike leverage. To measure each party’s strike leverage, one needs to know what costs a strike would impose on each party and what alternative income sources are available to each party to offset any income losses induced by a strike. The discussions of the environmental contexts that follow help us understand what determines strike leverage.

THE ECONOMIC CONTEXT

Economic factors significantly influence both total and relative bargaining power. Economic factors can be separated into those that operate at the macrolevel (economy-wide) and those that operate at the microlevel (relevant only to a specific bargaining relationship). Microeconomic Influences on Total Bargaining Power

Microeconomic factors influence the total bargaining power of a particular employer or union through the effects of competitive conditions on a firm. The greater the market power of a firm (i.e., the less competition it faces in the markets in which it competes) the greater will be its profits. With greater profits, there are more resources for the parties to divide based on their relative power. A firm’s market power is affected by the degree of domestic and international competition it faces. With regard to total bargaining power, labor and management have common interests; both sides prefer that the firm have market power. (This is true if other factors are held constant, especially factors that affect the relative power of labor and management.) The existence of these potential common interests explains why unions sometimes join with the management of a firm to push for government regulations that enhance the market power of the firm. For example, frequently unions representing

Economic, Technological, and Demographic Environments Essentiality of striking workers

PRODUCTION

Availability of substitute workers

Availability of inventories

Effects of the strike on competitors

SALES

PROFITS

Alternative production sites

Capital and other continuing costs

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Figure 4.1. Determinants of management’s strike leverage

steel workers join with steel companies to lobby their national government to restrict the importation of foreign steel and impose higher tariffs on those imports. Microeconomic Influences on Relative Bargaining Power

Microeconomic factors influence the relative bargaining power of labor and management through effects on the strike leverage of the parties and the elasticity of demand for labor (the wage-employment trade-off). Management’s Strike Leverage The more an employer is willing and able to sustain a strike, the more likely the work force will be to settle a strike before achieving all of the union’s goals. The strike leverage of employees derives from the strike’s influence on firm profits. The greater the profits lost by the firm, the more ready the firm will be to give in to labor’s demands. During a strike, a firm’s profits are, in turn, shaped by the strike’s effects on production and sales. Figure 4.1 diagrams the principal determinants of an employer’s strike leverage. These include the ability to of workers to harm production, sales, and profits and the ability of management to find alternative means to maintain production, sales, and profits. The effects of a strike on production: Once a strike has begun, the first indicator of workers’ bargaining power is the degree to which the strike has impaired production and/or service. Workers who succeed in actually halting production because there are no readily available labor substitutes—supervisors, employees from another plant, strikebreakers, or automated equipment— have substantial strike leverage and bargaining power. In other words, these

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workers are essential to the production process. Craft workers, who are typically very difficult to replace because of their skills, often have significant strike leverage. For example, the high skill levels of electricians and repair machinists help explain why they earn so much more than production workers in the auto, steel, and textile industries. The effects of a strike on sales: The power of a striking work group is tempered, however, if the halt in production does not lead to a reduction in sales. Employers can sever or at least weaken the link between production and sales if inventories are high or if alternative production sites can be used to produce what normally would be produced at the site where the strike is taking place. Whether alternative production is available is influenced by the bargaining structure (whether other sites are covered by the same union or contract) and by the extent to which other workers at other sites join or support the strike. The effects of a strike on profits: Even if production and sales are stopped by a strike, the firm may not necessarily experience a serious decline in profits. For example, firms with relatively low ongoing capital or interest expenses will have an easier time withstanding a loss of income caused by a strike. Also, firms facing a strike that also shuts down all the competitors’ operations have an easier time withstanding a strike because sales and profits may be largely postponed rather than permanently lost. Firms that have substantial savings or alternative income sources (such as from other lines of business) can more easily absorb the costs of a strike. Later sections of this chapter discuss how the recent growth in employers’ nonunion operations has improved their strike leverage through this channel. Consider the other side—the union’s strike leverage. A union’s strike leverage is determined by the ability and willingness of the work force to stay out on strike. The longer workers are willing and able to stay on strike, the greater the bargaining power the union has and the more likely it is to win favorable employment terms from an employer, other factors being constant. Alternative sources of worker income: Workers’ willingness to stay out on strike is heavily influenced by the degree to which alternative sources of income are available to them. Obviously, workers in unions that offer ample strike benefits can afford to stay out on strike longer than those in other unions. Likewise, when striking workers can more readily find temporary or part-time work that supplements union strike benefits or when they have substantial savings or assets, they are more able to sustain a strike action. Worker solidarity: Another factor that influences workers’ strike leverage beyond the microeconomic environment is the attitude of union members. The Union’s Strike Leverage

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Workers’ feelings of solidarity with one another influence whether picket lines will be honored, and any pent-up frustrations will influence workers’ willingness to stay out on strike. In brief, strikes are highly emotional undertakings and they depend on numerous factors, not simply the microeconomic environment. The Wage-Employment Trade-Off

Strike leverage determines whether workers are able to press for a higher wage settlement or other contractual provisions. But higher wages often bring cuts in employment, and thus unions may in some cases choose not to raise wages as much as they could. This is called the wage-employment trade-off. The key point is that wage increases can bring employment effects as well as direct wage gains. Unions sometimes moderate their wage demands because of employment effects. For example, management often threatens unionized apparel workers with the claim that if they succeed at pushing wages significantly higher, the company will shift its production to other countries. In recognition of this threat, apparel unions in various countries have at times moderated their wage demands. This trade-off between wages and employment is thus another important microeconomic influence on bargaining power and outcomes. Marshall’s Four Basic Conditions and How Each Affects the Wage-Employment Trade-Off Unions are more likely to consider the employment effects

that result from a wage increase when these effects are greater. Why a wage increase leads to large reductions in employment in one situation and to small reductions in another situation is explained by Marshall’s conditions. In his seminal analysis of the relative bargaining power of labor and management, Alfred Marshall argued that unions are most powerful when the demand for labor is highly inelastic—that is, when increases in wages will not result in significant reductions in employment in the unionized sector.2 Marshall further proposed four basic conditions under which the demand for union labor would be inelastic: (1) when labor cannot be easily replaced in the production process by other workers or machines; (2) when the demand for the final product is price inelastic (that is, demand is not sensitive to changes in the price of the product); (3) when the supply of nonlabor factors of production is price inelastic; and (4) when the ratio of labor costs to total costs is small.3 Below we address each of these conditions in turn. The difficulty of replacing workers: The first condition, the degree to which workers are difficult to replace, depends on the production technology. The more

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difficult it is to replace workers with machines or other workers, the less apt the workers will be to fear that they will be displaced. Unions can try to limit the ease with which management can introduce new technology by raising the cost of substituting other factors of production for union labor, but that strategy presents a dilemma. Collectively bargained constraints on technological change may keep unions from losing jobs, but slowing that rate of technological change may also constrain the rate of productivity growth, limiting the long-run potential for wage increases. The demand for the product: Workers face less of an employment decline from raising wages if the demand for the product produced by these workers is not sensitive to the price of the product. This sensitivity (what economists call the elasticity of product demand) is a second key condition Marshall identified. This condition is somewhat different from the other three in that it is influenced by consumer preferences and not by the actions of the firm or the union. The elasticity of product demand depends on the willingness of consumers to substitute other products. A modern-day illustration of this principle is the threat to union power raised by less expensive foreign imports that become more attractive to domestic consumers as wages and prices in the unionized domestic economy rise. The lower prices of goods produced in the auto, apparel, steel, and electrical appliance industries in many emerging countries have put pressure on producers in more industrialized countries and thereby illustrate this aspect of Marshall’s conditions. Many unions try to influence consumer actions through “Buy Union” campaigns and counteract the pressure of lower priced goods. The supply of other inputs: Marshall’s third condition is the responsiveness of the price of other inputs in the production process to the demand for those inputs (what economists call the elasticity of supply of other factors of production). When an employer turns to alternative inputs such as machines or other factors of production in order to economize on the cost of labor, unions will be more able to push up wages (with less fear of employment cutbacks) if the price of those other inputs increases as their use increases. Thus, the more inelastic the supply curve for alternative inputs is, the greater is union power. Whereas Marshall’s first condition concerns the degree to which it is technologically feasible to substitute other factors of production for unionized labor, his third condition concerns the costs to the firm of increasing its use of alternative factors. Labor’s share of total costs: Marshall’s fourth condition is that unions are more powerful when labor costs represent only a small proportion of total costs. This condition has often been restated as “the importance of being unimportant.” An employer is less likely to resist union pressure if a given wage

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increase affects only a very small proportion of the total cost of the product. Thus, a small craft unit, such as the skilled maintenance employees in a plant, is often less likely to meet management resistance to its wage demands than would a broad bargaining unit that represents all production and maintenance employees.4 Bargaining in the public sector illustrates the difficulties unions experience when labor costs represent a large proportion of total production costs. Labor costs for governments often run between 60 and 70 percent of the budget, and for some occupations such as firefighters these costs run as high as 90 percent of the budget. When government officials seek to control total budget costs, they take a very hard line in collective negotiations because the wages and salaries of public employees represent their largest controllable cost. All of Marshall’s conditions are based on the assumption that workers and unions are concerned about the employment effects of wage increases. If union members are willing to accept a slow rate of growth in employment or a decline in the number of union jobs as a trade-off for higher wages, the sources of power discussed above are less important. The extent to which unions factor in the wage-employment trade-off in their negotiations depends on factors such as the political dynamics in the respective union and whether or not macroeconomic conditions provide good alternatives in the labor market. If favorable labor market alternatives prevail (i.e., a low unemployment rate and strong economic growth), then workers and their union are likely to be less concerned with potential employment reductions that would follow wage increases in a particular negotiation. Macroeconomic Influences on Total and Relative Bargaining Power

Economists refer to unemployment and the growth in national productivity as macroeconomic factors. The overall state of the economy affects bargaining power through a variety of channels. A firm is likely to be earning higher profits (greater total power) when the economy is strong and demand is growing. A union’s strike leverage depends in part on the availability of jobs, for both the striking workers and their spouses or other family members who might help support the strikers. The higher the unemployment rate, the less likely it is that striking workers or family members will be to find substitute employment and the more likely it is that other family wage earners will be out of work. Thus, unions generally gain strike leverage during the upswing of a business cycle, when the unemployment rate declines. Conversely, the relative power of unions declines during periods of rising unemployment.

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The factors at work here include those discussed earlier regarding striking workers’ needs for alternative income sources and employers’ vulnerability to strikes when product demand is high. During periods of slack demand employers may, in fact, welcome a strike because they can lower their inventories during the strike and use the strike as a substitute for layoffs. POLITICAL POWER

The power of labor and management is influenced by their respective political power through a variety of channels. As mentioned above, one example of how politics matters is through the influence of public policies on the macroeconomic policies that affect the total and relative power of labor and management. Yet, as discussed in chapters 2 and 3, the legal system and a number of public policies significantly shape labor relations. So the political power of labor and management matters because that power influences the laws and public policies that regulate labor relations. In many emerging countries, public policies also directly affect government regulation of pay and social welfare policies, such as pensions, vacations, and health care. This provides another channel through which political power affects the bargaining power of labor and management. In addition, as will be discussed more fully in chapter 10, in emerging countries governments are often significant employers. Political power thus also influences employment terms and conditions through its effects on the role governments play as an employer. THE ECONOMIC ENVIRONMENT

The power and influence that labor, management, governments, and other actors have in labor relations is shaped by the economic environment in which those parties operate. In the sections that follow in this chapter, we examine the key components of the economic environment in emerging countries, including the role of demographic factors such as population and urbanization trends, child labor, and educational attainment. Size and Quality of the Labor Force

A key factor that will affect a country’s labor relations system is the size of the work force. Economists point out that a larger work force can contribute to economic growth in the long run by increasing the supply of labor. At the same time, an increase in the supply of labor can lead to downward pressures on wages in the short run because it often takes time for the effects of an increase in the labor supply to produce economic growth and the increases in the demand for labor that lead to wage growth over the longer term.

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The supply of labor, which has both quantity and quality dimensions, is the key determinant of the size of the work force. The quantity of labor in the labor market is influenced by the size of the working population, by the extent of rural-to-urban migration (which is commonly linked to a shift away from farm work), and by the amount of child labor. The quality of labor is influenced by the educational attainment of the work force. We discuss each of these key components below and highlight several policy issues related to labor supply that have recently surfaced in emerging countries, such as the discrimination urban migrants face and the labor market difficulties college graduates face. Population Trends

In many emerging countries, the rate of population growth is faster than in most advanced industrialized countries, and this has contributed to growth in the labor forces of those countries. More than three-quarters of the world’s people now live in emerging countries The average life span remains about twelve years greater in the advanced industrialized countries as compared to emerging countries, although this gap has been sharply reduced in recent decades. In 1950, life expectancy at birth for people in emerging countries averaged 35 to 40 years, compared with 62 to 65 years in advanced industrialized countries. However, average life expectancy has been increasing in many emerging countries. In East Asia and Latin America, for example, life expectancies are now an impressive 74 and 73 years, respectively. Because of high birth rates, populations are relatively youthful in emerging countries. Children under the age of 15 constitute more than 30 percent of the total population of emerging countries, but this group constitutes just 17 percent of the total population in advanced industrialized countries. In fact, in at least ten emerging countries, children under the age of 15 constitute over 44 percent of the total population. As a result, the work force in emerging countries must support almost twice as many children as it does in advanced industrialized countries. Urbanization and Migration Trends

Generally, the more economically advanced the country, measured by per capita income, the greater the share of population living in urban areas. While individual countries become more urbanized as they develop, it is also the case that today’s poorest countries are far more urbanized than the advanced industrialized countries were when they were at a comparable level of development, and on average emerging countries are urbanizing at a faster rate than emerging countries did in the past.

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One of the most significant modern demographic phenomena is the rapid growth of cities in emerging countries. The most rapid urbanization is now occurring in Asia and Africa. It is forecast that before 2030, more than half of all people in these regions will live in urban areas.5 A key source of the significant urban population growth in emerging countries is large-scale rural-to-urban migration. This migration has led to high rates of unemployment, as rates of rural-to-urban migration in emerging countries have exceeded rates of urban job creation and have strained urban social services. Another problem caused by these high rates of migration is that a high proportion of well-educated young people make up the migrant population and this depletes the rural countryside of skilled workers. In China, migration of former farm peasants into urban areas has greatly increased the size of the work force in industrial enterprises in urban areas in recent years. This sort of migration was highly restricted before market reforms were introduced in China in the 1980s. Under the hukou system, individuals were required to be registered with the local authority where they were born and lived. Rural residents were not allowed to move to urban areas for employment. Although this restriction has gradually been eased during the reform era, rural migrants continue to suffer severe discrimination when they seek employment, legal protections, or public benefits in an urban area (see box 4.1). Rural-to-Urban Migration in China

BOX 4.1 The Hukou Registration System in China The number of Chinese workers moving from rural areas to large cities is large and increasing. In 2012, there were 262 million migrant workers in China (a 3.9 percent increase from 2011). Of these, 163 million had left their home province to work in other provinces. When the Communist Party came to power in 1949, the government made restrictions on migration to urban areas to ensure that enough people were working in rural areas. In 1958, the government placed stricter control on internal migration of workers through a permanent registration process called the hukou system, a series of measures to prevent citizens seeking higher living standards from moving to cities without permission.

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Under the hukou system, the social benefits a person receives are tied to where he or she was born. The rigidity of the hukou system makes it nearly impossible for internal migrant families to reap the benefits of urban life. Without an official hukou (household registration record), a migrant worker’s family is denied access to a range of city services, including medical care, pensions, government services, and education. The strict registration system deprives families of the supports they need to live. After the hukou system was made stricter in the 1950s, police began periodically enforcing the law by placing those who did not have legitimate registered permits in detention centers. Migrant workers without legal documentation were expelled from the city. A large number of activist youths were relocated to rural areas during the Cultural Revolution of the 1960s and 1970s as punishment for their political activism. The government of China eventually permitted the young revolutionists to return to cities. With the advent of increased technology it has been easier for police to enforce the hukou system using a national database of official hukou registrations. The denial of benefits to some migrant families in cities creates a major division between permanent residents and migrants. Migrant workers in cities are stigmatized and discriminated against. Migrant workers are restricted from access to public services, and they are often blamed for urban crime and unemployment. Migrant workers also face discrimination from permanent residents who speak to them in public as if they are children. The workers are often banned from entering expensive restaurants and hotel lobbies. Adding to the discrimination, the Chinese word for these migrant workers, nongmin, refers an inferior educational and cultural status and inferior economic competencies. In the last five years Chinese authorities have made some efforts to make it less difficult for migrant workers to move their hukou to the cities where they work. They are also trying to provide services in cities to all permanent residents. At the same time, the trend toward internal migration in China does not seem to be decelerating. Migrant workers now constitute about 20 percent of China’s total population. It is expected that in the next several years, an additional 100 million more rural residents will migrate to cities. Sources: National Bureau of Statistics of China, http://www.stats.gov.cn/ was40/gjtjj_en_detail.jsp?searchword=migrants&channelid=9528&record=3;

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Bob Davis and Tom Orlik, “China Seeks to Give Migrants Perks of City Life,” Wall Street Journal, March 5, 2013, http://online.wsj.com/article/SB10001424 127887324178904578341801930539778.html?cb=logged0.3972573739010 8407; Hsiao-Hung Pai, “China’s Rural Migrant Workers Deserve More Respect from the City Dwellers,” The Guardian, August 25, 2012, http://www .theguardian.com/commentisfree/2012/aug/25/china-rural-migrants-more -respect; PRI’s The World, “China’s Hukou System Puts Migrant Workers at Severe Economic Disadvantage,” May 1, 2013, http://www.pri.org/stories/ politics-society/social-justice/china-s-hukou-system-puts-migrant-workers-at -severe-economic-disadvantage-13676.html; Wu Zhong, “How the Hukou System Distorts Reality,” Asia Times, April 11, 2007, http://www.atimes. com/atimes/China/ID11Ad01.html.

The difficult economic and social conditions migrants face has emerged as a key public policy issue in a number of countries, not just in China. Box 4.2 highlights the problems migrants face in Singapore and the protests that are surfacing as migrants there seek improvements in their work lives and status.

BOX 4.2 Frustrations Surface in the Ranks of Singapore’s Migrant Workers Frustration among Singapore’s unappreciated and underpaid migrant workers has been building in recent years as their numbers have grown faster than the country can accommodate them. Tensions boiled over earlier this month, after a 33-year-old Indian migrant worker was killed by a bus in the Little India neighborhood. A crowd of fellow workers from South Asia gathered at the scene. Their anger quickly escalated, with some 400 people pelting stones, attacking emergency responders and setting fire to vehicles. It was the worst riot to hit Singapore, one of the world’s most orderly countries, since 1969. . . . Migrant laborers are paid as little as 2 Singapore dollars, or $1.60, per hour. Few speak fluent English, the country’s working language, and most live in crowded dormitories away from residential areas. They typically are at the mercy of employers, owe high debt to hiring agents and have few means of expressing grievances. Last year, 200

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Bangladeshi workers protested unpaid wages and Chinese bus drivers refused to report to work to protest salaries lower than their Singaporean and Malay counterparts. Source: Reprinted from New York Times Editorial Board, “Singapore’s Angry Migrant Workers,” New York Times, December 27, 2013.

Educational Attainment

The education levels of workers are an important factor in labor relations. Educational systems vary from country to country. There are differences in the age when students typically begin and end each phase of schooling, the duration of courses taken, and what students are taught and expected to learn. These differences make it extremely complicated to draw international comparisons based on education.6 There have been dramatic improvements in education throughout the world. Today, 82 percent of all people are literate, compared to 63 percent as recently as 1970. Since 1950, there have been significant reductions in education inequality based on gender in emerging countries, although the need for further progress remains, as two-thirds of the world’s illiterate people are women. At the same time, education levels in emerging countries continue to seriously lag behind levels in advanced industrialized countries. For example, in Europe, North America, or Japan, children can expect to receive more than twelve years of schooling. The average child in sub-Saharan Africa and South Asia, in contrast, can expect to spend less than five years in school. Since 1950, the average years of schooling among the total population 15 years and older in emerging countries has increased significantly, from 2.1 years to 7.1 years. In South Asia and the Middle East/North Africa regions, average years of schooling have more than doubled since the 1980s. The improvements in completion and enrollment ratios at all levels among the younger cohorts in every generation contribute to a continual increase in the average years of schooling as these cohorts mature over time. The biggest improvement in average years of schooling among the younger cohorts was recorded during the period 1970 and 1990 in both emerging and advanced industrialized countries. The more rapid the rate of population growth, the greater the proportion of dependent children in the total population and the more difficult it is for people who are working to support those who are not.

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A key fact is that while emerging countries contain more than 80 percent of the world’s population, they account for only half of the world’s population that has attained some form of higher education. At the same time, improvements in education will not lead to sustained improvements in standards of living if there are not adequate jobs that require the higher skills of the better educated. Box 4.3 describes recent concerns about a potential oversupply of college-educated individuals in China. Similar concerns have appeared in other emerging countries recently.

BOX 4.3 The Oversupply of College Graduates in China Prior to the 1990s, only the top 4 percent of Chinese students were able to attend college and there were plenty of college graduate–level jobs to go around. However, in the past few decades, enrollment in public universities in China has increased rapidly, which has increased the number of students eligible for a college degree. The number of university graduates has nearly doubled since 2002. The percentage of college-age people attending university went from 4 percent to about 20 percent since 2002. However, this number still lags behind the comparable figures for advanced industrialized countries, where 40 percent or more of college-age students are enrolled in universities. The oversupply of students first emerged in 1999, when Chinese authorities initiated policies to increase college enrollment in order to prepare young Chinese adults for a twenty-first-century economy. Although China’s economy is growing rapidly, there are not enough jobs for the number of university graduates. The total number of graduates for the current decade is expected to reach 94 million, which is nearly double the graduate rate of the previous decade. Graduates are extremely disappointed in their quest to find quality work, make good money, and live a comfortable lifestyle. As a result of the lack of jobs, some college graduates are seeking to leave China and work abroad. Pressures are building among graduates whose skills are not being fully utilized. Source: Sophie Song, “Future of Chinese Graduates Is Bleak: More Than Half Will Have to Take Blue-Collar Jobs by 2020,” International Business Times, June 10, 2013, http://www.ibtimes.com/future-chinese-college-graduates -bleak-more-half-will-have-take-blue-collar-jobs-2020-1298875.

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Gender Gaps in Education Young females receive less education than young males in most emerging countries. The gender gap in education is especially great in emerging countries in Africa, where female literacy rates can be less than half that of men. In most emerging countries, women make up a minority of college students. There are several reasons why closing the educational gender gap by increasing the educational opportunities for women is economically desirable. First, the increase in earnings due to education is greater for women than it is for men in most emerging countries. Another reason why it is economically desirable to close the educational gender gap in emerging countries is that increasing women’s education not only increases their productivity in the workplace, it also results in greater labor force participation, later marriage, lower fertility, and greatly improved child health and nutrition, thus benefiting the next generation as well. Further, because women carry a disproportionate burden of poverty, any significant improvements in their role and status through education can have an important impact on breaking the vicious circle of poverty and inadequate schooling. Studies also show that mothers’ education plays a decisive role in raising levels of nutrition in rural areas. In summary, while significant improvements have occurred in the level and spread of education in emerging countries in recent years, these countries still face great challenges as they seek to improve access to education. Child Labor

Another critical aspect of the economic environment that has particularly large effects on labor relations in emerging countries is child labor. The volume of child labor matters in part because of the effects it has on increasing the supply of labor. In addition, child labor nearly always takes place under very poor work conditions that include low pay and unsafe work. Child laborers are not the only workers affected by these poor conditions; they spread and affect other workers at the low end of the labor market. A comprehensive report on child labor published by the International Labour Organization in 2013 documents that 168 million children worldwide are laborers; this group accounts for almost 11 percent of the child population as a whole.7 Children in hazardous work that directly endangers their health, safety, and moral development make up almost half of all child laborers, about 85 million. Child labor is most common in the agriculture sector, but the ILO report shows that the numbers of child laborers in services and industry are by no means negligible. The largest absolute number of child laborers is found in Asia and the Pacific region, but sub-Saharan Africa continues to be the region with the

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Table 4.1. Total number of child laborers and number of child laborers doing hazardous work by

region, 5–17 age group, 2012

Region

Child laborers (millions) %

Child laborers doing hazardous work (millions) %

Asia and the Pacific Latin America and the Caribbean Sub-Saharan Africa Middle East and North Africa

77.7 12.5 59.0 9.2

33.9 9.6 28.8 5.2

9.3 8.8 21.4 8.4

4.1 6.8 10.4 4.7

Note: The numbers in the second and fourth columns are the percentages of children as a whole in each region. Source: International Labour Office, Marking Progress against Child Labour: Global Estimates and Trends 2000–2012 (Geneva: International Labour Office, 2013).

highest proportion of child laborers; one in five children are laborers there. As shown in table 4.1, for the overall 5–17 age group, child laborers number almost 77.7 million in Asia and the Pacific. For the same age group, there are 59 million child laborers in sub-Saharan Africa, 12.5 million in Latin America and the Caribbean, and 9.2 million in the Middle East and North Africa. Not surprisingly, the incidence of child labor is highest in poorer countries. Twenty-three percent of children in low-income countries are child laborers, compared to 9 percent of children in lower-middle-income countries and 6 percent of children in upper-middle-income countries. The agricultural sector is by far the most significant employer of child laborers; it employs over 98 million children, 59 percent of the world’s child laborers. But the numbers of child laborers in the services and industry sectors are by no means negligible. A total of 54 million are found in the services sector (of which 11.5 million are in domestic work) and 12 million are found in industry. The ILO report also shows that the number of child laborers has declined somewhat in recent years. There were almost 78 million fewer child laborers at the end of the 2000–2012 period than at the beginning, a reduction of almost one-third. The decrease in the number of female child laborers was particularly pronounced. The ILO report identifies a number of actions that have driven progress in the reduction of child labor, including the political commitment of governments to reducing child labor, an increasing number of ratifications of ILO conventions, and progressive new public policies in a number of countries. The ILO report concludes that “policy choices and accompanying investments that have been made in two areas appear particularly relevant to the

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decline in child labor over the last 12 years. The first is education. The worldwide Education For All movement has helped marshal major new investments in improving school access and quality, which in turn has provided more families with the opportunity to send their children to school rather than to the workplace and has made it worthwhile for them to do so. It is not chance that the rapid decline in child labor since 2000 coincided with a major increase in school attendance.”8 The second policy area is social protection. While extending access to social security remains a pressing challenge globally, there is clear evidence from multiple countries that investments in social security are associated with lower levels of child labor. This is not coincidental: social security can be essential in mitigating the social and economic vulnerabilities that can lead families to resort to child labor. Many countries also have recently been taking action to establish or revise their lists of what constitutes hazardous work and are including prohibitions of these kinds of work for anyone under 18 years of age as part of enforceable legislation.9 THE TECHNOLOGICAL CONTEXT

Technological change had a major role in workers’ early efforts to use unions and other means to improve their employment conditions. It also is clear that across the globe ongoing technological changes will have huge effects on future employment conditions. Yet many people still disagree over how and why technology influenced labor-management relationships and what current technological changes imply for the future of labor relations. The Historical Debate over the Influence of Technology: Commons versus Marx

Both Karl Marx and John R. Commons believed that workers were spurred to join unions by technological change, the shift from craft systems of production to wage labor, and the rise of the modern factory system. But they disagreed sharply over exactly why changes in technology and the organization of work had that effect. For Marx, the critical event in industrialization was the chasm that capitalist methods of production opened between workers and the owners of the means of production. That chasm, according to Marx, would inevitably result in a worsening of working conditions, a profit crisis, and the emergence of a revolutionary class consciousness among workers. Followers of Marx went on to argue that it was the loss of control that workers experienced as a result of shifts in production methods and ownership that led them to form unions. To

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those observers, collective negotiations was (and is) a continuing battle between workers and managers over control of the production process. Harry Braverman built on this argument and claimed that technological change typically leads to a lowering of the skills required in jobs (deskilling) as part of this battle for control.10 Commons, on the other hand, observed that the shift in production methods was a product of an expansion of the market brought about by urbanization and new transportation methods. To Commons, as the market expanded and the ownership of production changed, workers encountered a host of competitive menaces such as prison labor and child labor. Workers then turned to unions to protect themselves and improve their standard of living. Commons and his students argued that unions and workers sought income and job security rather than control of the production process.11 Thus, although Marx and Commons differed sharply over the interpretation of unions’ objectives, both saw the rise of capitalism as the spur to unionization. To Clark Kerr, John Dunlop, Frederick Harbison, and Charles Myers, it was the process of industrialization and not capitalism per se that brought about the changes in the relationship between workers and employers that led to unionization.12 They argued that modern technology produced a need for rules that would govern relations between workers and employers. Collective negotiations were a logical way to formalize and structure the rules required in modern industry. Within this framework, specific technological changes are important in collective negotiations because they result in changes in the relative bargaining power of management or labor. In this regard, the industrialization thesis is closer to the ideas of Commons than to Marx’s theories. The Influence of Microelectronic Technology on Skill Levels

The recent growth in the use of microelectronic technology has reignited the debate over the effects of technological change. Some believe that this technology can open the way to less hierarchical, higher skilled work and further growth in real incomes. To others, the new technology is being used to wrest control away from the work force and to deskill workers.13 These latter observers see little evidence of a shift away from the hierarchical forms of work organization. In fact, these modern proponents of the deskilling thesis argue that much of the concessionary negotiations that has occurred in recent years is the result of the efforts of managers to increase the pace of work and use new technology to weaken workers’ bargaining leverage and skills. Proponents of

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the deskilling thesis also predict that new technology will lead to significant employment displacement and unemployment. A number of behavioral scientists believe that new technologies serve to “unfreeze” existing practices and open up a variety of options for reconfiguring the organization of work, career ladders, compensation criteria, and other aspects of the employment relationship.14 According to this view, there is no single effect of technology on skills or workers’ power; rather, its effects depend on the choices made by decision makers and the way the new technology is implemented.

Summary This chapter examines how the environment influences labor relations in emerging countries. The key issues the chapter addresses are that labor relations are critically shaped by the bargaining power of labor and management and that bargaining power has three key components—total, relative, and political power. The environment shapes all three of these sources of power. This chapter covers the role of the economic, demographic, and technological environments. Important economic factors include those that operate at the firm level (microeconomic influences) and the state of the labor market and the overall economy (macroeconomic influences). The economic environment is most important through the effects it exerts on the bargaining power of labor and management. Bargaining power is heavily influenced by strike leverage and the extent to which an increase in wages leads to a decline in employment (the wage-employment trade-off). Major demographic issues include the growth in population and the labor force, the extent of rural-to-urban migration, and the educational attainment of the work force. Technology influences employment levels and bargaining leverage. In recent years there has been much debate over how technology is affecting the skill levels of workers. On the shop floor, labor relations play an important role in shaping how well new technology is implemented. How well a labor relations system serves the interests of labor, management, and society often depends on its ability to adapt to changes in the environment. Economic pressures on labor relations systems have grown steadily along with globalization and the expansion in international trade. There are also pressures from the other key environmental dimensions. To help build a better understanding of how labor relations can respond to these environmental challenges, the next chapter examines how collective negotiations function.

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Discussion Questions 1. Define bargaining power and strike leverage. 2. Several microeconomic factors play a part in the strike leverage of both unions and employers. Briefly describe some of these factors. 3. Describe some policy measures emerging countries have initiated in recent years that have contributed to a reduction in child labor. 4. Contrast the positive and negative effects of technology on workers and working conditions.

Related Web Sites Hazardous Child Labour page of the ILO-IPEC Web site: http://www.ilo.org/ipec/ facts/WorstFormsofChildLabour/Hazardouschildlabour/lang--en/index.htm ILO’s Global Wage Report: http://www.ilo.org/global/research/global-reports/ global-wage-report/lang--en/index.htm U.S. Department of Labor, International Child Labor: http://www.dol.gov/dol/ topic/youthlabor/intlchildlabor.htm

Suggested Supplemental Readings Blauner, Robert. Alienation and Freedom. Chicago: University of Chicago Press, 1964. Braverman, Harry. Labor and Monopoly Capital. New York: Monthly Review Press, 1984. Ehrenberg, Ronald G., and Robert S. Smith. Modern Labor Economics. 8th ed. Reading, Mass.: Addison-Wesley, 2003. International Labour Office. Marking Progress against Child Labour: Global Estimates and Trends 2000–2012. Geneva: International Labour Office, 2013. Lee, Marlene A., and Mark Mather, “U.S. Labor Force Trends,” Population Bulletin 63, no. 2 (June 2008), http://www.prb.org/pdf08/63.2uslabor.pdf. Todaro, Michael P., and Stephen C. Smith. 2012. Economic Development. Boston: Addison-Wesley. Notes 1. John T. Dunlop, Industrial Relations Systems (New York: Holt and Company, 1958). 2. Elasticity of demand refers to the slope of the demand curve for labor. The more inelastic the demand, the more vertical the demand curve and the less responsive the demand for labor is to any change in the price of labor. A perfectly elastic demand curve would be horizontal. Alfred Marshall, Principles of Economics, 8th ed. (New York: Macmillan, 1920), 383–386. 3. Others have pointed out that for a low labor cost ratio to act as a source of power, as Marshall hypothesized, the elasticity of demand for the final product must be greater than the elasticity of substitution of nonlabor inputs in the production process. See Richard B. Freeman, Labor Economics, 2nd ed. (Englewood Cliffs, N.J.: Prentice Hall, 1979), 67–71.

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4. A small bargaining unit can be affected by employers who consider the spillover effects of a settlement negotiated with one small unit on the rest of the firm’s work force. 5. Michael P. Todaro and Stephen C. Smith, Economic Development (Boston: AddisonWesley, 2012), 313. 6. The United Nations has created a standardized system called the International Standard Classification of Education for the purpose of comparing different education systems. 7. International Labour Office, Marking Progress against Child Labour: Global Estimates and Trends 2000–2012 (Geneva: International Labour Office, 2013). 8. Ibid., 10. 9. Several reports about and tools for eliminating hazardous child labor are available at the Hazardous Child Labour page of the ILO-IPEC Web site: http://www.ilo.org/ipec/facts/ WorstFormsofChildLabour/Hazardouschildlabour/lang--en/index.htm. 10. Harry Braverman, Labor and Monopoly Capital (New York: Monthly Review Press, 1984). 11. Selig Perlman, A Theory of the Labor Movement (1928; repr., Philadelphia: Porcupine Press, 1979). 12. Clark Kerr, John T. Dunlop, Frederick Harbison, and Charles A. Myers, Industrialism and Industrial Man (Cambridge, Mass.: Harvard University Press, 1960). 13. David F. Noble, Forces of Production (New York: Oxford University Press, 1986); Harley Shaiken, Work Transformed (New York: Holt, Rinehart & Winston, 1984): Erik Brynjolfssohn and Andrew McAfee, The Second Machine (New York: Norton, 2014). 14. Richard Walton, “Work Innovations in the United States,” Harvard Business Review 57 (1979): 88–98; Barry Wilkinson, The Shopfloor Politics of New Technology (London: Heinemann Educational Books, 1983); Stephen Barley, “Technology, Power, and the Social Organization of Work,” in Research in the Sociology of Organizations, ed. Samuel B. Bacharach and Nancy DiTomaso (Greenwich, Conn.: JAI Press, 1990).

PART 2

The Middle (Functional) Level of Labor Relations Chapter 5. Employment Systems—Informal, Bureaucratic, and Human Resource Management Chapter 6. The Negotiations Process and Structures Chapter 7. Dispute Resolution Procedures

5

Employment Systems—Informal, Bureaucratic, and Human Resource Management

Chapters 5, 6, and 7 start the movement downward in our framework by considering how employment practices are shaped at the firm or enterprise level. We first examine the various employment patterns that guide how labor and management interact in the workplace and determine the conditions under which employees work. As we will see, these patterns consist of combinations of various employment practices that involve how much and how employees are paid, how work is organized, the role of supervisors, and the extent to which any training or employment security is provided to employees. As we define the various employment patterns, we also provide examples of each type of employment system/pattern. Where unions exist, one of management’s key tasks is to make agreements with unions that regulate employment terms and the role and rights unions have in the workplace. In chapter 6 we review how negotiations occur, focusing on the factors that determine the power labor and management have in a given negotiation. We also analyze how management and unions prepare for negotiations and how they conduct labor relations on the shop floor and within the enterprise. One key factor in any negotiation is who is covered and affected by the terms of a negotiated agreement. In any negotiations, labor and management might not reach an agreement but can instead come to an impasse. What procedures or practices are followed when an impasse is reached? In chapter 7 we analyze various impasse resolution procedures, including types of mediation used to bring an end to an impasse or types of arbitration that can be used to settle disputes between labor and management. 105

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ALTERNATIVE EMPLOYMENT SYSTEMS (PATTERNS)

In emerging countries, a handful of alternative employment systems, or patterns, dominate where structured employment relationships exist. As noted in the introduction to this book, a sizeable, although often shrinking, agricultural sector also commonly exists in emerging countries. Our schema does not cover the work relationships that exist on farms as there is little scope for labor-management bargaining and structured employment relationships in agricultural work. Each of the employment patterns that are common in emerging countries has a set of key personnel practices (see table 5.1). A key relationship that guides the existence and functioning of these patterns is that various employment practices commonly cluster together and employment practices reinforce one another. For example, how employees are paid intersects with how work is organized, the type of training those employees receive, and the extent to which those employees have any employment security or access to a complaint procedure. Although it is clearly an oversimplification to try to fit every firm into one of these four patterns, this categorization scheme clarifies the basic employment systems that exist in emerging countries.

Table 5.1. Features of Employment Systems (Patterns)

Informal

Low-end bureaucratic

High-end bureaucratic

Human resource management

Rules

Few

Formal

Formal

Flexible

Management style

No managers, or, if present, managers make all decisions

Rule bound

Rule bound

Strong corporate culture

Complaint procedure

None

None

Some form of appeal

Ombudsman

Work organization

At discretion of independent contractors or managers (where present)

Detailed job classifications

Detailed job classifications

Teams or individual orientation

Pay structure

Piece rates or earnings from sales of merchandise

Hourly

Hourly

Pay-forknowledge and contingent pay

Job security

None

Very little

Some stability

Very little

Hierarchical

Hierarchical with some due process

Personal

Worker-manager Hierarchical and based relations on personal interactions

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Our schema does not distinguish explicitly between union and nonunion employment patterns, as it would make sense to do when analyzing employment systems in advanced industrialized countries. In emerging countries the effects of unions on work conditions are modest and the nature of the employment pattern commonly matters more than the presence or absence of unions. In addition, the proportion of the work force in individual firms that is represented by a union typically varies greatly and there may be multiple unions representing workers in a firm. Furthermore, the power or rights of the union or unions inside a firm may be limited. For all these reasons, unionization in emerging countries is not an all-or-nothing thing, as it commonly is in firms in the United States. As discussed below, in some of the employment patterns, especially the bureaucratic and human resource management patterns, some of the employees are represented by unions and those unions will commonly have at least a modest (and perhaps even a significant) amount of bargaining power. In those cases, the union version of the employment pattern may differ in important ways from the nonunion version. Unions use their bargaining leverage in these settings to push for improvements in employment outcomes and for more formalization and more due process in the determination of employment outcomes. In some cases, the firm uses a particular employment pattern to set employment practices for all of its employees. That is why we speak below of the employment pattern in a firm, even though firms increasingly are choosing to vary employment practices for different types or categories of employees. For example, a firm might choose to categorize its production employees or the craft-based employees under one employment pattern but implement a different employment pattern for its professional or technical employees. In this case, it would make more sense to speak of employment subsystems in a firm.1 The Informal Pattern

In the informal employment pattern, personnel policies tend to be administered in an unstructured and often ad hoc manner. Where middle managers are present (many informal enterprises are run by owners and lack managerial hierarchies), they are given substantial discretion regarding employment decisions. Informal work includes self-employment, homework, casual labor, and handicrafts and is sometimes performed in very small firms. Street vendors, household (domestic) workers, and day construction laborers are all common examples of informal workers. These businesses/ enterprises have minimal personnel policies or none at all.

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Table 5.2. Informal employment in Brazil, China, India, and South Africa

Country (Year)

(thousands)

Brazil (2009) China (2010) India (2009 and 2010) South Africa (2010)

32,493 36,030 185,876 4,089

Persons in informal employment % of non-agricultural employment 42.2 32.6 83.6 32.7

Sources: ILO Department of Statistics, Statistical Update on Employment in the Informal Economy, June 2011, http:// laborsta.ilo.org/applv8/data/INFORMAL_ECONOMY/SU-2011-06-Informal_Economy.pdf, accessed October 5, 2013; ILO Department of Statistics, Statistical Update on Employment in the Informal Economy, June 2012, http://laborsta.ilo.org/applv8/data/INFORMAL_ECONOMY/2012-06-Statistical%20update%20 -%20v2.pdf, accessed October 5, 2013.

The informal sector accounts for a large share of employment in emerging countries. For example, of the approximately 430 million workers in the Indian labor market, 49 percent of the workforce is employed in the nonagricultural sector and 84 percent of the nonagricultural work force is engaged in informal employment.2 Table 5.2 shows that although the share of informal employment in Brazil, China, and South Africa is smaller than it is in India, the informal sector stills represents a sizeable share of total employment (about one-third) in those countries, as it does in many other emerging countries. There is also evidence that the share of informal employment has not dropped sizably in a number of countries, contrary to more optimistic assumptions that economic development would lead to a decline in the importance of informal employment.3 The employment practices in the informal sector are generally unstructured and favor the interests of employers. NGOs and membership-based organizations of the very poor, as discussed in chapter 11, use campaigns and lobbying to press for social protections for informal sector workers. And yet it unfortunately continues to be the case that in many emerging countries legal protections are not systematically enforced and legislated social benefits are not regularly provided in the informal sector. The Bureaucratic Pattern

As firms get larger, they find that a complete absence of structured employment practices and policies, as is common for economic activity in the informal sector, is too unsettling and costly. In their efforts to achieve economies of scale, even small firms find it advantageous to standardize and bureaucratize personnel policies, thereby creating a bureaucratic pattern

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of employment practices. These larger firms find that variation in policies can spur unionization if some employees believe that other employees elsewhere in the firm are benefiting from more favorable policies. There are two variants of bureaucratic firms. The first are low-end firms, which tend to pay low wages and lack modern personnel practices. In these firms, managers exert total and often despotic control. These firms typically have no formal leave and sickness policies and its supervisors grant paid leaves on a case-by-case basis. Supervisors and other managers in these firms also exercise a high degree of control over other discipline and pay policies. The employment conditions of employees in these firms differ substantially across work groups, plants, and firms. This pattern is common among manufacturing firms in the apparel sector and in other industries that have long and hierarchical supply chains. This employment pattern also exists in small retail stores (such as grocery stores and gas stations), in most start-up firms, and in small manufacturing plants.4 Managers in firms that follow this pattern like the discretion they gain through informal policies. Often these firms are family owned or operated and family members personally direct personnel policies. Family owners dislike losing control over decisions and particularly fear the reduction of control that would occur if unions represented employees. Union avoidance is often a prime policy objective in the firms that follow the paternalistic pattern. An example of a firm that implements low-end bureaucratic employment practices is Foxconn. In Foxconn’s Chinese plants, 800,000 workers make electronic products that include Apple’s iPhones. In June 2010, news stories reported a wave of suicides at Foxconn’s plants that were allegedly related to harsh working conditions.5 Those conditions included long hours (shifts of up to thirty-four hours), military-style drills, no air conditioning, crowded and dirty dormitories, intense pressure to meet rigid production targets, and low pay. In Shenzhen, China, 400,000 Foxconn workers toiled under strict discipline. Their pay was docked for numerous reasons under a system where points were deducted for “crimes” such as having long nails, being late, yawning, eating, sitting on the floor, talking, or walking quickly. In response to the critical press coverage of the harsh working conditions and frequent suicides, Apple and Foxconn agreed to have the Fair Labor Association (FLA), an NGO that promotes workers’ rights, investigate working conditions at Foxconn and provide suggestions for improvement (the FLA is described more fully in chapter 11). Box 5.1 provides a summary of the FLA’s findings and suggestions and describes subsequent events at Foxconn, including the company’s recent shift of some of its production from China to Indonesia.

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BOX 5.1 Fair Labor Association Investigation at Apple Supplier Foxconn Foxconn, an Apple supplier, is the largest private employer in China. After recent reports of accidental deaths at the Foxconn factories in Guanlan, Longhua, and Chengdu, the Fair Labor Association decided to conduct an in-depth investigation of the operations at the plants. The FLA found serious noncompliance with its Workplace Code of Conduct and Chinese labor law. To commence the investigation, the FLA distributed workplace perception and satisfaction surveys to 35,000 randomly selected Foxconn employees. It also conducted an assessment using its Sustainable Compliance Initiative. This methodology advances workers’ rights by effecting progressive and sustained improvements in employment practices and working conditions. After collecting the results, the FLA found that there were over fifty violations of its Workplace Code of Conduct and Chinese labor law at the facilities. These issues were related to health and safety wages, and working hours. The investigation found that Foxconn violated the law by allowing employees to work more than seven days in a row without the required 24-hour break. To remedy this issue, Foxconn agreed to reduce hours and stabilize workers’ pay. As a result, the company will need to increase employment to maintain current levels of output. These actions brought Foxconn into compliance with the FLA’s Workplace Code of Conduct and Chinese labor law. The investigation found inconsistent policies, procedures, and practices regarding health and safety at the facilities. The survey results revealed that workers felt uncertain about their health and safety while at work. For example, the investigation found aluminum dust in the Chengdu plant from an explosion at the facility the previous year. Foxconn has already made efforts to increase personal protective equipment, fix blocked exits, and get permits that were missing. Now Foxconn has also decided to change its system for reporting accidents. The new system will disclose and address all accidents that result in an injury at work. The investigation found that there was little representation of workers on the health and safety committees. The committees were dominated by management and were typically reactive rather than proactive. As a remedy, Foxconn agreed to guarantee worker representation

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without management interference. The company also promised to provide each employee with a copy of the collective agreement and notify new employees about union activities at the plant. The investigation found that although the wages Foxconn pays are above the Chinese average and above the legal minimum wage, the company does not fairly compensate its workers for unscheduled overtime work. Foxconn has agreed to pay workers fairly for overtime work and for any meetings that occur outside of their regular workday. Also, as a result of the hukou residence registration system in China, workers who migrate from other cities can’t collect insurance when they return to their hometowns. Workers are not motivated to enroll in social security and other insurance programs that they don’t benefit from because of an obligatory co-pay. Foxconn has agreed to look further into the issue of the insurance programs and investigate alternative private options to provide insurance to migrant workers. They have also arranged to work with government officials to expedite the transportability of benefits so that migrant workers will receive benefits in the city where they work and live. Since the FLA’s investigation at several of Foxconn plant’s in China, the Apple supplier has taken various steps to lower work hours by limiting workers to sixty hours per week including overtime, while still protecting salaries. Because the FLA found that most workers at the Foxconn factories want to work overtime hours because they want to make more money, Foxconn said that it would raise hourly salaries to compensate workers for the reduction in hours. In addition, the company has taken steps to correct its safety violations, including removing the remnants of aluminum dust from the Chengdu plant. Apple, which has experienced pressure from consumers in response to press coverage of the suicides and poor work conditions at Foxconn, has vowed to continue auditing its global supply chain regularly to ensure, among other things, that there are no underage workers at any Apple supplier. Meanwhile, Foxconn has announced plans to expand and diversify its production by investing in Brazil, Indonesia, Malaysia, Mexico, and Indonesia. Sources: Fair Labor Association, Foxconn Investigation Report, March 2012, http:// www.fairlabor.org/report/foxconn-investigation-report; Tim Worstall, “FLA’s Report on Apple and Foxconn: Little Found and Even Less to Do,” Forbes, March 30, 2012, http://www.forbes.com/sites/timworstall/2012/03/30/flas -report-on-apple-and-foxconn-little-found-and-even-less-to-do/; Apple Web

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site, “If Companies Want to Do Business with Us, They Must Uphold the Highest Commitment to Human Rights,” http://www.apple.com/ supplierresponsibility/labor-and-human-rights.html; Samantha Page, “Foxconn Moves into Indonesia, Worrying Labor Groups,” Christian Science Monitor, September 5, 2012, http://www.minnpost.com/christian-science -monitor/2012/09/foxconn-moves-indonesia-worrying-labor-groups.

The second type of bureaucratic firm is the high-end firm, which has better and more structured personnel practices. This variant of the bureaucratic pattern is characterized by highly formalized procedures, such as clear (and typically written) policies on pay, leave, promotion, and discipline. Firms that follow the bureaucratic pattern also use highly detailed and formalized job classifications and job evaluation schemes to determine pay levels and job duties. Examples of firms in many emerging countries that follow this pattern include public sector firms and the industrial or production operations of multinational firms. Call center service work is a good illustration of high-end bureaucratic work. In this type of work, customer service representatives respond to inquiries from consumers and perform administrative tasks associated with billing, service, repair, and installation. Call center service work has grown significantly since 2000 in part as a result of the expansion in mobile and other telecommunication services and the use of call centers in the financial services and banking sectors. Box 5.2 reports the results of an important recent study that examined the evolving nature of call center work. This study set out to explore whether this sort of work was organized and compensated differently across countries and especially whether work practices in this sector differed greatly in emerging and advanced industrialized countries. As box 5.2 reports, differences in work practices across countries were found to be less significant than in-country differences within and across firms. However, the bureaucratic nature of work practices in call centers was similar within and across countries.

BOX 5.2 The Globalization of Call Center Service Work In 2003–2006, over fifty scholars in seventeen countries participated in a multiyear collaboration that provides important evidence on

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the nature of call center work and how work practices compare and contrast across countries. The countries represented in the study include both emerging countries and advanced industrialized economies, and each country team used a similar methodology and survey. The resulting international data includes information on almost 2,500 establishments. Researchers also conducted extensive field research to complement the surveys. The research considers the role of unions in shaping the quality of jobs; the factors that influence wage levels and wage inequality; crossnational similarities and differences in the use of contingent work arrangements; and the relationships among strategic human resource management, work design, and organizational outcomes. The emerging countries in the study (Poland, Brazil, India, South Africa, and South Korea) are characterized by a legacy of decentralized bargaining; a weak overall union movement, albeit with some pockets of strength and militancy; economic crises that have undermined union strength; and ongoing problems of unemployment and an informal economy that create highly segmented labor markets. The study found that the call center sector has a complex pattern of convergence and divergence in management and employment practices that is best understood as a multilevel phenomenon. It varies according to the specific dimension of an employment system. Across all countries, for example, the sector looks quite similar in terms of service offerings, technologies, the scope of markets, and some organizational features— dimensions of work that are less influenced by institutional rules or norms. However, the research documents divergent patterns in the organization of work, human resource practices, and labor relations— dimensions that are more influenced by national laws, labor relations systems, and institutional norms. In addition, important patterns of subnational variation exist in most countries, based on the roles unions and works councils play and the business strategies of market segmentation and subcontracting. These are related to within-country variation in work organization, the use of contingent staffing, and levels of pay, although the size and significance of these differences vary across countries. Employment appears to be growing in most countries but faster in emerging countries than in advanced industrialized economies. For example, despite the rapid growth of employment in India and the

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Philippines, those nations still handle only a small percentage of service interactions for the two major user countries—the United States and the United Kingdom. In addition, with the exception of a few exportoriented countries (India, the Philippines, Canada, and Ireland), the extent of global trade in call center services is relatively limited, as most call center sectors primarily serve their own domestic markets. In general, call centers are known for their extensive use of part-time and temporary workers to handle demand fluctuations and keep labor costs low. Among emerging countries there are no consistent patterns in the use of contingent workers and large differences among countries: in South Korea, 85 percent of the work force of the typical call center was working under temporary contracts, but in India and South Africa, few call centers hired temporary workers. Field research suggests that these patterns depend not only on labor market regulation but also on the countries’ specific histories and the market conditions in countries at the time the call center sector emerged. The study found patterns of convergence internationally along some dimensions of organizations but divergence along other dimensions at multiple levels of analysis, not only at the level of economic systems but also at national and subnational levels. Call centers in most countries are quite similar in the ways markets have been organized and centers have specialized in particular products, industries, or service offerings. Flat organizational structures, a predominantly female work force, and relatively standardized work based on call center technologies are characteristic of these establishments across most countries and suggest patterns of widespread diffusion and organizational learning. Also noteworthy is the fact that media coverage and policy debates have focused particularly on the threat off-shoring poses for labor in advanced industrialized economies. This study finds, however, that offshoring still accounts for a relatively small proportion of overall employment in the sector. The study also finds that outsourcing to subcontractors in the domestic market may represent a threat to the quality of jobs and pay in these types of new service jobs. Source: Rosemary Batt, David Holman, and Ursula Holtgrewe, “The Globalization of Service Work: Comparative Institutional Perspectives on Call Centers,” Industrial and Labor Relations Review 62, no. 4 (2009): 453–488.

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The Human Resource Management Pattern

In recent years, as an outgrowth of their efforts to increase f lexibility and cost competitiveness, a number of firms have begun to adopt a new pattern of personnel policies in emerging countries, the human resource management (HRM) pattern. Like the high-end bureaucratic pattern, the HRM pattern relies on formal policies, but the nature of those policies is different from those traditionally found in bureaucratic firms. The HRM pattern includes policies such as team forms of work organization, skill- or knowledge-based pay, and elaborate communication and complaint procedures. While HRM firms subsidize employee training and career development, they warn employees that their individual career development might require them to transfer to a different employer and not just job changes within the firm. In effect, employers who follow this strategy force employees to take on more of the risk and instability associated with the modern economy. HRM practices are typically used for professional and technical employees, especially among the multinational firms operating in emerging countries. HRM firms generally try to avoid unionization. Where they differ from other nonunion firms is in the extent to which they seek to avoid unions when making decisions such as where to locate a new plant or store. Union avoidance issues also influence how these firms design other personnel policies, such as complaint and communication policies. HRM firms also are noteworthy for the extensive measures they take to try to induce employees to identify their interests with the long-term interests of the firm. These measures include publishing company newsletters, offering salaries (rather than hourly wages) to all employees, and nurturing a strong corporate culture. In some employment subsystems, the HRM pattern follows what can be called a “lean” variety. The employment practices in the lean pattern have much in common with the HRM pattern, especially the prevalent use of the team system and pay for performance. Firms that employ the lean type, however, also use a number of work practices that are similar to practices common in Japanese firms, especially Japanese firms that use the Toyota production system. In the lean variety of HRM, there is a strong drive to create a company identity rather than an individualistic identity, similar to the enterprise focus common among firms operating in Japan. Japanese (and lean-oriented) firms also go to great lengths to avoid layoffs, often rotating employees to suppliers or other parts of the firm or shifting employees into training during downturns. Some lean-oriented firms in emerging countries also use some form of bonus component in pay packages, here again imitating the approach that is common in Japan. An example of a firm that operates with a Japanese/lean-style employment pattern is the Brazilian firm Brasilata, which is described in box 5.3.

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BOX 5.3 BRASILATA: A Brazilian-Owned Company with Japanese-Style Work Practices The Brazilian-owned company Brasilata S/A Embalagens Metálicas, which was founded in 1955, is the third largest producer of metal cans in Brazil; it employs more than 900 workers in four plants. Since 1985, the company has used Japanese management techniques such as kanban and just-in-time production. The communications problems that emerged right after these methods were adopted led the company to reformulate its goals in 1987, in a process that included the participation of executives and middle managers. Among other things, a policy of continuous employment was defined as the main objective for company employees. In that same year the company created the Simplification Project (Projeto Simplificação), which sought to open a formal channel through which any employee could present ideas about work processes and product innovation. Twenty-five years later, in 2012, the project had generated many new ideas. In 1988, the company signed an agreement of nontermination with its employees, and in 1990 it began a process of participatory planning. One year later, the company initiated a profitsharing scheme that distributes up to 15 percent of the company’s net profits after tax. This is the method the company found to collectively recognize the efforts of all the employees who bring new ideas through the Simplification Project. In addition, those who generate the best ideas are formally recognized with symbolic prizes in annual events that Brasilata’s CEO attends. To implement its continuous employment goal, the company stated that no employee is to be terminated without cause, and whenever a termination is considered, a multilevel group that includes the employee is formed to discuss and analyze the causes for dismissal. The company also has an open-door policy; any employee can talk directly with the executives at any moment. Brasilata management does not see conflict as dysfunctional, and when it occurs it is solved by the group that is involved, with higher management acting as a facilitator. Furthermore, the company promotes a policy of continuous learning for all employees and gives them opportunities to rotate jobs. The company also pays part of the cost for external training.

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In the first half of the 1990s, when Brazil was suffering from a severe economic crisis that also affected Brasilata, the company underwent a process of restructuring and downsizing with the direct participation of all the employees, who took part in the decisions about terminations and the elimination of certain positions. In the last few years, the company’s commitment to its continuous employment agreement has led to situations in which employees generated ideas that altered the production procedure in ways that eliminated their own current positions. Sources: A. C. T. Álvares, Banco de Férias: uma inovação em gestão para momentos de crise (Sao Paulo: Fórum de Inovação—FGV, 2009); J. C. Barbieri, Organizações inovadoras: estudos e casos brasileiros (Sao Paulo: FGV Editora, 2003); J. C. Barbieri, A. C. T. Álvares, and J. E. R. Cajazeira, Gestão de Idéias para inovação contínua (Sao Paulo: Editora Bookman, 2009); T. Sendin, “Na Brasilata há estabilidade de emprego após 2 anos de casa,” Revista Você S/A (September 2012), http://exame.abril.com.br/revista-voce-sa/edicoes/17102/ noticias/na-brasilata-ha-estabilidade-de-emprego-apos-2-anos-de-casa.

Another variant of the HRM pattern operates where strong unions have used some of their bargaining leverage to demand engagement in strategic and workplace decisions that guide the enterprise. The participatory pattern tries to create mechanisms through which workers can directly solve production and personnel problems. Quality circles or team meetings are used to facilitate direct discussions between supervisors and workers in many firms. In these firms workers also are called on to become involved in business decisions such as scrap control or issues concerning how best to implement new technology. Not all organizations that set out to create greater participation by employees, however, end up with more employee participation. There are a number of reasons for these failures, including the resistance of supervisors or employees to change. Unions in these settings also commonly push for extensive worker training and some form of employment security or a commitment by the enterprise not to readily resort to layoffs during economic downturns. Where these practices prevail it makes sense to speak of a “participatory” variant of the HRM pattern. And although the use of this employment pattern is relatively limited in emerging countries (it is more common in U.S. or European enterprises), some noteworthy examples do exist of the participatory employment pattern in emerging countries. The Participatory Pattern

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The Role of Business Strategy in Shaping Employment Patterns

A number of factors inf luence which of these patterns a firm follows. Management values and strategies play an important role. For instance, many of the HRM firms had strong founding executives who helped initiate a strong corporate culture.6 Business strategy also makes a difference. The HRM pattern seems to provide the advantage of more f lexible and adaptable work organization through the use of team systems and skill-based pay.7 These characteristics are particularly attractive to firms with rapidly changing technologies and markets. Thus, it is no surprise that many firms in hightechnology industries follow the HRM pattern. Korea provides an example of a shift in the use of employment patterns. In that country, there has been recent controversy surrounding the growth in nonregular (or nonstandard) jobs. This type of employment can be characterized as low-end bureaucratic work in our employment pattern schema. In the aftermath of a deep financial crisis in 1997–1999, which included a significant number of layoffs and pay cuts, there has been a significant increase in the amount of nonregular (i.e., temporary and part-time) employment in Korea.8 Nonregular employees lack employment security and fringe benefits and typically receive substantially lower wages than regular employees. A number of nonregular employees, including many in the banking industry, had previously worked as regular employees, but after being laid off they were rehired as nonregular employees by the same firm, even though they continued to perform many of the same job duties. Since 1999, the growing presence of nonregular labor has become a contentious issue in Korea.9 While the established unions in Korea have launched several campaigns to organize nonstandard workers, those workers at some firms have initiated their own unions and engaged in strikes and other actions to improve their working conditions. When laws were passed in Korea to protect nonstandard workers in 2006, many firms ended their contracts with nonstandard workers and replaced them with subcontracted workers.

Summary Firms generally follow an informal, a bureaucratic, or a HRM employment pattern in emerging countries. Each of these patterns is associated with an integrated set of basic personnel policies. Which of these patterns is followed is, in part, shaped by the business strategy the enterprise uses. Because of the changing nature of corporations and changes in what work is performed within corporations and what is outsourced to specialized firms, the nature

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of labor relations is changing. In firms where unions represent some of employees, management must make a number of strategic choices about its relations with unions, including decisions about how to aggressively resist the expansion of union representation and how to relate to any unions that represent employees in a firm. These strategic choses are discussed more fully in the next chapter.

Discussion Questions 1. Briefly describe the bureaucratic labor relations pattern. What distinguishes the low- and high-end variants of this pattern? 2. If you were an employee in a firm that was choosing a labor relations pattern, which pattern would you prefer to work under and why? 3. How does a firm’s business strategy influence its decisions about employment practices and patterns? 4. Why do you think it is difficult, in Korea and elsewhere, for unions to represent nonregular (temporary and part-time) employees?

Related Web Sites Eastman Kodak: http://www.kodak.com/ek/US/en/Home_Main_new/About _Kodak.htm South Korea Non-Regular Workers: http://www.ilo.org/legacy/english/protection/ travail/pdf/rdwpaper21c.pdf Toyota Production System: http://www.toyota-global.com/company/vision _philosophy/toyota_production_system/

Suggested Supplemental Readings Bendix, Reinhard. Work and Authority in Industry. New York: John Wiley, 1956. Chandler, Alfred D., Jr. Strategy and Structure. New York: Anchor Books, 1966. Fair Labor Association. Foxconn Investigation Report. March 2012. http://www .fairlabor.org/report/foxconn-investigation-report. Harris, Howell. The Right to Manage. Madison: University of Wisconsin Press, 1982. Jacoby, Sanford. Modern Manors. Princeton, N.J.: Princeton University Press, 1997. Notes 1. Paul Osterman, “Choice of Employment Systems in Internal Labor Markets,” Industrial Relations 26 (Winter 1987): 46–67. 2. Michael Gillan, “Parting of the Ways: Trade Unions, NGOs and Social Movements in India,” n.d., http://artsonline.monash.edu.au/mai/files/2012/07/michaelgillan.pdf.

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3. Richard B. Freeman, “Labor Regulations, Unions, and Social Protection in Developing Countries: Market Distortion or Efficient Institutions,” in Handbook of Development Economics, vol. 5, ed. Dani Rodrik and Mark Rosenzweig (Amsterdam: Elsevier B.V., 2009). 4. See Peter Doeringer, “Internal Labor Markets and Paternalism in Rural Areas,” in Internal Labor Markets, ed. Paul Osterman (Cambridge: MIT Press, 1984). 5. Andrew Malone and Richard Jones, “Revealed: Inside the Chinese Suicide Sweatshop Where Workers Toil in 34-Hour Shifts to Make Your iPod,” Mail Online News, June 11, 2010, www.dailymail.co.uk/news/article-128598, accessed October 8, 2013. 6. For evidence on the role of the founding executives, see Fred Foulkes, Personnel Policies in Large Nonunion Companies (Englewood Cliffs, N.J.: Prentice Hall, 1980). 7. Thomas A. Kochan, Robert B. McKersie, and John Chalykoff, “The Effects of Corporate Strategy and Workplace Innovations on Union Representation,” Industrial and Labor Relations Review 39 (1986): 487–501. 8. See Wonduck Lee and Joohee Lee, “Will the Model of Uncoordinated Decentralization Persist? Changes in Korean Industrial Relations after the Financial Crisis?” in The New Structure of Labor Relations: Tripartism and Decentralization, ed. H. Katz, W. Lee, and J. Lee (Ithaca, N.Y.: Cornell University Press, 2003). 9. This account of nonstandard work in South Korea draws from Byoung Lee, “Employment Relations in South Korea,” in International & Comparative Employment Relations: Globalisation and Change, 5th ed., ed. Greg J. Bamber, Russell D. Lansbury, and Nick Wailes (Australia: Allen & Unwin, 2011), 301.

6

The Negotiations Process and Structures

FROM PROTESTS TO STRIKES

This chapter examines the process by which unions and employers negotiate collective agreements and the structures they use for those negotiations, continuing the analysis of the middle (functional) level of labor relations activity. It explains the dynamics of negotiations and the factors that lead to strikes and then goes on to discuss the different bargaining structures used in negotiations. Labor conflict in emerging countries often takes on the form of spontaneous outbreaks and protests against government policies that cut workers’ wages or benefits or against rising prices or violations of labor rights. This was the case in China during much of the first decade of this century as a growing number of workers reacted in frustration to the harsh conditions of migrant labor, which involved working away from their homes and families, living in large and sometimes cramped dormitories, working long hours, and being denied access to the social benefits and legal protections that other local citizens received. Foxconn, the large manufacturing firm, was the most visible protest site. Pressures for better approaches to workplace conflicts went global when it became known that as many as seventeen Foxconn workers committed suicide in protest of the company’s harsh working and living conditions. In Greece, when the European Commission and other international financial agencies mandated economic reforms and cutbacks in pensions and other benefits as conditions for the funds they had provided so the country could avoid national bankruptcy, coalitions of unions and NGOs called a series of short strikes. 121

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Often a pivotal and highly visible strike leads others in a country to engage in similar workplace actions, and then pressures and support build for the development of a more complete labor relations system and negotiations process. The 2010 strike at Honda’s manufacturing facility had this effect in China (see box 6.1). Strikes by black trade unionists in South Africa played an even more significant political role. By bringing attention to the injustices of apartheid, they helped usher in a transformation to a more representative and democratic government. Strikes in the early 1930s in the United States similarly were a driving force that led to the passage of legislation that established collective bargaining as the cornerstone of labor policy in the United States. Today, history is repeating itself in the United States, albeit on a more modest scale, as periodic labor protests or one-day strikes by groups of Walmart workers and workers at various fast food chains seek to establish ongoing representation and negotiations with these giant retail chains.

BOX 6.1 2010 Honda Strike in China Workers demanding higher wages rallied outside a Honda plant in southern China today, part of a rash of industrial action at Chinese factories highlighting growing restiveness among migrant workers. Several hundred workers gathered at the front gates of parts supplier Honda Lock in Zhongshan, Guangdong, where staff walked off the job yesterday. Today’s rally came as Honda was resuming production at two other car assembly plants after resolving a three-day strike at parts supplier Foshan Fengfu Autoparts. Honda said the factory employees agreed to a pay raise of 366 yuan (£36) per month for each full-time worker. That would increase pay for a new employee to 1,910 yuan (£190) per month. Some workers held out for more and the union said about 30 people fought with union officials on Monday. Geoffrey Crothall, spokesman for the Hong Kong-based China Labour Bulletin, said “workers had largely been willing to bide their time and accept their salaries during the recent economic slowdown. But since the economy began to improve again last year, longer hours with no appreciable improvement in income have prompted some to take action.”

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“They see strikes have been successful elsewhere and decide to try their luck,” he said. Crothall said the strikes also revealed deep disdain for official union representatives, who are appointed by management and the Communist party rather than elected by the workers themselves. However, he questioned media reports saying the Honda Lock workers wanted to form their own independent union, saying it was more likely a desire simply to elect their own leaders who represented their own, and not management’s, interests. In an unusually open commentary yesterday, the People’s Daily, the official paper of the Communist party, exhorted the government-affiliated labour umbrella, the All-China Federation of Trade Unions, to do a better job as a mediator. “Labour relations are increasingly complex and important today, but unions lack the talent needed to gain workers’ trust and do their jobs well,” it said. “There is no shortage of enthusiastic, diligent cadres but there is a lack of professional personnel qualified to deal with new challenges and tasks.” Source: Reprinted from “Honda Factory Workers in China Strike over Pay and Conditions,” The Guardian, June 11, 2010, http://www.theguardian.com/ business/2010/jun/11/honda-workers-strike-china-pay.

THE ROLES OF STRIKES AND NEGOTIATIONS IN A LABOR RELATIONS SYSTEM

In contrast to the spontaneous strikes such as the one at the Chinese Honda plant, negotiations and strikes are highly regularized parts of labor relations systems in many developed countries. Most established labor relations systems try to reverse this sequence—to provide for scheduled periodic negotiations that try to reach an agreement without resort to a worker-initiated strike or an employer-initiated lockout of the work force. In this way a labor relations system can function to make strikes or lockouts last resorts and well-planned tactics that complement the negotiations and agreement-seeking process. But even when they are built into a labor relations system in this way, worker- or union-initiated strikes or employer-initiated lockouts impose significant costs on the parties and on an economy. Recent strike experiences in South Africa illustrate some of these costs and suggest why most members of society prefer to see negotiations resolved without recourse to work stoppages (see box 6.2).

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BOX 6.2 South African Strike Wave, September 2013 Thirty thousand South African automobile workers ended a three-week strike in September 2013 and returned to work after accepting a revised wage offer from employers, including Volkswagen AG, Ford Motor Co. and Toyota Motor Corp. The auto workers, represented by the National Union of Metalworkers of South Africa (NUMSA), accepted wage increases of 11.5 percent for 2013, 10 percent for 2014, and 10 percent for 2015. Night shift premium was also part of the settlement. NUMSA and the Automobile Manufacturers Employers Association also agreed to investigate the possibility of instituting an industry-wide medical aid and housing program. The strike cost the industry as much as 700 million rand ($68.66 million) each day. Automotive output accounts for about 7 percent of South Africa’s gross domestic product. South Africa was plagued by strikes in 2013 as unions representing workers in sectors from construction to gold mining asked for wage increases. After a 48-hour walkout, more than 60,000 of the country’s gold miners began returning to work on September 6, 2013, after they accepted an 8 percent pay increase. On September 27, 2013, workers at South Africa’s gas stations accepted an improved wage offer and ended a three-week strike (these workers were represented by NUMSA). The gas station workers received an 11.6 percent salary increase in 2013 and 9 percent increases are scheduled for 2014 and 2015. The employers’ initial offer had been a 7.5 percent raise. In late September 2013, strikes in other sectors of the motor industry involving auto parts manufacturers, truck body and trailer builders, and car and parts dealers were still ongoing. In January 2014, another round of strikes in the platinum and coal mining industries broke out that led business groups and the World Bank to pressure the government to intervene to avoid further loss in confidence by international investors. Meanwhile, consumer prices in South Africa rose 6.3 percent in July 2013, exceeding the central bank’s target (3–6 percent) for the first time in fifteen months. Africa’s largest economy is forecast to expand by 2 percent in 2013, its slowest pace since 2009. Source: Bloomberg Newsroom, Janice Kew, Kamlesh Bhuckory, and Amogelang Mbatha, September 8, 2013; “South Africa Faces Challenges in Wooing Investors to Its Strike-Hit Economy,” Wall Street Journal, February 5, 2014.

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Collective negotiations provide labor and management with a predetermined time to set or revise the terms of the agreement governing their relationship. The pressures of a contract deadline and perhaps of a strike threat focus attention and clarify how important each party feels critical issues are and whether current practices should be changed or maintained. From time to time, negotiations may produce a strike that provides headlines for popular press coverage of collective negotiations. But in a well-functioning labor relations system, a strike is not an act of desperation but rather is connected to negotiations and other regular activities that occur over time at the workplace and strategic levels of the relationship between labor and management. The strategies and tactics used in negotiations are likely to reflect the level of trust labor and management representatives have for each other at the outset of negotiations, and the results of negotiations will in turn affect the trust that carries over to the relationship the parties maintain during the term of any agreement. Thus, negotiations offer labor and management a pivotal event that can reinforce or change their future relations. As we will see, some parties to collective negotiations today are attempting to bring new approaches to negotiations, often labeled interest-based bargaining or mutual-gains bargaining.1 The new approaches seek to move away from more traditional positional bargaining in an effort to increase the potential for problem solving in negotiations. Thus, in this process negotiations involve making choices about how to bargain and making tactical decisions about which approach will best represent the parties’ separate and joint interests. To examine the various components of the negotiations process, this chapter uses the framework developed by Richard Walton and Robert McKersie.2 The Walton and McKersie framework is particularly useful in identifying the wide variety of pressures and competing interests that bear on the negotiators and the negotiations process. THE FOUR SUBPROCESSES OF NEGOTIATIONS

Although the Walton and McKersie framework was originally developed to describe and analyze the traditional positional approach to bargaining that was quite common in the United States in the 1950s and 1960s when they developed their framework, their work also provided the theoretical basis for interest-based techniques that were developed in the 1980s. So we will summarize their framework first and then discuss how the dynamics of bargaining vary depending on the approach taken. Walton and McKersie argued that there are four subprocesses of bargaining in the negotiation of any collective bargaining agreement: distributive

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bargaining, integrative bargaining, intra-organizational bargaining, and attitudinal structuring. Each subprocess is analyzed below, as are the interrelations between the various subprocesses. Distributive Bargaining

Distributive bargaining involves negotiations in which one side’s gain is the other side’s loss. It is win-lose bargaining, also called zero-sum bargaining. In distributive issues or processes, what labor gains, management gives up. Examples of issues that are most often related to issues of distribution include wage rates and fringe benefits. Labor gains more income from a higher wage, while management gives up some profit to pay that wage.3 Similarly, workers lose when a fringe benefit (e.g., paid vacation time) is reduced, while management gains higher profits when paid vacation time is reduced. Since distributive issues involve gains for one side and losses for the other, these issues lead to conflicts across the bargaining table. Determining how distributive issues are resolved involves the exercise of bargaining power. The union, for example, tries to convince management to agree to its request for a higher wage by threatening to strike if management does not give in to this demand. Meanwhile, management threatens the union with the loss of income associated with such a strike and might also point out that a wage increase would entail additional costs to the work force in the form of reductions in employment. In this way, the components of bargaining power, strike leverage, and elasticity of demand for labor emerge as the critical determinants of how distributive conflicts are resolved. Distributive issues are at the center of the negotiation of a collective agreement, since disagreement over how to distribute the profits from what labor produces lies at the core of labor-management relations. Nevertheless, it would be a mistake for students of collective negotiations or participants in the bargaining process to lose sight of the fact that there are other dimensions to bargaining besides distributive issues. Integrative Bargaining

Integrative bargaining issues and processes are those in which a solution provides gains to both labor and management, leading to joint gain, or winwin, bargaining. Labor and management both gain when they resolve problems that are impeding productivity and organizational performance. If the productivity of the firm increases, for example, the employees can benefit in the form of higher compensation or shorter work hours, while the firm can benefit in the form of greater profits.

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Numerous problems that arise in the workplace provide the opportunity for integrative gains. Work is rarely performed in the most productive way possible: cumbersome practices or outdated work rules often stand in the way of peak performance. Labor and management can improve a firm’s performance by addressing such practices, by changing job classifications or seniority rules, or by creating procedures that promote high organizational performance in other ways. The introduction of new technology often provides an avenue for integrative gains. The effective use of new technology can increase productivity, which can then provide rewards both to employees and the firm. Yet the introduction of new technology onto the shop floor or in the office does not in itself lead readily to such productivity increases. Technology works best if it is accompanied by changes in work practices—personnel levels might have to be reduced, training programs adopted, or supervision adjusted. Integrative bargaining would entail the negotiations about how and to what extent these productivity-enhancing changes in work rules are made as the new technology is introduced. But why do the parties not automatically make integrative changes, since such changes open the possibility of joint gain? In other words, why is integrative bargaining so difficult? The answer to this question is one of the key issues in industrial relations. Why Integrative Bargaining Can Be So Difficult Integrative bargaining is an ever-present and sometimes difficult component of the negotiations process for a number of reasons. For one thing, although integrative issues contain the possibility of providing joint gains to both sides, it is also true that the parties are simultaneously confronted with the question of how to divide up any joint gain. In effect, any integrative bargain also prompts distributive bargaining, and the difficulty in resolving the distributive issue can make integrative bargaining difficult. Consider, for example, what happens when a new technology is introduced into a work site. If it is effectively introduced, the new technology offers the possibility of joint gains in the form of income to both employees and the firm. Yet the parties involved cannot escape the fact that if productivity goes up when the new technology is implemented, it must then be decided how the increased income that technology makes possible will be divided. In this way, every integrative bargain prompts a distributive discussion. The problem for the bargaining parties is that it can be difficult for them to agree on how to resolve the distributive issue (namely, how to share the integrative gain). Thus, integrative solutions are sometimes blocked by a disagreement

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between labor and management over how they would divide up the gains that result from resolving a problem. Integrative and Distributive Bargaining Involve Different Tactics Integrative bargaining also can become difficult because the parties send confused signals and mixed messages to each other. This confusion springs from the fact that integrative and distributive bargaining involve very different tactics and negotiating styles. Table 6.1 lists the different tactics used in distributive and integrative bargaining. Remember, distributive bargaining concerns matters in which one side’s gain is the other side’s loss. To do well in such bargaining, the negotiator typically finds it valuable to, among other things, overstate demands, withhold information, and project a stern and tough image. Effective integrative bargaining, on the other hand, involves first identifying and then solving problems. The tactics that are typically effective in such problem solving include an open exchange of information, the airing of multiple voices, and information sharing. Distributive and integrative bargaining styles contrast sharply with each other. The problem for labor and management negotiators is that it is difficult to be effective at both distributive and integrative bargaining in the same negotiations. One side might set into a distributive bargaining mode just at the Table 6.1. Distributive versus integrative bargaining tactics

Distributive tactics

Integrative tactics

Issues

Many issues

Specific concerns

Positions

Overstatement of real position at outset as “demands”

Focus on objectives; no final positions

Use of information

Information is seen as power and is held close and used selectively

Information is treated as data and is openly shared

Communication process

Controlled: —Single spokesperson —Use of private caucuses to air internal differences and discuss responses

Open: —Multiple voices —Use of subcommittees

Interpersonal style

Hard bargaining: —Each side is focused on its own goals and interests —View is about the short run; not concerned about long-term relations —Low trust

Problem solving: —Concern about mutual goals —Concerned about long-term relations —High trust

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moment when the other side is ready for integrative problem solving. And when the latter party confronts hard distributive tactics, it might become discouraged about the possibility of integrative bargaining, making it difficult for such bargaining ever to occur. Integrative bargaining also can be difficult because the problems that impede productivity are not always obvious to the two parties, even when they agree on how to divide up the possible joint gains. If that does not make negotiations hard enough, consider that there are two other subprocesses in the bargaining process. Intra-Organizational Bargaining

Intra-organizational bargaining occurs when there are different goals or preferences among the members of the union team or the management team. For example, intra-organizational bargaining arises when the members of the union (or the union negotiating team) have different preferences about what the union should strive for during negotiations. Senior union members may prefer that the union focus its negotiating strategy on attainment of better retirement benefits, whereas younger union members may prefer up-front wage increases. Or the craft workers in the union might be in favor of restricting the use of outside contractors for maintaining plant machinery, whereas production workers might be concerned with having safer conditions on the line. Box 6.3 describes one of the most intense and highly visible examples of intra-organizational conflict in South Africa—the battle over which organization represents workers in the mining industry. Tragically, this conflict cost forty-four workers their lives. So the stakes in resolving intraorganizational differences can be quite significant.

BOX 6.3 Intra-Organizational Issues in the Marikana, South Africa, Bloody Strike of 2012 A strike that occurred in South Africa at the Marikana mine in August 2012 led to the death of forty-four workers. It was the most violent conflict in the post-apartheid era in South Africa and has been compared to the infamous Sharpsville massacre. The conflict began when two workers were reported to have been shot as workers marched on the offices of the National Union of Mineworkers (NUM). The NUM, which is closely associated with the

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African National Congress, the ruling political party in South Africa, was in dispute with employers over pay at the Marikana mine. Significant growth had occurred in the price of platinum, prompting arguments that workers were not sharing in the benefits of the increase. The dispute also involved interunion conflicts and pay issues, as the NUM was in conflict with a rival union called the Association of Mineworkers and Construction Union (AMCU). Police were called in after the two workers were shot, and additional people were shot in conflicts that continued for about a month. Resolution was finally achieved on September 22 with the help of mediators. The result was a 22 percent wage increase and a one-time payment (2,000 rand) for returning to work. The mediators included the leader of the Council of South African Churches and South Africa’s official mediation agency, the Commission for Conciliation, Mediation, and Arbitration. It was reported that an unknown number of strikers left the unions that had previously represented them after the settlement was announced. Additional labor conflicts spread to other parts of the mining industry after the resolution of the Marikana conflict. Source: http://www.theguardian.com/commentisfree/2012/aug/17/marikana -action-strike-poor-state-haves.

Members of the management team may also have different preferences or opinions about what is feasible in negotiations. This is especially the case when multinational firms are involved. Differences can and often do arise between corporate executives whose mindset is shaped by practices and traditions in their home country and local managers who are sensitive to host country values, norms, and policies. This became an issue for Walmart in China. Walmart’s corporate stance in the United States is to strongly resist any unionization efforts. This approach did not work in China (or in Brazil, Germany, the UK, and several other countries with stronger legal and/or political norms regarding union representation). It took a lot of internal management debate plus pressure from the Chinese government to convince executives at Walmart’s headquarters in the United States to allow its Chinese managers to accept unions in its stores in China. Debates like these are very common while global labor relations processes are being developed and implemented. Intra-organizational conflict also can occur when one or both of the parties bring insufficient decision-making authority to the bargaining table. Nothing is more frustrating to negotiators than to realize they are engaging in what is

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called shadow boxing, or surface bargaining—that is, bargaining opposite a representative who lacks the authority necessary to make commitments that will stick in his or her organization. Inadequate decision-making power or authority on the part of a negotiator greatly increases the probability of an impasse or a strike as the opponent turns to the strike to force the real decision makers to the bargaining table. This source of impasse is especially prevalent in public employment in many countries, including state-owned enterprises in China, and in other settings where a higher authority must approve major budget or funding decisions. Intra-organizational conflict is common in the public sector because of its complex decision-making structures and numerous political constituencies. Multiemployer negotiation structures in industries where there is wide variation in the goals or financial status of the employers is another likely environment for intra-management conflicts. This has been cited as a particular problem in South Africa, where national-level negotiations set specific wages for firms of different sizes and circumstances. This has produced calls for more flexibility in wage setting to better accommodate differences among firms in ability to pay and differences in labor market conditions. Attitudinal Structuring

Negotiations are deeply influenced by cultural norms and by the interpersonal relationships the parties have developed (or not developed) with each other. Moreover, trust or distrust can carry over from past experiences, so how the parties end one bargaining process often will have a profound influence on how the next experience begins. Thus, it is important to consider the interpersonal or, in Walton and McKersie’s term, the attitudinal aspects of negotiations. Negotiations also can be extremely emotional. The stakes involved are usually high, and the tactics often used in traditional negotiations—threats, bluffs, grandstanding for one’s constituents, exaggerated anger—are hardly conducive to building rapport among the parties to the process. Add to these the fact that any single round of negotiations typically is part of a larger and longer-term power struggle between parties who are separated by an inherent conflict of interests. One can readily see why hostile attitudes can, and sometimes do, develop in a bargaining relationship and why they can constrain effective negotiations. Consequently, attitudinal structuring (the degree of trust the respective sides feel or develop toward each other) is another subprocess in bargaining. This subprocess has come to be seen as primarily about trust. If labor and management, for example, have a high degree of trust in one another, then it should be easier for the parties to engage in integrative bargaining, since trust

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can facilitate the identification of problems (or solutions). In contrast, interpersonal mistrust can make it difficult to move from initial bargaining positions to compromise settlements. Mistrust hampers communications between the parties and can lead both parties to hold back on concessions they might otherwise be willing to make. Obviously, intense hostility can get in the way of serious discussion of the substantive merits of the issues. Labor and management can try to build trust by meeting before or during negotiations in forums that facilitate an open exchange of views and concerns. Here is where what is happening during the term of an agreement at the workplace and strategic levels of the relationship can make a big difference. If union leaders and managers are working together on an ongoing basis to share information, create employee participation processes, and consult on important issues, the trust that develops from these activities may carry over to the negotiations process. Alternatively, actions that demonstrate a lack of trust to the rank and file, union leaders, or managers during the term of a contract will likely carry over into negotiations as well. Personality traits of negotiators also appear to play a role in trust building. Some personality traits, such as excessive authoritarianism, have been found to hinder the compromising that is necessary to bring about negotiated settlements. This may pose challenges for both managers and workers in emerging countries that historically have placed a high value on deference to hierarchy and/or command-and-control managerial styles or cultures. Korea has struggled with this managerial culture and tradition for many years and as a result has experienced long periods when workers were unable to openly express their grievances. Periodically, these grievances built up to a boiling point and exploded in violent protests such as those that occurred in the heart of the Korean auto industry in 1961, which were repressed by military force. It wasn’t until 1987 that another episode of conflict convinced the Korean government to begin modernizing its labor policies to promote a more orderly form of collective negotiations (see the recent example of protests erupting over railroad privatization in box 10.2). MANAGEMENT’S BARGAINING OBJECTIVES

The formation of management’s bargaining objectives (i.e., targets) is a critical part of the negotiations process. Negotiators often have limits for bargaining, or bottom-line terms of what they will accept short of taking a strike. The development of bargaining targets for wages and other key issues is the heart of the internal management planning process that takes place before or during the early stages of negotiations.

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Since top management is responsible for approving or authorizing targets for wages or other bargaining issues, the negotiating team must recommend targets that reflect top management’s goals for the organization. Recommending too high a wage target, for example, risks rejection of the recommendations and the loss of influence that results from such a rejection. On the other hand, once these targets are established, they play a pivotal role in the negotiations process because they indicate the negotiator’s latitude for compromise. These discussions can be especially difficult in cultural settings where top executives tend to generally keep their specific preferences/views about an issue to themselves and their subordinates are expected to infer from more general comments what would be acceptable. It can also be complicated in settings where the final decision maker is in an office in central headquarters in another country. Intra-management coordination in setting objectives is even more critical in these settings than in solely domestic settings. Thus, the labor relations staff has to develop bargaining targets that are realistic and achievable. The criteria that go into this decision-making process are discussed below. MANAGEMENT STRUCTURES FOR COLLECTIVE NEGOTIATIONS

This section considers how management structures itself to engage in collective negotiations. There are three basic characteristics of management’s labor negotiations structure: the size of the labor relations staff in relation to the number of employees in the organization, the degree of centralization in decision making about labor relations issues, and the degree of specialization in decision making about labor relations. The latter concerns the extent to which decision-making power is placed in the hands of the labor relations staff instead of in the hands of the operating, or line, managers. The term labor relations staff refers to staff who are responsible for handling union-organizing attempts, negotiations, contract administration, and litigation related to union activity. Other professionals whose work relates to human resources tend to handle recruitment, staffing, equal employment opportunity, safety and health, and wage and salary administration. Most firms now integrate human resource and labor relations activities in a broad human resource management unit. The management staff must first formulate labor relations strategies.4 Once basic strategic decisions are made, they must be implemented on a day-to-day basis. Management must allocate responsibility for decisions in a way that allows the organization to adapt to new pressures from its environment. In

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short, management must develop a structure that enables the firm to bargain effectively and to manage its day-to-day relationship with the union or unions that represent workers in the organization. When a firm’s business strategy changes, this often leads to changes in the managers involved in the negotiations process and in their respective roles. A key change in recent years is that power has shifted from labor relations staff to operations and production managers and human resource specialists as firms have shifted to business strategies that include tight cost controls. Specialization of the Labor Relations Function

There is evidence that power has shifted downward in management structures in recent years. Labor relations specialists have been losing power to operations and production managers and, to a somewhat lesser degree, to human resource specialists. The main reason for this is that firms now have less need for the traditional expertise of the labor relations specialist, which focuses on achieving stability, labor peace, and predictability. Instead, many firms want expertise in union avoidance, cost control, and flexibility in work rules, and achieving these goals requires making changes in workplace practices. This does not mean, however, that labor relations specialists are no longer necessary. Indeed, case studies reveal that lower-level labor relations managers secretly delight in the “mistakes” some of the operations and production managers and human resource management specialists make as they take greater control over critical labor relations decisions. In one large firm, a career labor relations manager related to us the story of how the new vice president of labor relations who was transferred from another functional area had to call in the “old hands” to find out how the contract ratification procedures worked. As a result of their continuing need for technical expertise, most firms continue to depend on teams of labor relations specialists to conduct negotiations and implement policies and agreements. But a number of major firms have established strategic planning groups for labor relations, and others have used cross-functional teams to develop new bargaining proposals. The careers of labor relations professionals are changing dramatically and thus require new types of education and training. The labor relations professionals of the future will need the following: 1. Business, analytical, and planning skills 2. Expertise in both traditional labor relations activities and personnel or human resource management activities 3. A thorough understanding of operating management issues

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4. An ability to work as a member of a multidisciplinary team in implementing labor relations strategies and policies 5. Skills in managing innovative labor-management organizational change efforts 6. Expertise in Web-based communications and service delivery THE UNION’S NEGOTIATING TARGETS

Management must also take the union’s preferences into account when setting targets for bargaining. Unless management is powerful enough to totally dominate bargaining, the management team will have to consider the potential acceptability of its wage offer to the union. Unions will usually establish their own targets for wage bargaining. In setting those limits, union leaders employ two basic criteria for evaluating a proposed settlement: (1) the potential effects of the settlement on the real wages of the membership (the wage adjustment minus any increase in the cost of living); and (2) a comparison of the proposed settlement and settlements the firm has made with other bargaining units or with other employees. Comparisons with other units are important to unions for both economic and political reasons. One of the union’s economic goals is to standardize and raise wages. This leads unions to favor wage increases that maintain established patterns or differentials among employee groups within an organization or across similar employers in an industry or region. Union leaders also face pressure from their members to preserve “coercive comparisons” with the settlements other unions have achieved.5 Rank-and-file union members often evaluate their leaders by comparing their own settlement to settlements leaders of other unions have achieved or those that other employers have granted. Comparisons are especially relevant when one or more rival union might challenge another union for the right to represent a group of employees. Thus, the union tries to persuade the firm to consider higher wages than the firm would consider if no union was present. The union’s bargaining power will determine the extent to which management takes into account the union’s preferences. Local Labor Market Comparisons

One factor an employer considers when setting wage targets is the prevailing wage level in the local labor market. If the employer were to ignore the local labor market and allow wages for its employees to become low relative to wages at the other employment sites, high employee turnover might

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follow. Low wages also might produce a dissatisfied work force and difficulty in recruiting workers with the ability to perform effectively. Setting wages too high relative to the local labor market invites an excess of qualified job applicants and unnecessary costs. This does not mean that the employer seeks to pay the lowest wage possible that will attract workers to a given job. Given a particular local labor market, the employer must choose the quality of employees it wishes to hire. The employer must decide if increasing the wage level will attract employees of sufficiently high quality and lower indirect personnel costs (such as training, turnover, and supervision). Labor market comparisons are more likely to be used in bargaining relationships where the union is weak. Where unions are strong they use their bargaining power to do better than the local labor market and gain what they consider to be a fair wage. Product Market Factors

Product market comparisons play an increasingly important role in management decision making. The ability of current or potentially new competitors to compete on the basis of lower labor costs has in fact been the dominant factor in management’s drive to hold down or reduce wages, particularly for those with entry-level and low-skill jobs. The threat of outsourcing this work has also been an important part of many employers’ approach to negotiations in recent years. In emerging countries, the threat of moving factories to lower-wage countries is likewise a constant factor that influences wage setting. The Firm’s Ability to Pay

The effects of wage adjustments on the profits of the firm also influence management’s wage target. Employers approaching the wage decision examine their ability to pay wage increases. Ability-to-pay considerations are likely to be especially salient in small firms and in firms facing a weak union. A union generally is reluctant to give a firm a lower settlement on abilityto-pay grounds unless the firm can demonstrate that a serious economic crisis would result otherwise. Union leaders and members often must be convinced that there would be sizable employment loss before they will agree to a low settlement. Internal Comparisons

Every negotiation is carefully watched by all of a firm’s employees. Management must consider how a wage settlement might influence the expectations and demands of other employees in the firm whether or not they are

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represented by unions. Management, for example, often considers whether wage increases provided to unionized hourly workers will lead to pay increases for supervisors and other white-collar employees not covered by the union. One reason management provides white-collar employees with pay increases in some situations is to try to weaken these employees’ potential attraction to unionization. THE DYNAMICS OF MANAGEMENT’S DECISION-MAKING PROCESS

So far we have painted a rather static picture of management’s decision making. Yet the actual process of making decisions over the course of a bargaining cycle (from the pre-negotiation planning stage to the signing of the final agreement) is dynamic. The process is replete with ambiguities over who has the authority to set policies, conflicts among decision makers over the appropriate weight to be attached to different goals, and power struggles among competing decision makers. The process by which management establishes negotiation strategies involves extensive intra-organizational bargaining, which is every bit as intense as the bargaining between the union and management. Because the successful resolution of internal differences is a prerequisite to a smoothly functioning bargaining process, it is important to understand how firms prepare for negotiations. To provide a more complete picture of how management prepares for collective negotiations, a typical case is described in box 6.4.6 This firm was preparing to negotiate a contract with the major bargaining unit in its largest manufacturing facility. The contract traditionally sets the pattern for the economic settlements with several smaller units at other locations. Before negotiations (or very early in negotiations) the labor relations staff tries to predict as closely as possible what it will take to get a settlement. But the staff is ready at all times to revise its estimates based on new or better information about the union’s position as the negotiations proceed. The case in box 6.4 illustrates the diversity of interests that exists in the different levels in any modern organization. It shows that the development of a management strategy for negotiations is a highly political process, one in which the different goals of various groups must ultimately be accommodated. Although the labor relations staff serves as a key participant in the development of the strategy, the concerns of operating/business management, financial staff, and other interest groups in the corporation are also integral to any final decision.

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BOX 6.4 Key Steps in Management’s Typical Preparations for Negotiations

Input at the Plant Level The first step in the process of preparing for negotiations takes place at the plant level. The plant labor relations staff holds meetings with plant supervisors to discuss problems that have been experienced in administering the existing contract. From these discussions the staff puts together a list of suggested contract changes. The staff also conducts a systematic review of the grievances that have arisen under the current contract and collects information about local labor market conditions and wages other firms in the community are paying. The staff then holds a meeting with the plant manager, who discusses the labor relations problems confronted in the plant. The plant’s concerns are classified into two groups: contractual problems and problems that should be addressed outside the negotiating process. In addition, the labor relations staff asks the plant manager to rank suggested contract changes on the basis of their potential for making a significant improvement in plant operations.

Input from Higher Levels of the Firm Next, a series of meetings are held at the division level involving the division labor relations staff, operations/business management at the division level, and the corporate labor relations director and staff. From time to time, outside industrial relations consultants also sit in on these division-level meetings. Here the concerns of the various plants are evaluated against two criteria: (1) the operational benefits expected from proposed contract changes; and (2) the likelihood that the changes desired can be achieved in the negotiations process. The corporate labor relations staff plays a vital role in these divisionlevel discussions, since the expected benefits of different contractual changes can be a matter of dispute across the various plants. In addition, the division labor relations staff is responsible for carefully examining the contract language in the various local agreements for inconsistencies or problems that could be removed by clauses that reflect corporate labor relations preferences. Sometimes corporate labor relations representatives object to changes suggested at the division level because they do

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not correspond to the priorities of the corporation’s officials and because those corporate officials do not understand the purpose or value of existing plant practices. The corporate labor relations staff works closely with the vice-president for finance to develop the wage targets. Information about plant labor costs, corporate earnings, and the long-term financial prospects of the company and the industry are built into the wage target the corporate staff ultimately recommends.

Input from Research A research subgroup in the labor relations staff of the company also conducts background research that is used in management’s preparations for negotiations. At least a year and a half before the opening of formal negotiations, the research staff starts preparing the background information necessary for the development of the company’s proposals. The researchers use a database of information on employee demographic characteristics and analyze personnel statistics such as turnover, absentee, and complaint (or grievance) rates. They also monitor internal union developments, such as convention resolutions, union publications, and union leaders’ statements about the upcoming negotiations. In addition, they survey plant managers for their views on their relations with the union and on the problems they would like to see addressed in the negotiations. The staff also consults plant labor relations staff members to obtain their suggestions. This firm probably invests more resources in and assigns more authority for bargaining preparation to its research staff than do most other corporations. The research staff is ultimately responsible for putting together a summary report that goes to the vice-president of industrial relations and the corporate director of compensation. These executives then work with the manager of the research and planning department to develop targets for bargaining.

The Final Step in Management’s Preparation The final step in management’s preparation for negotiations is a meeting involving the corporate labor relations staff, the chief executive officer, and the board of directors. At this meeting the corporate labor relations director presents for board approval the proposed wage targets and other

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proposed contract changes and the reasons for seeking the proposed changes. Sometimes this meeting does not take place until after the first negotiations session with the union. The labor relations director might prefer waiting until then because it may be useful to hear from the union before making a recommendation to top management. This helps him identify both the relative importance the union is likely to place on pay issues and the intensity of the union’s concern about other areas of the contract. The labor relations director described to us how he presents his recommendation to top management in this way: “I always number my proposed target settlements as proposed settlement target number 1. Someone once asked me what that meant. I said that this is what I think it will take to get a settlement but I number it because I may have to come back to you at some point with my proposed settlement number 2 or even my proposed settlement number 3, et cetera.”

Corporate Restructuring and Governance

Over the past two decades, corporations have increasingly moved toward a “core competency” business model. Functions that are deemed central to the core business processes of a firm have continued to be done within the firm, but other functions have increasingly been outsourced to other firms. This trend has affected labor relations in two ways. First, and most important, many firms outsourced aspects of their manufacturing, maintenance, or construction operations, and this often had the effect of reducing the number of unionized employees. The second effect of recent corporate restructuring has been the outsourcing of many of the human resource services that in the past were provided in house. Many companies have outsourced training, benefits management, payroll, and other routine employee services. This reduces the career advancement opportunities for human resource professionals, including those who serve in the labor relations function. As a result, labor relations professionals now spend an increasing amount of their time negotiating and coordinating employment practices with specialized (outside) human resource service providers who work for outside contractors/consultants. This adds further complexity to this task, since evidence shows that the enforcement of safety and health practices and other basic labor standards often is weaker in contractor firms than in large, more professionally managed firms.7 Increasingly,

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therefore, management and supervision of labor relations occurs across as well as within the formal boundaries of a single firm. The next section reviews the common procedures unions and workers follow during labor negotiations. This material parallels the discussion of the procedures management follows in preparing for negotiations. THE ROLE OF THE UNION NEGOTIATING COMMITTEE

The union is represented by a negotiating committee in negotiations with management. The makeup of the union negotiating committee varies across unions. For large national unions or union confederations with multiple local affiliates, it typically includes union officers, support staff (such as members of the local or the national union’s research staff or both), and elected worker representatives. Often the leaders of the union’s negotiating committee are the highest elected officers of the union that is covered by the collective agreement under negotiation. The negotiating committee will normally meet a number of times before the start of negotiations to formulate the union’s list of demands and to begin to establish expectations about what the union can win in negotiations. Before these meetings, the negotiating committee will solicit demands from union members, either directly through membership meetings called to discuss the upcoming negotiations or through surveys. A union negotiating committee typically also receives information and advice from the national union’s research staff during its preparations for bargaining. The information provided frequently covers the financial performance of the company, forecasts the future performance of the company and the economy, and summarizes recent settlements in other unions or the pay improvements unorganized workers have received in the same city, firm, or industry. Some unions undertake extensive research and analysis of economic developments and the financial situation of each company in their industry. Prior to entering negotiations, the research staff will conduct extensive briefings with the bargaining committee and in some cases will meet with company representatives to compare financial data. It is not uncommon for union and company research staff to request or share information from each other, if for no other reason than to avoid debates over some of the basic facts that both need to prepare for their respective teams. Obviously, small unions or unions limited to one specific location often lack the resources to do the extensive research that is needed on their own. An increasing number of Internet sites

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are now available that provide comparative data on wages paid for particular occupations. Similarly, a number of financial services firms provide data on the financial performance and market prospects of publicly traded firms. Some unions also maintain Web sites with sample contract language on a wide variety of topics. Unions frequently use all of these external and internal sources as they prepare for negotiations. Many unions now use surveys, focus groups, and/or direct interviews with rank-and-file members to gather information about their concerns and priorities for negotiations. This serves as a two-way communication process: it provides data on rank-and-file priorities and begins to engage the rank and file in the negotiations process by informing them of some of the issues that may come up. Acquisition of Strike Authorization if Negotiations Reach an Impasse

If a union comes to an impasse with management during the negotiations and is considering going on strike over unresolved disputes, two steps commonly occur. The union’s constitution may require that the union seek strike authorization from the national (or international) union. Strike approval is an important process because, among other things, it enables striking workers to receive strike benefits from the union’s strike fund. A union considering a strike also typically will poll its members. The strike vote serves a dual purpose: it tells the union leadership whether the union’s members support such an action and it helps rally the workers around the purpose of the strike. Contract Ratification

When an agreement is reached between the union’s negotiating committee and management’s representatives, the union will often then proceed through contract ratification procedures. Here there is much variation in the exact procedures unions use. Some unions first send a proposed agreement to a council made up of lower-level union officers. Some union constitutions require that the workers covered by a negotiated agreement vote on any proposed settlement. THE ROLE OF UNION LEADERS IN SHAPING STRATEGIES

The actual bargaining demands of unions reflect more than just an averaging of their members’ preferences. Several factors combine to produce the complex process by which union leaders arrive at their bargaining objectives.

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First, in addition to considering the preferences of their members, union leaders must evaluate objectives in light of the probability that they can be attained. Unrealistic goals must be discarded during pre-negotiation planning sessions or early on in negotiations. Second, individual union members have varying degrees of political influence in the union. Older or more skilled workers, for example, may be more politically influential than other members. Thus, the objectives that are ultimately selected may reflect some workers’ goals more than others. Third, union leaders must also be concerned about the long-run survival of the union and must take steps to preserve those interests. There is always the risk that union leaders will emphasize matters relating to union representation rights or union dues even though the union members might not put a high priority on such items. Finally, it should be recognized that a central job for union leaders, like all leaders, is to lead! Union leaders must weigh strategic options, make decisions, and secure the ongoing support of their members for those decisions. One of the keys to union leadership is effective internal communication. Union leaders need regular upward communication from the rank and file and from local union officers. Effective union leadership also requires that decision makers communicate their activities and decisions back to the members. Unions use techniques such as opinion surveys, Internet (or intranet) conferencing technologies, newsletters and in-house magazines, and even television or other media advertising to communicate with their members. Indeed, the Internet is becoming a key resource in bargaining today. Union leaders are learning that if they do not develop skills in using this tool to communicate with members, rival groups within the union will do so. The role and means of communication in unions and in negotiations in general are changing rapidly in the age of the Internet. THE CYCLE OF TRADITIONAL NEGOTIATIONS

Negotiations often proceed through a cycle in which the four subprocesses of bargaining emerge and interrelate.8 A typical cycle for a labor negotiations process is described below. The Early Stages

In the initial stage of a traditional negotiation the parties present their opening proposals. This stage often involves a larger number of people than will be involved in the negotiations of the final agreement. The union, for example, may bring in representatives from various interest groups and levels of the

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union hierarchy. These people participate in developing the initial proposals and later become involved in securing ratification of any agreement. The involvement of all these different representatives can resolve any intra-organizational disputes within the union. The union then presents proposals that cover its entire range of concerns. Some of the proposals will be of critical importance and will be at the heart of the discussions as the strike deadline approaches. Some are important but may be traded off at the last minute. Some may be translated into more specific demands at a later stage of bargaining or may be issues to which the union will assign a high priority in some future round of negotiations. Other issues are of low priority and will be dropped as negotiations proceed into the serious decision-making stages. The Presentation of a Laundry List

The union’s presentation of a laundry list of issues serves several purposes. Such a list allows union leaders to recognize different interest groups by at least mentioning their proposals. Some unrealistic demands will be aired, the problems underlying these demands can be explored, and the employer can then reject these demands. This process takes the pressure off union officers who might otherwise appear to have arbitrarily rejected some group’s pet proposal. In addition, either side can also introduce issues in a laundry list that it hopes can be pursued in future negotiations. Initially presenting a long list of proposals and inflated demands might also be useful for camouflaging the real priorities of the union. Or a long list of proposals can assist integrative bargaining by facilitating problem solving. Employer Behavior in the Early Phase

Employer behavior at the outset of bargaining varies considerably. Sometimes the employer will present a set of proposals to counterbalance the demands of the union. At other times the employer will receive the union demands and promise a response at a future negotiating session. Many management representatives prefer to delay making any specific proposal about wages or other economic issues until well into the negotiation process. Because the wage issue can be emotional and divisive, management often tries to resolve nonwage issues first. Management may also initially try to camouflage its bottom-line position and it, too, may have unresolved internal differences at the start of negotiations. In some firms a decision about what the bottom line is will not be made until after the union offers its initial proposals and gives some preliminary indication of its priorities.

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In the early stages the speakers for each side will argue strongly and often emotionally for the objectives of their constituents, both to fulfill their obligations as representatives and to determine how strongly the opponent feels about the issues at stake. It should be no surprise that these initial stages are the forum for a good deal of grandstanding by both parties (and this grandstanding may be a part of intra-organizational bargaining). The Middle Stages

The middle stages of negotiations involve more serious consideration of various proposals. The most important tasks performed in the middle stages of bargaining are (1) developing an estimate of the relative priorities the other side attaches to the outstanding issues; (2) estimating the likelihood that an agreement can be reached without a strike; and (3) signaling to the other side which issues might be the subject of compromise at a later stage of the process. Often the parties choose to divide the issues into economic and noneconomic categories. Separating the issues in this way may facilitate problem resolution and integrative bargaining. It is at these intermediate stages that any obstacles to a settlement may begin to surface. The Final Stages

The final stages of bargaining begin as the strike deadline approaches. At this point the process both heats up and speeds up. Off-the-record discussions of the issues may take place between two individuals or small groups of representatives from both sides, perhaps in conjunction with a mediator. These discussions serve several purposes: because they are private, they enable a negotiator to save face in front of his or her constituents; they allow each party to clarify its position more fully; and they enable the parties to explore possible compromises. The bargaining that takes place at the table, in many cases, is only the formal presentation of proposals and counterproposals. At this point the negotiators have a better idea of their opponent’s bottom-line positions and they may have had private discussions over what it will take to reach a settlement. Whether the real bargaining occurs at the table or in the back room is less important than the factors that determine whether a settlement will be reached without an impasse. In these final stages before a strike deadline, each party is seeking to convince the other of the credibility of its threats related to the strike issue. Each side also is trying to get the other side to change its bottom line in order to prevent a strike. And each party is trying to accurately predict the other side’s real positions on the issues to avoid backing into an

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unnecessary strike. At this stage, therefore, usually only a small number of decision makers are involved in the process. Even if the key bargainers may agree on how a bargaining settlement can be reached, agreement is not yet assured. Even at this late point in the process, if bargainers aren’t able to sell a settlement to their constituents, the agreement might not be reached and an impasse may occur. INTEREST-BASED BARGAINING: AN ALTERNATIVE TO TRADITIONAL NEGOTIATIONS

The traditional approach to negotiations outlined above has often been criticized for its limited potential for solving problems. The dominance of distributive issues and tactics, the overstating of demands, and the tactical use and withholding of information have all been viewed by critics as ways that traditional bargaining reinforces rather than overcomes arm’s-length or adversarial tendencies in labor-management relations. As an alternative, a number of researchers and a growing number of practitioners have suggested using interest-based, or mutual-gains, bargaining techniques. Interest-based bargaining is essentially an effort to apply integrative bargaining principles from the Walton and McKersie model to the overall negotiations process. This approach to bargaining was first popularized by Roger Fisher and William Ury’s best-selling book on negotiations, Getting to Yes. In interest-based bargaining, parties are encouraged and trained to (1) focus on their underlying interests; (2) generate options for satisfying these interests; (3) work together to gather the data and share the information needed to evaluate options; (4) evaluate the options against criteria that reflect their interests; and (5) choose options that maximize their mutual interests. Consider how use of these principles alters the typical negotiations process described above. Instead of each party beginning the bargaining process with a laundry list of inflated demands, each separately produces a list of problems that need to be addressed in negotiations to address their core interests. In some cases, the parties may even frame the problems jointly by building on the reports of labor-management committees that have been set up to collect data and study vexing problems such as safety and health hazards, health plan costs, or quality. A subcommittee might then be formed to collect additional information needed to generate options for the full negotiating teams to consider. Ideally, options can be generated through use of brainstorming (a freeflowing discussion in which members of a group are encouraged to generate ideas without committing themselves to a fixed position and without criticizing the ideas others suggest). Analysis of the root causes of problems and

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extensive data sharing are also encouraged at this pre-bargaining or early stage of the negotiation process. As bargaining proceeds to a decision-making phase, standards or criteria are developed to evaluate the options that have been generated. The goal is to then choose the options that do the best job of serving the interests of both parties. Box 6.5 describes how one firm prepared for a recent round of interestbased bargaining. While much of the background research and information gathering is similar, some of this is done jointly with the union. In this case, the problem-solving processes that had been put in place in the companyunion relationship at the workplace provided the foundation for taking a problem-solving approach to negotiations as well.

BOX 6.5 How Preparations for Interest-Based Bargaining Occurred in One Firm In this firm, the shift to a new approach to negotiations was a gradual and natural outgrowth of the firm’s employee involvement process. Some steps in this direction were taken in negotiations ten years ago and more in the most recent round of labor negotiations. All of the union and management representatives have training in problemsolving tools and essentially asked each other: “Why can’t we apply these tools in negotiations?” As in the past, the labor relations managers kept a file of issues and problems that came up during the term of the agreement and started preparations by reviewing this file and interviewing plant managers about their concerns. But this time, when this material was brought together in a meeting with top division executives, the director of labor relations said he didn’t want to take a laundry list of issues into negotiations, only to have some or many of them discarded. Instead, he asked his colleagues: “What are your critical problems? What are their root causes? What are the costs involved? If we can agree on these things, then let’s go into negotiations and fix them.” Paring the list down and agreeing on what was needed to solve the firm’s problems (which were severe at that particular time) involved tough internal discussions and negotiations. Eventually, the chief executive officer had to decide on a couple of key points since these could conceivably affect the long-term future of the operations.

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In the end, management decided to bring eight issues to the table and the union only brought fifteen or sixteen. In the past the parties each would have brought many more issues. The parties also had smaller bargaining committees than in the past. On the management side there was one representative each from legal, finance, and manufacturing, along with the labor relations director, who chaired the committee. To promote communication that was more open and more oriented to problem solving, the parties decided to use a large round table for bargaining. During the actual negotiations, the parties brought in specialists from time to time with expertise on particular issues such as contract language guiding how workers could be transferred to different jobs within the firm. Instead of simply exchanging proposals and working from each other’s lists, the parties scheduled times to discuss issues and problems. When they did so, they asked: “Why is that a problem? Who is affected? What might we do about it? How would it affect things? Can we live with the solutions proposed?” When it came time to discuss the tough wage issues, bargaining took on more traditional features. Union leaders felt that they needed to be able to demonstrate to their constituents that they had squeezed management as hard as they could to get the best deal possible concerning wages. Management understood the pressures union leaders were facing. Still, there was better communication because of the integrative problem-solving approach.

In theory, an interest-based process does not differentiate between distributive and integrative issues. Instead, by focusing on basic interests and problems that lie in the way of achieving those interests, the parties attempt to use problem-solving or integrative strategies to address the full range of concerns each party brings to the table. However, experience has shown that some issues are harder to resolve through purely interest-based techniques, since they do involve clear trade-offs. When such situations arise in interest-based negotiations, the parties may resort to more traditional tactics and thus combine the two approaches to negotiations. Interest-based bargaining requires a high level of trust among the negotiators and between the negotiators and their principals and constituents. Thus,

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it is difficult to make this process work when attitudes in the larger relationship are hostile or when there are significant intra-organizational conflicts among the members of one party or the other. When should one consider using interest-based techniques and how should negotiators go about trying it out? Most experts agree that both negotiating teams need to be trained in these techniques well in advance of the start of negotiations. To overcome constituents’ suspicion, some further recommend bringing rank-and-file union members and managers who are not on the negotiating team into the training, data gathering, and subcommittee processes. Often a specially trained facilitator (as opposed to a traditional mediator) is also brought in to coach and assist the parties in interest-based negotiations. While the record of interest-based bargaining to date is still modest and some cases of failure have been reported, it is clear that the growing complexity of the problems labor and management face are pressuring them to find better ways to produce “win-win,” or mutual gains, solutions. STRIKES

As noted earlier in this chapter, most labor relations systems expect negotiations to precede any work stoppage. Indeed, a key goal is to reach an agreement without invoking a strike. Whether a strike actually occurs or is merely threatened, the strike or threat of a strike plays a key role in motivating the parties to move toward an agreement and in determining the outcomes of any negotiation. We explore the role of the strike and strike threat in this section. How Strike Threats Influence Negotiated Settlements

In negotiations, the bargaining parties are unlikely to settle on terms that differ substantially from whatever terms they think would settle a strike if one were to occur. Consequently, strikes are an important determinant of the bargaining power of both parties. During negotiations, both labor and management negotiators formulate expectations as to what might happen if the negotiations were to reach impasse and a strike were to follow. At the same time, both sides have a strong incentive to avoid a strike, as each loses income during a strike. In a strike, workers give up wages. They may try to make up for those lost earnings by taking a short-term job. Workers also turn to union strike benefits, the earnings of a spouse, or savings to support themselves and their families during a strike.

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Firms lose profits during a strike. They try to decrease the amount of profits lost through tactics such as bringing in replacement workers for the strikers, converting available inventories to sales, or shifting production to an alternative site. The firm relies on assets or earnings from other lines of business to meet any financial obligations (such as equipment expenses) during a strike. In service businesses such as airlines, where business lost during a strike cannot be made up through built-up inventory or post-strike deliveries, strikes are especially costly. This is one reason why more extensive efforts are made to avoid strikes in these settings, as we will see when we discuss dispute resolution procedures and proposals for reform in the airline industry in the next chapter. The Hicks Model of Strikes

The material below examines more closely the role the strike threat plays in the negotiation process and identifies the factors that lead to strikes. John R. Hicks developed a very insightful model to analyze the role strike leverage plays in shaping negotiated outcomes.9 Figure 6.1 diagrams the Hicks model of strikes. To simplify the discussion, assume the parties are negotiating only over wages (or assume that all items in dispute can be reduced to monetary terms and represented by a simple wage). In the Hicks model, bargainers form an expectation of what they would eventually agree to if there was a strike. In case A in figure 6.1, both parties expect that if there was a strike it would be ended with a wage settlement of w(es). If a strike occurs, however, both labor and management will have to absorb income losses during the strike. Workers will forgo earnings during

Expected strike wage plus cost of strike to management

w(es) + w(m)

Contract zone

w Expected strike wage

w(es)

Expected strike wage minus cost of strike to union

w(es) – w(u)

w(esu)

Union’s expected strike wage

w(esu) – w(u)

Union’s expected strike wage minus cost of strike to union

w(esm) + w(m) w(esm)

CASE A: A LARGE CONTRACT ZONE Figure 6.1. The Hicks model of strikes

Management’s expected strike wage plus cost of strike to management Management’s expected strike wage

CASE B: NO CONTRACT ZONE

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the strike, and management will lose profits because of the stoppage in production. Cognizant of these potential income losses, the parties should be able to find a negotiated wage settlement during the negotiations that they prefer over the wage settlement they would end up with at the end of a strike, or w(es). The income that management would lose during a strike is equivalent to a particular increase in the hourly wage cost to management of w(m). Given that they expect a strike to end with a wage of w(es), management should be willing during negotiations to agree to a wage as high as the expected strike outcome plus the cost to management of the potential strike, or w(es) + w(m). Labor in this case also expects a strike to end with a wage of w(es). The income workers would lose during a strike would amount to an hourly wage cost to labor of w(u). The workers, during negotiations, therefore, should be willing to accept a wage as low as the expected strike outcome minus the hourly cost of the strike to labor, or w(es) – w(u). The difference between what management is willing to accept during negotiations and what labor is willing to accept during negotiations creates a contract zone of potential settlements. Both sides should prefer to reach settlements in the contract zone during negotiations over the alternative of taking a strike and ending up with the strike wage outcome and income losses during the strike. It is, of course, possible for there be no contract zone. Case B in figure 6.1 diagrams such a situation. In this case management expects a very low strike outcome of w(esm), while the union expects a very high strike outcome of w(esu). Even in the face of the expected strike costs, w(m) and w(u), there is no contract zone because w(esu) – w(u) is greater than w(esm) + w(m). The important point that Hicks noted is that in this framework, there is no contract zone only if the parties have very different expectations of the strike outcome. The fact is that there is a true strike outcome. If labor and management have divergent expectations of the strike outcome, one or both of the parties is making miscalculations in their prediction of the strike outcome. One or both of the parties must be excessively optimistic about what it thinks will settle a strike for there to be no contract zone at all. Hicks concluded that strikes occur only when there is miscalculation. The key point is that since a strike imposes costs on both sides, it should be less attractive than a negotiated settlement. Strikes can occur even if there is a contract zone, but in the Hicks framework this also requires miscalculation. Hicks argued that there may be situations where the parties do not locate a settlement within the contract zone even if that zone exists. This occurs

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because—through previous bluffing or intransigence—the parties are unable to find the negotiated settlements they both would prefer over the strike outcome. In the Hicks model, negotiators have great latitude to further their side’s interests. Given a particular contract zone, it is in management’s interest to reach a settlement at the lowest wage in the contract zone and it is in labor’s interest to reach the highest wage settlement in the contract zone. Furthermore, during negotiations it is in each side’s interest to attempt to change the other side’s expectation of the strike outcome. Management would like to convince labor that the potential strike outcome is in fact a very low wage and labor has an interest in convincing management that the potential strike outcome is a very high wage. The risk the parties face is that in their efforts to change the other side’s expectation of the potential strike outcome, they might engage in tactics (such as bluffing or threats) that result in miscalculations, a strike, and the associated income losses. Some of the Sources of Miscalculation

Hicks’s model is a very useful starting point for analyzing the negotiations process. Building on his approach requires an understanding of the factors that influence the willingness and ability of either side to engage in a strike. These factors determine the wage the parties expect they will end up with at the end of a strike. Furthermore, the Hicks framework suggests the need to uncover the factors that lead either side to be overly optimistic about the potential strike outcome or to miscalculate during negotiations in other ways. Behavioral Sources of Strikes Behavioral factors such as the degree to which labor is integrated into the surrounding social community may be one source of miscalculation that leads to strikes. In a classic study, Clark Kerr and Abraham Siegel analyzed strike data across countries and industries. They found that strike rates were consistently higher in certain industries, such as mining and longshoring.10 The authors proposed that behavioral factors peculiar to certain industries were at least partly responsible for the higher strike rates. Workers in longshoring and mining often have their own subculture, they are distant from major population centers, and their work involves harsh physical labor. Kerr and Siegel argued that workers in these industries are comparatively poorly integrated into society and take out their frustrations by instigating strikes relatively frequently. In Hicks’s terminology, Kerr and Siegel identified a set of factors—social and geographic isolation—that contribute to the likelihood of miscalculation

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in bargaining. Kerr and Siegel also emphasized that strike occurrence may have very little to do with the issues on the bargaining table. Militancy as a Cause of Strikes Strikes also may occur as a result of the militancy of the work force or the union. Over time (and across countries) strikes tend to occur more frequently during business upturns. This association is difficult to explain with the Hicks model, which predicts that wage settlements should be higher during business upturns but not strike frequency.11 Other theorists instead argue that the higher frequency of strikes during favorable economic times (i.e., the pro-cyclical movement in strike frequency) demonstrates that conflict is a product of the bargaining power of labor. This bargaining-power model of strikes focuses on the fact that strikes are typically initiated by the union and the work force. Thus, during periods when the union’s bargaining power is relatively weak, the union is less likely to press its demands and less likely to resort to a strike when seeking more favorable contract terms. The bargaining-power thesis also recognizes that strikes are frequently initiated by workers on the shop floor who are upset by management’s actions or by official union policies. (These sorts of strikes often would be counted as unauthorized, or wildcat, strikes.) Workers are less likely to engage in this sort of shop-floor action when labor markets are slack and workers fear the possibility of layoffs. It is important to recognize that negotiations involve a large number of issues, that what would actually occur in a strike is highly uncertain, and that labor negotiations typically occur repeatedly between the same parties. These factors make it extremely difficult to predict the settlement point or the causes of an impasse in any given negotiation. The Role of Strategy in Negotiations and Strikes

To understand the course of negotiations and strikes it is necessary to consider the roles the strategies of management and unions play. This provides another illustration of a point made throughout this book, namely that activities at one level of the labor relations system interrelate with activities at other levels. Management strategies have a major effect on the negotiations process and on the strike record. Management behaviors in response to both spontaneous protests and scheduled negotiations often are shaped by a combination of ideology and practical strategy. Management’s ideology about unions will influence its willingness to negotiate and often its preparation to do so. Employers

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who are most strongly opposed to union representation often first attempt to ignore or suppress a demand from workers or unions that they negotiate. Once management goes beyond its ideology, attention turns to how to relate its labor relations and negotiation strategies to its business strategies. Management’s decisions about investment and products affect its bargaining power and negotiation strategies. For example, whether management chooses a low-cost, high-volume product strategy or a high-quality, high-innovation strategy shapes the extent to which the employer is concerned with lowering wage costs. In addition, a company’s overall human resource strategy has an effect on negotiations, particularly on employee attitudes. ALTERNATIVE BARGAINING STRUCTURES

Labor and management do not necessarily make agreements that cover only the workers who initially joined or created the union or successfully demanded representation rights. For example, the employees in the various work sites of one employer represented by a union may wish to join together to negotiate a common agreement covering the whole company. In a number of emerging countries, company-wide, regional, or industry-wide (sometimes call sectoral) labor agreements exist in manufacturing industries such as the auto or steel industries. Employee and union preferences are not the only determinants of the bargaining structure, however. Before we trace some of the determinants of bargaining structure, we need some definitions. Definitions of Bargaining Structure

The formal bargaining structure is defined as the bargaining unit or the negotiation unit—that is, the employees and employers who are legally bound by the terms of an agreement. The informal bargaining structure is defined as the employees or employers who are affected by the results of a negotiated settlement through pattern bargaining or some other nonbinding process. Types of Bargaining Units

The two primary characteristics of a bargaining structure are (1) the scope of employee or union interests represented in the unit, which can be narrow (craft-based), broad (industry-based), or multiskill-based; and (2) the scope of employer interests represented in the unit, which can be regional, industrywide, or sectoral or some other form of multiemployer unit. All of these types are considered variants of centralized bargaining. Bargaining structures also can be single employer–multiplant or single employer–single plant (decentralized).

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Determinants of Bargaining Structures

The major forces that affect the degree of centralization in bargaining structures are bargaining leverage, public policies, and organizational factors. Unions can increase their bargaining leverage if they organize a large share of the firms that produce a particular product. One of the primary mechanisms for raising wages is expanding the bargaining structure so that a large share of the firms making a particular product is covered by the same collective agreement. But to achieve a highly centralized bargaining structure, unions usually must first organize a large proportion of the product market and then successfully maintain union coverage over time—a tall order. Unions representing construction workers, for example, have a strong incentive to equalize the wage costs among competitive bidders on the same product. Thus, in the construction industry, unions prefer bargaining with the multiple employers who compete for specific construction projects. For example, where builders across a city bid for the contract to build an office building, the union representing carpenters in that city will try to bargain in a structure that spans the contractors across the city. It should not be inferred that unions always gain (and employers always lose) a tactical advantage in larger or more centralized bargaining structures. Employers in companies that provide local services such as hotels, restaurants, laundries, and truck haulers have often found it to their advantage to form associations and to bargain in multiemployer units. For instance, consolidating the bargaining function allows employers to avoid being whipsawed by local union leaders. Union whipsawing occurs when a union negotiates a bargain at one plant or company and then puts pressure on the next plant or company to equal or surpass the contract terms negotiated at the first site. By consolidating the bargaining structure, however, employers can sometimes reduce the possibility of union whipsawing. (Employers can also whipsaw a union when they gain a power advantage.) Employers Prefer Centralized Bargaining Structures in Some Cases

In some cases a centralized bargaining structure can serve employer interests by stabilizing competition. Employers in small firms in a highly competitive industry may find it to their advantage to bargain centrally with a union. This can reduce the union’s ability to whipsaw the small firms. If a strike occurs, the centralized bargaining structure also ensures that no single employer can gain an advantage because all the firms are shut down simultaneously. Centralized Bargaining Can Stabilize Competition

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Centralized bargaining in highly competitive industries can also work to the advantage of larger employers that are willing to pay a higher wage but are concerned about being undercut by smaller firms or new entrants to the industry. This was the case in the U.S. apparel industry for many years before most clothing manufacturing moved overseas. Interestingly, a similar motivation has led to the emergence of sectoral bargaining in the woolen, ceramic, and plywood industries in several provinces in China. Box 6.6 describes the plywood example as it developed in recent years in the city of Pizhou, Jiangsu Province.

BOX 6.6 Sectoral Bargaining in China’s Plywood Industry The plywood industry in Pizhou city, Jiangsu Province, includes about 2,000 enterprises and 200,000 workers. It accounts for 30 percent of the city’s GDP and a third of China’s plywood exports. In 2003, to avoid the negative effects of unconstrained competition, the larger enterprises set up a sectoral employers’ association for both trade and labor relations purposes. Around 300 mid- and large-size enterprises in the plywood sector joined. In 2005, the local union federation and the employers’ association conducted a joint survey of wages in thirty large enterprises. Based on the results of this survey and on subsequent negotiations, the two sides signed an agreement that fixed sectoral minimum wages. This agreement covered sixty enterprises on a trial basis. The two sides moved toward a full sectoral wage negotiation in 2006. Since then, there have been six annual rounds of negotiations. There are a number of points of interest in the resulting agreements. First, they activated the provisions of China’s 1994 labor law that relate to appropriate premium payments for overtime working. This provision has been widely ignored in China. But the 2006 and 2007 Pizhou plywood agreements achieved full compliance with the 1994 law. Second, at the height of the global financial crisis in 2009, the two sides agreed to freeze piece rates and to reaffirm the legal procedures governing redundancies. Even though the union association was on the defensive in the context of the worsening economic situation, it was nonetheless able to gain a concession from the employers’ side in the form of the introduction of seniority allowances.

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Third, a skill grade system that was introduced by the 2009 agreement was a high negotiating priority for the provincial union. Together with seniority allowance, it may prove to be a first step away from the prevailing piece-rate system and toward more secure internal labor markets. Finally, there have been rapid increases in negotiated wage rates over the six rounds of wage negotiation, ranging up to 33 percent in 2008. Both sides have agreed to augment the members on the workers’ side, who were mostly union officials and a few workers’ representatives, with equal numbers of workers’ representatives and third-party professionals, such as lawyers and government advisors. In 2008, they agreed to have 250 workers’ representatives as observers at the formal bargaining sessions, to train workers’ representatives at the enterprise level, and to encourage workers’ representatives to begin supplementary negotiations at the enterprise level following the completion of the sectoral agreement. Source: Chang-Hee Lee, William Brown, and Xiaoyi Wen, “What Sort of Collective Bargaining Is Emerging in China?” British Journal of Industrial Relations, forthcoming.

The Chinese plywood case illustrates how centralized bargaining, even at the regional level, requires the development of parallel employer and union associations. These associations, in turn, need to create internal governance and decision-making processes to ensure internal cohesion and acceptance of and compliance with negotiated agreements. This often requires significant intra-organizational bargaining. One way of avoiding overcentralization is to limit the scope of issues that get negotiated at the centralized level, often to basic wages and other common terms of employment, while giving individual enterprises the flexibility to negotiate on other issues to fit their particular circumstances and needs. This might include topics as diverse as child care provisions, scheduling arrangements, or work system innovations. The Bargaining Structure in Brazil

Brazil provides another example of how bargaining structures evolve over time, in this case starting with a strong influence of the national government in centralized bargaining that has gradually evolved to the municipal level. We review this evolution of bargaining in Brazil. Note how bargaining in this country is integrated with other provisions of labor and employment

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law. Few other countries have been able to achieve this level of coordination. Collective negotiations in Brazil has its roots in the Consolidated Labor Laws passed by President Getúlio Vargas in the late 1930s. These laws and their system of collective negotiations were loosely based on the political and labor laws of Mussolini’s Italy. In this system, which is known as corporatism, the state plays the central role in organizing and channeling labormanagement conflict. Workers and employers are both organized into separate representative bodies: labor unions for workers and employer organizations for companies. Collective negotiations plays an important role in the Brazilian system. Vargas and the designers of the corporatist system sought to create institutions that would resolve labor-management conflict but avoid more radical and class-oriented organizations such as those in Western Europe. The labor relations system in Brazil is characterized by three key factors: exclusive representation by job category and geography, a union tax to fund labor organization, and a system of labor courts. Unions are organized by job category through exclusive representation by geographical region and are the primary site for collective negotiations. Unlike in unions in Western Europe, where bargaining is organized by a limited number of “industries” such as metalworking, chemicals, transportation, and education, Brazilian unions are organized by job category. Job categories are not legally defined and are subject to legal challenge by rival unions hoping to represent the same groups of workers. For example, there cannot be two unions of metalworkers in São Paulo. However there may be different unions for welders, drillers, autoworkers, truck workers, steel workers, and so forth, all in the same geographical jurisdiction. Unlike in countries where unions are organized by a limited number of industries—all metalworkers from the same area bargaining together and providing greater bargaining power for these workers—unions in Brazil are highly fragmented, are in fierce competition with each other, and often are not in contact with other workers from the same company in different regions of the country. Unions and employers are organized into four legally recognized levels based on geography: the municipal sindicato, the state/regional federação, and national-level confederação, and the national, cross-industry central. Brazilian law makes no provision for in-plant representation, which means that most Brazilian workplaces do not have any type of shop steward, union representative, or grievance procedure. Some unions have tried to build European-style works councils, notably in the auto and chemicals sectors, but employer resistance is often fierce and the bargaining power of unions is limited.

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Collective negotiations are conducted primarily at the municipal level and have limited scope and content, mostly related to base wages. The majority of statutory regulations, including those related to minimum wages, hours, safety and health standards, and vacations, are covered by the federal labor code, and collective negotiations at the local level attempt to build from these federal regulations. Negotiations are conducted annually and are concerned mostly with wages, profit sharing, and employment guarantees. Multiemployer conventions and firm-level agreements are allowed and are designed to improve on the national minimum levels set in federal law, but for the majority of unions the scope of bargaining remains narrow and is focused on annual wage adjustments. Some unions, mostly the larger industrial unions in the São Paulo region, have been able to make broader agreements at the firm and multi-firm levels, but these are by far the exception and unions face immense challenges in trying to build coordinated bargaining structures. In many countries, the trend has been toward greater decentralization in bargaining structures. South Africa is a case in point. Employers in South Africa have argued for more exceptions to the industry-level bargaining structures the country’s labor law calls for. As the variations in the size and competitive conditions employers face have increased, fewer firms have been willing to participate in industry associations and instead seek to negotiate separately. Yet examples can also be found where one or both parties seek to move toward more centralized bargaining. To enhance their bargaining leverage, a number of Korean unions have pursued industry-wide bargaining. In the banking industry, the first industry-wide collective agreement was signed in 2001. In summary, there is no single best bargaining structure for all industries or countries. But it is not impossible to change bargaining structures that are no longer well matched to industry, regional, firm, or union needs. Pattern Bargaining

Pattern bargaining is an informal means of spreading the terms and conditions of employment that have been negotiated in one formal bargaining structure to another. It is an informal substitute for centralized bargaining that is aimed at taking wages out of competition. The employees working in the same firm typically are very aware of what other employees in the firm are receiving in terms of pay or fringe benefits and are very jealous when any differentials emerge. Internal promotion (and other features of an internal labor market) within a firm serves to heighten such comparisons. Pattern bargaining follows where more than one

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negotiation affects employees of the same firm. This is most common for the blue-collar employees of the same firm, but it can also occur where unions represent both blue- and white-collar employees. A number of emerging countries are experiencing pressures to both strengthen and weaken pattern bargaining arrangements. The mining strike in South Africa described in box 6.5 created strong pressure on other companies in the industry to match the wage settlement the strikers received in order to avoid similarly violent clashes. In China, the 2010 Honda strike described in box 6.1 led other auto companies to increase wages to avoid copycat protests. Yet in South African industries other than mining, a growing number of firms have resisted accepting the industry wage levels that have historically served as the pattern even for firms that did not formally join an industry’s employer association. CULTURAL ISSUES IN NEGOTIATIONS

Cultural differences can also make negotiations difficult when people from different parts of the world negotiate with each other, as is often the case today. One study found that agreements took longer and were less likely to be reached when Chinese and Americans negotiated with each other than when the negotiating pairs came from the same country. Chinese negotiators tended to put a higher emphasis on process considerations and preferred to allocate more time to building relationships with their counterparts, whereas American negotiators wanted to move more quickly to discussion of the substantive issues involved. Paying attention to these cultural differences and their effects on negotiating style therefore is critical to the success of cross-cultural negotiations.12 Jeanne Brett provides a comprehensive assessment of the role cultural issues can play in negotiations.13 Below we provide a summary of the findings in Brett’s research on negotiating globally. To understand the role that culture can play in negotiations it is first important to define culture. Culture is the distinct character of a social group that emerges from the patterned ways people in a group respond to problems during social interactions. To avoid cultural biases when negotiating globally, it is valuable to have a “cultural interpreter,” someone who not only knows the language but also can interpret the body language and the strategic behavior being exhibited across the negotiating table. A cultural expert should also be able to help parties understand the cultural context of the negotiation, for example, the institutional environment in which the negotiation is embedded.

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It is important to avoid confusing a cultural prototype (a central tendency) with a cultural stereotype (the idea that everyone in a culture is the same, that there is no distribution around the mean). This is inappropriate, as there is always variance within a culture. It is critical to keep in mind that the values shared by a group differ across national cultures. Two key differences in cultures that are particularly important for negotiations are the degree of individualism versus collectivism and the degree of hierarchy versus egalitarianism in each culture. In individualist cultures, social, economic, and legal institutions promote the autonomy of individuals, reward individual accomplishment, and protect individual rights. In collective cultures, institutions promote the interdependence of individuals with the others in their families, firms, and communities by emphasizing social obligations. In a collectivist culture, individual accomplishment reflects back on others with whom the individual is interdependent and legal institutions support collective interests above individual interests. The type of culture negotiators come from may affect their interests, goals, and strategic choices. For example, individualistic cultures promote self-interest, which may be reflected in negotiators’ preference for confrontation and/ or face saving. In hierarchical cultures, social status determines social power and social power generally transfers across situations. In hierarchical cultures social inferiors are expected to defer to social superiors, who have an obligation to look out for the well-being of lower-status parties in return for the power and privilege conferred on them by right of their status. No such obligations exist in egalitarian cultures. In egalitarian cultures, social boundaries are more permeable and social status may be both short-lived and variable across situations. Western cultures, especially northern European cultures, tend to be egalitarian. As you move south from North America to Central and South America, culture tends to be more hierarchical. Asian cultures are usually classified as hierarchical. Norms (i.e., standards of appropriate behavior) about directness or indirectness of communication are also important when negotiating globally. When people communicate indirectly, for example, the same words take on different meanings in different contexts. Cultures that favor indirect communication tend to be collectivist in nature. People in direct-communication cultures, in contrast, understand each other because they share a vocabulary. Direct-communication cultures also tend to be individualistic. Research does not support the idea that negotiators from some cultures primarily use integrative strategies and those in other cultures primarily use

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distributive strategies. Research also shows that there is a substantial variation within cultures in the ability to use integrative strategies.

Summary The structures and processes of negotiations vary considerably across countries, reflecting differences in the stage of development of labor law, the ideologies and strategies of employers and labor organizations, shifting bargaining power, and national cultures and institutions. While most well-developed labor relations systems seek to regularize negotiations processes as means of limiting strike activity, breakdowns in negotiations still generate strikes from time to time. When well-developed labor relations laws and established structures for negotiations do not exist, it often takes protests, strikes, or other confrontations to initiate negotiations. Once it is clear that a negotiation process is called for, the parties need to develop skills and abilities to adapt negotiation practices as conditions change over time. These skills and abilities include • Separating distributive (conflicting) issues from integrative issues (those where the parties share common goals) and using modern negotiation tools so the parties can avoid miscalculating each other’s bottom lines regarding distributive issues and missing opportunities to pursue shared interests regarding integrative issues; • Building positive, constructive relationships with counterpart negotiators so the parties can trust each other’s statements as negotiations proceed toward either an agreement or an impasse; • Adapting the structure of bargaining as competitive conditions and or the mix of employers or unions change over time; • Exploring new ways to negotiate, such as using interest-based bargaining processes or other ways of improving problem solving in negotiations; • Building ongoing processes for implementing and administering agreements reached in negotiations and for resolving disputes during the term of the agreement; and • Recognizing and appropriately adapting to any cultural issues that might be prevalent in a negotiation. In summary, negotiation processes serve as the central activity at the middle tier of the three-tiered labor relations framework introduced in chapter 1. They need to be supported and complemented by effective mediation and

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arbitration or other dispute resolution processes, topics we turn to in the next chapter.

Discussion Questions 1. Describe the four subprocesses of negotiations developed by Walton and McKersie. 2. What are the key aspects of the three stages in a typical negotiation cycle? 3. Describe the Hicks model of strikes. 4. Give some examples of how management strategy has influenced the course of negotiations or strikes in recent years. 5. How do traditional and interest-based negotiation processes differ? 6. Define bargaining structures and discuss some of their determining factors.

Related Web Sites “Labor Legislation in Brazil”: http://www.v-brazil.com/government/laws/labor .html Labour Law of the People’s Republic of China (1994): http://english.mofcom.gov .cn/article/policyrelease/internationalpolicy/200703/20070304475283.shtml National Union of Metalworkers of South Africa (NUMSA): http://www.numsa .org.za National Union of Mineworkers (NUM): http://www.num.org.za

Suggested Supplemental Readings Brett, Jeanne M. Negotiating Globally. 2nd ed. New York: John Wiley and Sons, 2007. Fisher, Roger, and William Ury. Getting to Yes: Negotiating Agreement without Giving In. New York: Penguin Books, 1981. Kahn, Jeremy. “Foreign Ventures Come to Terms with China’s Labor Unions,” World Trade, December 2006: http://jeremy-kahn.com/articles/Dec06-Walmart China.pdf. Morse, Bruce. How to Negotiate the Labor Agreement. 10th ed. Southfield, Mich.: Trends Publishing, 1984. Walton, Richard E., and Robert B. McKersie. A Behavioral Theory of Labor Negotiations. New York: McGraw-Hill, 1965. Walton, Richard E., Joel Cutcher-Gershenfeld, and Robert B. McKersie. Strategic Negotiations: A Theory of Change in Labor-Management Relations. Boston: Harvard Business School Press, 1994.

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Notes 1. See Edward Cohen-Rosenthal and Cynthia Burton, Mutual Gains: A Guide to Union Management Cooperation (Boston: Pitman, 1981); Roger Fisher and William Ury, Getting to Yes: Negotiating Agreement without Giving In (Boston: Penguin Books, 1981); and Richard E. Walton, Joel Cutcher-Gershenfeld, and Robert B. McKersie, Strategic Negotiations: A Theory of Change in Labor-Management Relations (Boston: Harvard Business School Press, 1994). 2. Richard E. Walton and Robert McKersie, A Behavioral Theory of Labor Negotiations (New York: McGraw-Hill, 1965). 3. It is of course possible that some joint gain is associated with a higher wage rate if labor productivity increases when wages are increased. This might result from the greater motivation workers feel when their pay goes up or from the better-qualified workers the firm can recruit when it offers a higher wage. We ignore such considerations in the text discussion. 4. Alfred D. Chandler Jr., Strategy and Structure: Chapters in the History of the Industrial Enterprise (New York: Anchor Books, 1966), 15. 5. Arthur M. Ross, Trade Union Wage Policy (Berkeley: University of California Press, 1948), 45–74. 6. This case is from a real firm we encountered in our field work. The firm preferred not to be identified by name. 7. See David Weil, The Fissured Workplace: Why Work Became So Bad for So Many and What Can Be Done to Improve It (Cambridge: Harvard University Press, 2014). 8. This cycle is discussed in Carl M. Stevens, Strategy and Collective Bargaining Negotiations (New York: McGraw-Hill, 1963), 41–46. 9. John R. Hicks, The Theory of Wages (New York: Macmillan, 1932), chapter 2. 10. Clark Kerr and Abraham Siegel, “The Interindustry Propensity to Strike: An International Comparison,” in Industrial Conflict, ed. Arthur Kornhauser, Robert Dubin, and Arthur M. Ross (New York: McGraw-Hill, 1954), 189–212. 11. Economists have also constructed models that involve “asymmetric information” to explain strike occurrence. These models rely on the notion that management knows the profitability of the firm, whereas the union must guess about this information and use wage offers to get the firm to reveal its true profitability. See, for example, Joseph S. Tracy, “An Investigation into the Determinants of U.S. Strike Activity,” American Economic Review 76, no. 3 (1986): 423–436. 12. Leigh Anne Liu, Ray Friedman, Bruce Barry, Michel Gelfand, and Zhi-Xue Zhang, “The Dynamics of Consensus Building in Intracultural and Intercultural Negotiations,” Administrative Science Quarterly 57, no. 2 (2012): 269–304. 13. Jeanne M. Brett, Negotiating Globally, 2nd ed. (New York: John Wiley and Sons, 2007).

7

Dispute Resolution Procedures

THE KEY ROLE OF MEDIATION IN DISPUTE RESOLUTION

When two or more parties cannot reach a negotiated agreement, they often turn to a neutral third party for assistance in resolving the issues that separate them. This is very common in workplace disputes, both those involving individuals seeking to enforce their legal or contractual rights with their employer and collective negotiations between unions or other worker groups and one or more employer. In this chapter we focus on dispute resolution techniques commonly used in collective negotiations. We are still in the middle (functional) level of figure 1.1. We describe various dispute resolution techniques, show how these techniques affect the negotiations process, and assess how well the techniques function in settling impasses. The chapter first describes mediation, a process by which a third party tries to lead labor and management to a negotiated settlement through enhanced communication and recommendations. The discussion then turns to compulsory (interest) arbitration, where the parties must adhere to the decision of the third party, the arbitrator, typically about an issue related to pay or a key work rule.1 As with other aspects of collective negotiations, in the area of dispute resolution a number of new techniques and roles are emerging. Some mediators are now using interest-based techniques to facilitate labor-management negotiations, consistent with the principles of interest-based bargaining, as described in chapter 6. We will describe this approach and contrast it with mediation in more traditional negotiations. Highly skilled and experienced 165

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professionals mix and match different aspects of mediation, facilitation, arbitration, and other techniques to fit the particular circumstances of a dispute. This chapter finishes by discussing how new third-party roles are emerging to better respond to the environmental pressures that confront the parties and to improve labor-management relations. The Widespread Use of Mediation

Mediation has a very long tradition in many countries. In China, it dates back as far as the Ming Dynasty, when respected community elders would help resolve disputes among neighbors and/or in business relationships. In South Africa, mediation played a pivotal role in fostering a transition to a postapartheid democratic government. A private mediation system was created prior to the end of apartheid that was acceptable to both black and white workers and unions. It then served as the model for mediation in the postapartheid era both in the field of labor relations and in broader community and political processes. (See box 7.1.)

BOX 7.1 The Independent Mediation Service of South Africa (IMSSA) In 1984, a group of white and black labor union leaders and employer representatives were brought together at the University of Witwatersrand to discuss the idea of creating an independent mediation service. The number of labor conflicts in South Africa had been increasing since 1979, when the government granted black workers freedom of association. Some of these conflicts had been violent. The historic meeting was the first time black and white unions and employers had met together on neutral ground. Out of that meeting emerged a mediation agency that during its first ten years • Mediated 3,678 labor management disputes • Helped resolve a bloody dispute between the South African Railway and its employees that produced the first-ever recognition of a black union by a government agency • Trained a panel of 195 mediators who could be called in to help resolve specific disputes • Oversaw balloting for the first African National Congress National Convention • Supervised the balloting in the 1994 national election

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• Expanded its services into mediating community disputes • Developed education and training courses and programs in dispute resolution for universities, business societies, and trade unions • Helped form the first government mediation service, which continues to serve these functions today IMSSA not only served the interests of labor and management in resolving specific disputes but also played a significant role in helping South Africa achieve a political transformation to a democratic society before and during the transition and after the end of apartheid. Source: “Independent Mediation Service of South Africa: 1984–1994,” review paper no. 16, Independent Mediation Service of South Africa, September 1994.

Mediation is the most widely used yet the most informal type of third-party intervention in labor relations. In mediation, a neutral party helps workers and management negotiators reach a labor agreement. A mediator has no power to impose a settlement but works with the parties to reach a settlement that is mutually acceptable to them. Mediators keep the parties talking, they carry messages between the parties, and they make suggestions. Mediators must rely on their persuasiveness and communication skills to get each side to step back from its declared position in order to help the parties to reach a voluntary agreement. A mediator’s power is limited by the fact that he or she is an invited guest who can be asked to leave by either labor or management. Mediators must also be sensitive and responsive to cultural differences in negotiating norms when working with parties from different countries and/or backgrounds. Mediation in the United States

In this section we review how mediation works in the United States. We do so because the United States has a well-developed mediation system that might provide some lessons for countries that are developing their own mediation systems. In the United States, federal and/or state government agencies typically provide labor mediation services. These agencies, however, are careful to maintain their independence and except in very unusual circumstances do not seek to impose government policy preferences on the parties. The U.S. National Labor Relations Act specifies that the party proposing changes in a collective bargaining agreement (usually the union) must notify the Federal

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Mediation and Conciliation Service (FMCS) at least thirty days before the start of a strike. Although the law does not require the parties to use mediation if they reach an impasse, the FMCS includes a staff of experienced mediators who are always ready to assist the negotiating parties if the parties ask them to so. Most states have state mediation and conciliation agencies that also make mediators available to negotiating parties. Both federal and state mediators are typically available free of charge. Sometimes the parties jointly choose a private mediator and share the cost of the mediator’s services. FMCS annual reports estimate that approximately 15 to 20 percent of all cases in which 30-day strike notices were filed involved at least some informal (by telephone) type of mediation and between 8 and 10 percent involved a formal mediation effort. The FMCS, the U.S. secretary of labor, other members of the president’s cabinet, or the president are sometimes brought into the mediation process in important disputes. A more extensive use of mediation is built into the law governing labor relations in the airline and railroad industries because of concern about the disruption a strike in these key transportation industries would cause the public. In these industries, mediation is a mandatory step before a dispute can go to the next step of the impasse resolution process. Mediation is also more commonly used in the public sector than in the private sector in the United States because many state governments allow public employees to engage in collective negotiations but limit or outlaw the right to strike. Instead, bargaining statutes that cover state and local government employees call for mediation as the first phase of the impasse resolution process. In New York State, for example, on average, about 30 percent of all public sector negotiations reach an impasse and require mediation. Other states have reported somewhat lower rates of reliance on mediation, but all states report rates that exceed the reported average for the private sector. In the public sector, mediation is the province of staff mediators employed by the various state agencies that administer the public employment bargaining statutes, and in some states it is the province of ad hoc, part-time mediators. These ad hoc mediators generally hold other full-time jobs as college professors, arbitrators, lawyers, or members of the clergy or work in an occupation related to labor-management relations. International Models of Mediation

Countries have a variety of different models to choose from when designing mediation systems. In South Africa, a private model evolved into the public system, as noted in box 7.1. There, the Commission for Conciliation, Mediation and Arbitration (CCMA) provides direct mediation services and

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contracts with a number of industry bargaining councils to support their own mediators. In some very difficult cases, such as the 2012 mining dispute, CCMA mediators partner with respected citizens to help resolve disputes. In a recent mining dispute, the head of the South African Council of Churches helped bring a tragic dispute to a close. China has a government-run mediation system that covers individual disputes about workers’ legal rights, but it has yet to create a counterpart to deal with its growing number of collective disputes. This has prompted proposals about and experiments with the development of a private dispute resolution center, analogous to the approach South Africa has taken (see box 7.2). This is still in the developmental stage. Whether it will grow to a scale large enough to meet the exploding need for effective third-party assistance in China’s workplace conflicts remains to be seen.

BOX 7.2 Proposal for a Chinese Dispute Resolution Center There is growing concern and tension in China over an increasing number of strikes and protests, some of which have turned violent. These events demonstrate that the current statutes and procedures and workplace processes for channeling workplace conflict are not meeting the needs of Chinese society. Because workplace disputes include multiple parties, solutions increasingly involve coordinating groups of workers, company executives, human resources directors, representatives of MNCs, attorneys, and community leaders. Thomas Kochan and Arnold Zack have proposed the establishment of a dispute resolution center that would include representatives of such players in the hope that communication and the sharing of experiences prior to the outbreak of workplace conflicts would help stimulate relationships that would lead to their resolution. Such a center could sponsor periodic meetings at a different location from the setting of a crisis, provide a venue for periodic lectures and training programs, and help nurture the establishment of a body of neutrals who could assist in resolving disputes through facilitation and even mediation. The center could become the administrator of a mediation program whose design and deployment is guided by advice from players who anticipate that a neutral panel structure would be helpful in their dispute resolution efforts.

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Kochan and Zack also propose that business and law school curricula and research programs be strengthened to include an integrated analysis of global best practices in human resource management, industrial relations, negotiations, conflict management, dispute resolution options (including informal communications, information sharing, problem solving, consultation, facilitation, and mediation), Chinese labor laws and practice, and comparative labor law. Sources: Thomas Kochan and Arnold Zack, “The Continuing Quest for Dispute Resolution in the Chinese Workplace: A New Look at Partnership and Training,” unpublished paper in authors’ possession; Arnold Zack, “Essentials of an Effective Mediation System for Workplace Disputes in China,” video; and Thomas Kochan, “Building Capacity for Effective Resolution of Workplace Disputes in China,” video, both at The China Workplace Project, http://mitsloan.mit.edu/group/iwer/china-workplace-project.php, accessed May 6, 2014.

Brazil uses another model of mediation that is found in several other countries. It has a labor court that plays a role in approving the right to strike and in mediation and from time to time arbitrates both collective disputes and claims of employment law violations brought by individuals. Thus, it combines its labor law enforcement efforts into one agency that has mediation, adjudication, and inspection responsibilities. In some cases, crisis situations lead to the invention of new institutions that provide a combination of consultation, mediation, arbitration, and legal enforcement of employment relations standards. Table 7.1 summarizes the provisions of the Accord on Fire and Building Safety in Bangladesh that a combination of NGOs, the International Labour Organization, multinational companies and their suppliers, and trade unions created in the aftermath of the 2013 deadly Rana Plaza factory collapse mentioned in chapter 6. In this case, these multiple parties created a private institution to fill the gap left by the failure of the government to enforce workplace safety. As these examples illustrate, mediation can be carried out by government or private professionals chosen by the parties themselves or by private or quasi-private institutions. The key requirements, as will be noted below, are that the mediator be acceptable to the parties, that he or she be someone whom the parties trust to be neutral about the issues involved and their interests, and that he or she be someone who is skilled at helping the parties find a mutually acceptable agreement.

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Table 7.1. The Accord on Fire and Building Safety in Bangladesh

Provision

Description

Scope

Covers all suppliers producing products for signatory companies.

Governance

Steering Committee (SC) with equal representation chosen by union signatories, company signatories, a representative of the ILO, and a neutral chair.

Inspections

SC appoints independent inspectors; all factories undergo an initial inspection using internationally accepted safety codes; inspection results are shared with factory union and/or safety committee and made public.

Remediation

Factories are required to implement remediation process to bring factory into compliance; employees may not be dismissed and incomes must be maintained if factory is closed for remediation; companies must make efforts to move employees to safe suppliers when orders are lost by unsafe suppliers; workers have right to refuse to do unsafe work without retaliation or discrimination.

Training

SC will develop and deliver safety training programs in cooperation with union and company experts. Joint safety and health committees are required in all plants.

Complaints

Safety inspectors will establish a worker complaint process along with a hot line to be available to workers in all factories.

Transparency/ Reporting

SC shall publish list of all factories used by signatory companies. Written inspection reports shall be made public. Factories shall be identified that are not acting expeditiously to implement remedial recommendations; quarterly aggregate reports on compliance and remediation results shall be made public.

Supplier incentives

Signatory companies must require that all suppliers participate in all the activities in this agreement. Suppliers that fail to do so will receive notice, warning, and termination of business. Companies will negotiate financial terms that make it possible for suppliers to comply with this agreement and to maintain safe workplaces. Signatory companies commit to maintaining long-term sourcing of goods from Bangladesh at volumes comparable to those that existed prior to this agreement.

Financial support

Each signatory company will contribute to the costs of the SC, the inspectors, and the training coordinator in proportion to its business volume in Bangladesh up to a maximum of $500,000 per year for the five years of this agreement.

Dispute resolution

Disputes arising under this agreement shall first be referred to the SC. Either party can appeal a SC decision to final and binding arbitration. Arbitration decisions are enforceable in the court of law in the country of the signatory company.

Source: “Accord on Fire and Building Safety in Bangladesh,” May 13, 2013, http://www.laborrights.org/ creating-a-sweatfree-world/resources/bangladesh-fire-and-building-safety-agreement.

TYPES OF DISPUTES THAT CAN BE SETTLED BY MEDIATION

Mediation is most successful at addressing conflicts that arise from poor communications and misunderstandings that are caused, for instance, by one party or both becoming overcommitted to their negotiation positions, by a lack of

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experience on the part of the negotiators, or by one or both parties being insensitive to differences in the cultural norms of other parties related to negotiations. Mediation is less likely, on the other hand, to resolve conflicts caused by the economic context of the dispute, such as the employer’s inability to pay or major differences in the parties’ expectations. Where there is a wide divergence in the demands of labor and management, the mediation process is limited because some form of outside pressure is often necessary to convince the parties to make major changes in their bottom-line positions. Thus, the mediation process is best suited to helping the parties understand their differences and move beyond their initial positions. When a large gap exists between the parties, mediation can be expected to succeed in getting the parties to adjust their bottom lines and reach agreement only in conjunction with some external pressure. Disputes that arise out of intra-organizational conflicts or situations where it is unclear who speaks for or represents one or other of the parties or who has the power or control of the funds are also difficult to resolve through mediation. Consider again the example of the violent series of strikes in the South African mining industry in 2012, when an apparent majority of workers lost faith in the National Union of Mineworkers and were represented by the Association of Mineworkers and Construction Union. In China, the ACFTU is the officially designated union that is sanctioned by the government for all workers, but its lack of independence from both the government and employers often leads workers to take job actions on their own. Determining who represents the work force is thus an issue that has to be sorted out in such situations. The less frequently the mediator becomes involved in trying to mediate disputes within one of the parties’ organizations, the greater the likelihood that the mediator will be accepted by both parties and the more open the parties will be to him or her. The difficulty for mediators is that a failure to resolve this sort of internal dispute can make it impossible to resolve the labor-management dispute. WHAT MEDIATORS DO

What mediators do and the dynamics of the mediation process vary across cultures. As noted above, mediators try to improve communications between parties that may not be talking to each other simply by relaying messages. They also offer alternative positions that the parties have not presented or possibly have not even thought of as potential steps to bringing them closer together. Mediators also serve a number of generic functions at different

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phases of a negotiation or conflict resolution process. We will first describe some of these generic functions and then note how differences in cultures may affect how these functions are carried out. The ultimate objective of a mediator is to help the negotiating parties reach an agreement. Yet there is more to mediation than the final step that settles a dispute. Mediation often follows an ever-narrowing course as the mediator seeks to whittle away at the various issues in the dispute. Progress toward a resolution is possible without necessarily completely resolving any of the issues. In other words, progress has been made if the parties have succeeded in narrowing their differences over the open issues, at which point the mediator might withdraw and the parties will revert to direct negotiations on their own. Mediation is also designed to help the parties “come clean without prejudice” or “save face” by having the mediator explore informally or off the record what would happen if one or both parties were to move away from their hard-line positions. Mediators commonly undertake this exploratory effort to prevent the parties from miscalculating. Thus, one major function of mediation is to allow tacit negotiations to take place, either directly between the parties or indirectly by having both parties share confidential information with the mediator.2 The mediator also tries to prevent the parties from holding back on concessions they would be willing to make to avoid a strike. It is by no means an easy task for the mediator to identify what the bottom-line positions of the parties are, since in most instances the negotiators are extremely wary of sharing this information openly with the mediator and in fact may not have a specific resistance point in mind. Instead, the mediator must often probe to find the parties’ true positions, relying on the statements or implications they make as a guide. Mediators often urge the parties in private to clarify how far they are willing to compromise to avoid a breakdown in negotiations and then try to get the parties to put forward their best offer. What mediators do is influenced by whether the parties are using traditional or interest-based strategies in their negotiations. When negotiators use interest-based techniques, they expect mediators to be skilled facilitators of this type of process. The mediator must know how to use brainstorming to generate options, know when to suggest that a subcommittee or other device for gathering additional information be formed, and be able to offer suggestions that are more than simple compromises based on existing positions—he or she must help invent new options that satisfy both parties’ interests. Most of all, the mediator needs to be alert to statements or actions by one party or the other that might indicate that the process is reverting back to traditional

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positional bargaining and coach the parties about how to avoid this tendency. Finally, mediators must also be skilled teachers of these new approaches to negotiations and be sensitive enough to know when to recommend that parties try interest-based techniques. This must be done well before the start of a negotiations process since, as indicated in chapter 6, most negotiators need to be trained in these techniques before they can use them successfully in actual negotiations. Mediating disputes involving parties with different cultural backgrounds poses particular challenges because parties enter negotiations with their own cultural frames of reference about how they expect others to act. Again, as noted in chapter 6, researchers who have studied differences in the negotiating behavior of Asian and American cultures have found that Asians put a higher value on building relationships with their counterparts than negotiators from Western cultures do. Typically, for example, Chinese and Japanese negotiators expect to spend more time at the beginning of negotiations on “non-substantive” issues and discussions. A skilled mediator needs to understand and help educate the parties about these cultural differences. In crosscultural mediation, it may be particularly important to bring to the surface and discuss differences in negotiating norms and to reach an agreement at the beginning of the process about the ground rules and expectations of the parties. Sometimes this is called “bargaining over how to bargain.” Traits of Successful Mediators

What are the traits of a good mediator? Perhaps the most important requirement is that the mediator must be acceptable to the parties. Because this form of intervention is voluntary, no mediator can function well without the trust of the parties. That trust must be maintained throughout the process, for if it is breached, the mediator loses all credibility and usefulness. That trust is also important because the mediator usually receives confidential information about the negotiations from the parties. If this information is used indiscriminately, it could destroy a party’s negotiation strategy and the long-term relationship between the parties involved. Most experienced negotiators will be hesitant to divulge confidential information to a mediator just because he or she has a good reputation. Thus, the early stage of most mediation efforts (when the mediator is not personally known to the parties) is often taken up with the mediator’s attempts to establish his or her credibility. Trust can also be compromised as the process unfolds. When this occurs, a mediator may voluntarily withdraw from the case or the parties may seek other means of resolving the dispute. Evidence suggests that nothing substitutes for having experience with the mediation process and with the substantive topics that are being mediated.

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Experience helps a mediator gain the trust of the parties and in other ways promotes successful mediation. Mediation is an art that one must learn by trial and error through on-the-job training.3 The U.S. FMCS, for example prefers to hire individuals who have years of experience in representing either labor or management in collective negotiations. Even then, these new hires normally will work with experienced mediators on a number of disputes before being assigned cases on their own. This “experience bias” poses a challenge for young people who want to enter the mediation field. Increasingly, this challenge is being resolved by providing more courses in law, business, and other professional schools on negotiation and conflict resolution in combination with opportunities for young, aspiring mediators to observe and assist experienced mediators in real cases. This teaching and apprenticeship model can help new mediators overcome the “experience bias” and can develop a new generation of acceptable and experienced neutrals who can bring new ideas and techniques into the labor relations process. Some law schools have developed mediation clinics that gives students an opportunity to mediate cases with government agencies under the supervision of government staff mediators. Young mediators may still experience difficulties in some cultures. Chinese culture reserves high respect for authority and age, for example. This suggests it would be hard for a young mediator to be effective with one or more older negotiators. It also may be difficult for younger employees to openly negotiate with older managers. An experienced mediator can be particularly useful in helping parties negotiate in settings like this, provided that both parties have reasons to respect the mediator. It is important for mediation agencies to obtain feedback about how satisfied the parties are with the services provided. Mediators often don’t get any feedback until they learn that they are not invited back when new disputes arise. Surveys of parties who have experienced mediation have been used to obtain feedback on a more systematic basis. Mediators, like their labor and management colleagues, are under pressure to change and learn new approaches to their occupation and to help the parties involved update and improve the process of labor relations process. In doing so, they need to be aware of the different expectations that some labor and management representatives have for them and for labor relations processes. THE DYNAMICS OF MEDIATION IN TRADITIONAL BARGAINING

In a mediation involving a traditional bargaining process, the strategies of the mediator often proceed through a number of stages.4

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The Initial Stage: Gaining Acceptability

During the initial stages of mediation the mediator is primarily concerned with achieving acceptability and identifying the issues in the dispute, the attitude of the parties toward each other, and the distribution of power in each negotiating team. The initial stages of mediation often call for the mediator to listen passively and ask questions. Normally the mediator will shuttle between the two negotiating teams to explore issues. Separate sessions with the mediator also give the parties an outlet for their pent-up emotions and frustrations. In these stages the parties will often lash out at the other side, exaggerate their differences, and try to convince the mediator of their own rationality and the unreasonableness of their opponent. It is in these early sessions that bonds of trust and credibility can be established between the mediator and the parties. The mediator has to be careful not to identify with or endorse the charges against the other party and not to respond to such challenges in a way that might create the impression of favoritism toward the opposition. In short, in the early stage of mediation the parties are testing the mediator. Some of the same grandstanding that occurs in the early stages of the negotiating cycle is repeated at this point in mediation for the benefit of the newest entrant into the process. The mediator should also test the parties in this process by asking questions that might lead that side to challenge or rethink their long-held beliefs and statements about the other side. The biggest challenges for the mediator at this stage are (1) to accurately diagnose the nature of the dispute and the obstacles to a settlement; and (2) to get something started that will produce movement toward a final resolution. The mediator is often faced with the statement by one party that “we made the last move so the next move is up to them,” only to proceed to the other side and hear the same thing. The mediator cannot let either party’s hesitance to move first stop the process before it is given a chance. Neither party, in all likelihood, wants this to happen. Turning to an issue that both have mentioned and then asking “What if I could get the other side to do thus and so?” is often so enticing to the stubborn advocates that they turn to the substance of the issue before them and ask “Could you get that?” or say “We could move on that if . . .” The Middle Stage: Probing for Potential Compromises

Once the mediator overcomes the initial stalemate, the next step is to begin an exchange of proposals and test for potential areas of compromise. At this point it is crucial that the mediator’s diagnosis of the underlying sources of conflict be accurate. The mediator is now beginning to intervene more actively by trying to establish a framework for moving toward a settlement. If

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the mediator has misjudged the underlying difficulties and tries to push the parties toward a settlement prematurely or in a way that does not overcome some of the major obstacles, his or her credibility can be lost. A retired mediator once told the following story about how he learned he was pushing for a settlement prematurely while mediating a strike: I started the mediation in the normal way, and the parties responded by discussing their differences in a serious fashion. I then broke the parties into separate caucuses. When I went to talk with the union team I found them playing cards. To my dismay, I could not convince them to stop playing cards and get down to the business of settling the strike. Instead, I was told to go back to my hotel room and that they would call me when they needed me. Later I learned that the major obstacle to a settlement in this case was a structural one—the longshoremen on one coast of this country were waiting for the longshoremen on the other coast to settle their contract so that they could then use it as a pattern for their own settlement.

During this second stage of the mediation process, the mediator continues to probe to identify the priorities and bottom-line positions of the two parties. The mediator actively looks for possible acceptable solutions to the outstanding issues. Once the parties have begun to discuss specific proposals, the mediator attempts to determine whether their bottom-line positions are close enough. If they are, then the mediator presses for modifications that would yield an agreement. The mediator’s ability to estimate the parties’ bottom-line positions is crucial at this stage, as is timing. When the mediator judges the bottom-line positions to be close enough to push toward a settlement, he or she takes a more assertive role. The mediator can suggest compromises, push the parties to make compromises they earlier stated they would be unwilling to make, and, in general, try to close the gap between the parties. Engaging in such active tactics prematurely (that is, when the parties are still too far apart) damages the mediator’s credibility and acceptability. When conditions are not ripe for settlement, the mediator must hold back from using overly aggressive tactics. When the time is ripe, however, the mediator must take action or risk losing the opportunity to forge a settlement. The mediator’s prior experience helps guide him or her in judging timing. At this point in the process the art in mediation comes to the forefront. The Final Stage: The Push to Compromise

As the pressure to reach a settlement builds and the mediator senses that the time for the final push toward a resolution is at hand, he or she becomes

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increasingly proactive. No longer passively listening to the parties’ arguments and rationalizations, the mediator tries to get the parties to face reality and adjust their expectations. The mediator may push for compromise solutions while at the same time being careful to avoid becoming identified with a specific settlement point. If the mediator were to become too committed to a solution that one or both parties reject, that would limit his or her continued usefulness. Thus, any suggested compromises should be offered as “Suppose I could get them to . . .”or “Do you think the other side would be willing to split the difference? Would you?” The dynamics within each of the negotiating teams often change at this point as well. Frequently, team members will differ on the substantive issues. The mediator will often look to the professional negotiators on each team for help in dealing with the more militant team members. Sometimes the reverse is true as well: the negotiator will look to the mediator for help in calming a militant faction on the negotiating team. Bringing the spokespersons from each team to an off-the-record caucus, if done at the right time, can elicit courses of action or routes the professional negotiators can embrace to help their own team agree to move closer to settlement. These final-hour sessions often require that someone—the mediator, the professional negotiator, or both—convince the hard-liners that the best deal is on the table and that the final compromises that are necessary for a settlement to be reached should now be made. Again, the parties’ confidence in the mediator is critical to the dynamics of these final steps. Sometimes the mediator is called on during these final stages to make what are called mediator proposals. Mediator proposals are riskier and more formal ventures than the many other suggestions a mediator will make during the course of an intervention, since if they do not succeed, it is likely that the mediator’s usefulness will come to an end. A mediator proposal is normally made only when both parties are close to a settlement and the mediator believes that the proposal will induce the parties to come to agreement. In some cases the mediator may make a proposal that the parties have already tacitly endorsed but for political or other reasons they prefer not to offer themselves. Some mediators believe that a proposal should never be made unless he or she is sure it will be acceptable to both parties. The preceding description of the dynamics of mediation points out that a mediator must be proactive in pushing the parties toward a settlement—when the climate, the timing, and the pressures on the parties are right. The parties often prefer active mediators, and proactive mediator behavior has been shown to be related to the effectiveness of the mediation process.5

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Mediation in Interest-Based Negotiations

We have already noted that in interest-based processes, the mediator takes on more of the role of an active facilitator, teacher, and coach than is the case in a traditional negotiations process. In addition, in interest-based processes, the cycle of negotiations is likely to be altered to focus less on a final agreement or strike deadline as the defining moment. Since training is required, the mediation process may begin well before the negotiation process starts. In box 7.3, an experienced mediator describes how and when he uses interest-based techniques to facilitate the negotiations process.

BOX 7.3 How Interest-Based Mediation Works Well before negotiations are scheduled to begin, I provide parties who express an interest in or who we believe might be good candidates for an interest-based approach with a 90-minute informational briefing. We discuss factors to think about in deciding whether or not to use this approach. In the process of this discussion, I probe to see if there are any factors that would lead me to recommend against using the process, such as no evidence of cooperation in the relationship or a history of contract rejections by one side or the other. If the parties agree to take the next step, we then hold a two-day required training session for all members of the union and employer negotiating committees. At the end of the training, we make a trilateral (union, employer, and mediator) decision on whether or not to go forward with the process. The next step is to hold a pre-negotiations meeting to agree on two sets of ground rules. The first set are transitional ground rules that outline what will happen if at some stage the interest-based process breaks down and the parties need to return to a more traditional process. This serves as a “road map” back to the traditional process and provides a safety valve for the parties. The second set are process ground rules. Here we deal with rules such as how we define consensus decision making, how we will deal with press releases, how and when information will be communicated to constituents, and so on. Then we are ready for an exchange of issues using an interest-based format. This exchange takes the place of a traditional exchange of proposals or a laundry list of demands. Each issue is framed as a question

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that cannot be answered in a yes-or-no fashion. For example, an issue might be framed as: “How can we accommodate employee needs to have greater time off for funerals and handle staffing needs effectively?” We also agree at this stage on the order to take issues up and on any information that needs to be obtained in order to discuss them. Negotiations dates are set at this time after giving adequate consideration to the time needed to collect the necessary data. For the actual negotiations, we commit to participating in the first two sessions or until the first issue is settled, to returning when the economic issues are taken up, and to being present as the process is coming to an end. What do I do in these sessions? My basic role is to facilitate the process, to keep the process on a problem-solving track, and to make sure [the parties] lay out all the issues and problems and don’t stray into a general discussion mode that will take them back to traditional positional bargaining. If, in the rare instance, I feel the need to make a substantive suggestion, I indicate that I am stepping out of my facilitating role to do so. One of the hardest tasks the parties have is to agree on standards for evaluating options. I suggest three simple standards, but the parties are encouraged to develop their own as well. The three I use are: (1) Can we do it? (2) Does it convey benefits (related to their interests)? (3) Is it acceptable to the constituents? The parties take up noneconomic issues first. Then, in perhaps about 35 to 40 percent of the cases, I find us using more traditional approaches to resolve the deep-gut economic issues. But even here, when the interestbased process has been successful on the earlier issues, we generally find more of a problem-solving focus and willingness to listen to each other that is often absent in the final stages of a traditional negotiation. The parties are more apt to stay in an interest-based bargaining frame of mind. Two big differences in my experience with this approach are that the deadline and the strike threat are not major factors. In only three out of sixty cases I’ve mediated in this way has a strike notice been issued, and then it was done to satisfy constituency needs rather than as a serious threat across the table. The overwhelming majority of cases have settled prior to the deadline date, while some have gone beyond the expiration with no serious repercussions. On only one occasion did I hold a mediation session beyond 8 p.m.

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I like to use two criteria to judge whether the interest-based approach has been successful. The first is whether the parties use it again the next time. About 80 percent do so. The second is whether the number of relationship or noneconomic issues brought to negotiations are lower the second time around. If interest-based bargaining is able to really solve problems, the number of “relationship” or noneconomic” issues should go down. Source: Mediator and U.S. FMCS commissioner George Buckingham.

Complex and Multiparty Negotiations

Employment disputes are becoming increasingly complex in terms of the substantive issues and the number of parties involved. For example, parents and other community groups may be involved in teacher and education-related negotiations. Environmental groups and other NGOs contractors, multinational firms, and local government officials may be parties to negotiations regarding an environmental issue. In these complex settings, mediators often use a variety of technologies to keep track of ideas and options and draft texts of possible agreements. These include flip charts, electronic devices for taking notes, computers and/or large-scale projector screens for joint editing, and single text-drafting processes. Mediators use any combination of these tools to facilitate negotiations on complex issues or those that involve multiple parties. The “single text” strategy was famously used by President Jimmy Carter in mediating an agreement between Egyptian president Anwar Sadat and Israeli prime minister Menachem Begin in 1978. In this approach, the mediator drafts language that he or she thinks reflects a potential agreement on all the outstanding issues and then works with the parties to edit the language until the final draft is mutually acceptable to all the parties. Obviously this technique is now considerably easier and faster to implement given the instant editing and track change capabilities of computer software. Undoubtedly, additional techniques for negotiations and mediation will be invented as new generations of mediators who are experienced at using social media and other tools enter the employment relations profession. The Effects of Mediation on Settlements

What has the track record for mediation been? Although international data are scarce, data from the U.S. FMCS surveys have shown that mediation led

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to an agreement in 46 percent of the cases in which an FMCS mediator was involved in negotiations. In another 35 percent of these cases, the labor or management respondent indicated that mediation brought the parties closer together. Thus, in over eight out of ten cases, mediation had a positive effect on the process of reaching an agreement. Mediation was somewhat more successful in reaching agreements in situations where the dispute affected fewer than 250 workers. As another indicator of the acceptability of the mediator and satisfaction with the mediation process, over 90 percent of FMCS’s clients indicated they would use its mediation services again in the future whenever it was needed. In general, parties who like and continue to support mediation do so because it helps them reach agreements and because they feel they have control over both the process and the results. If one or both of these features are missing, support of the parties for mediation tends to erode. This appears to be happening in China, where government-appointed mediators are losing the trust of workers. As a result there is a trend toward returning to using community leaders as mediators in employment disputes in China. The Potential Tension between What Is Right and What Will Bring a Settlement

In theory, the mediator is not supposed to be concerned with the substance of the outcome. Instead, the traditional view is that mediation works because the job of the mediator is simply to bring the parties to agreement. Yet there are definitely times when mediators have trouble accepting this principle. All mediators must struggle from time to time with the moral question of how far to compromise their personal values or perceptions of equity in attempting to fashion a contract settlement. The traditional answer to this question has been that the mediator’s primary responsibility is to help the parties reach an agreement and to keep his or her values and preferences or the values and preferences of the larger society out of the process. According to this view, the mediator should not endeavor to create a settlement that would be most consistent with “the public interest.” In this traditional view, that the way the mediator best represents the public interest is by helping prevent or end an impasse.6 The moral dilemma is even more difficult to resolve if questions of individual rights are part of the settlement package preferred by one of the parties. Mediators will continue to struggle with this moral dilemma and decide how high a priority they are willing to put on the singular goal of achieving a settlement.7 Some mediators, especially those who favor interest-based techniques, reject the traditional view. Instead, they argue that an effective mediator will

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help the parties articulate their basic interests and then help steer the process toward results that best serve those interests. In this view, the substantive terms of the settlement are as important to the success of mediation as is the settlement itself. As labor and management become more conversant with interest-based processes, their expectations of the mediator and their indicators of success for both negotiations and mediation are likely to increase. COMPULSORY ARBITRATION

Compulsory arbitration involves the use of a third party (an arbitrator) who is empowered to impose a settlement covering the future terms and conditions of employment in a dispute between workers and an employer. In the United States and a few other countries this type of arbitration is referred to as “interest” arbitration to distinguish it from the “grievance” arbitration that can occur in those countries. Grievance arbitration involves issues related to the interpretation and implementation of a collective agreement and not the actual terms of that agreement (see chapter 8). Most management and labor representatives prefer not to use compulsory arbitration because they have to give up some control over the terms and conditions of employment to an outside decision maker. For example, in China, while a government-provided arbitration process for resolving individual (“rights”) disputes exists, there is no provision for compulsory arbitration of collective disputes. There is also a long-standing philosophical argument that the right to strike is essential for preserving the rights of labor and management in collective negotiations and that compulsory arbitration should be used to resolve impasses only rarely. As one scholar put it many years ago: In the case against compulsory arbitration there are distinguished prosecutors galore, and the catalog of inevitable disasters runs the gamut from simple bad decisions to dislocation of the economic foundations of free enterprise. The division is not liberal/conservative, nor labor/management—there is no division. All the principal authorities are in agreement.8

In this view, compulsory arbitration should be limited to cases of dire national emergencies or to disputes in which the parties themselves decide it is in their interest to submit their dispute to a procedural substitute for the strike. A Combined Mediation-Arbitration Approach

Arbitrators often choose between two different processes to reach a decision: (1) a mediation-arbitration process; and (2) a judicial decision-making

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process. Advocates of the mediation-arbitration process view compulsory arbitration as an extension of the bargaining process in negotiations in which the neutral arbitrator seeks to shape an award that is acceptable to the parties.9 Mediation-arbitration (generally referred to as med-arb) places a premium on using the compulsory arbitration proceeding as a forum for continued negotiations or mediation, although the arbitrator has the ultimate authority to decide on the outcome/resolution. Those who advocate the mediation-arbitration approach claim that no system of compulsory arbitration can hope to survive for long unless it produces outcomes that are acceptable to the parties. They also argue that the parties should maintain maximum control over the discretion of the arbitrator and should participate in the decision-making process as much as possible in order to maximize the amount and accuracy of the information the arbitrator uses in making the final decision. Detractors of the med-arb process raise the problem of the neutral arbitrator gaining information from one party in mediation that may be kept from the other party but be used as the basis for the arbitration decision. The confidentiality that is so important to communication during mediation may reveal things that are never subject to cross-examination or even disclosure yet may be crucial in leading the arbitrator to a final decision. Another variant in this approach is to reverse the med-arb sequence; that is, to do arb-med. The way this is sometimes done is that an arbitrator drafts a decision without sharing its contents with the parties and then engages them in a mediation process. If mediation produces an agreement, the draft arbitration decision is not issued. The advantage of this approach to the parties is that they have one last chance to shape their own agreement. The advantage to the neutral arbitrator is that he or she can make subtle or not-so-subtle hints to each party that they might be better off making a compromise agreement than having to live with the outcomes the arbitrator has included in the draft award. A Judicial Approach

The countervailing view of compulsory arbitration holds that the arbitrator should focus on the “facts” of the case. In this judicial approach, the arbitrator adheres strictly to predetermined criteria and is not influenced by the power or preferences of the parties. Preventive and Other Forms of Dispute Resolution

The need for skilled third parties in conflict resolution and problem solving is not limited to the formal negotiations process. Over the years a variety of

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new dispute resolution roles have emerged in settings where labor and management have been attempting to achieve fundamental changes in their relationship. Many mediation agencies, for example, provide education and training services aimed at building skills, relationships, and practices that prevent disputes from arising. The British mediation service puts it nicely: “When we are not working on today’s crises we are working on tomorrow’s prevention.”10 This agency devotes nearly half its time and resources to preventive activities that include education, training, disseminating best practices, and operating telephone help lines. Private firms and some universities also provide such services. Some of these services are governed by the parties that use them, such as the Massachusetts Education Partnership, an institution that was created to promote innovation and improvement in education through the collaboration of labor and management (see box 7.4).

BOX 7.4 The Massachusetts Education Partnership in the United States: An Example of a Collaborative Approach The Massachusetts Education Partnership, which was launched in 2012, seeks to improve student achievement and success through collaborative labor-management relations in school districts across Massachusetts. The partnership’s purpose is to help labor-management teams of superintendents, union leaders, school committee members, teachers, and administrators develop active collaborations in the area of labormanagement relations and school site operations, with the goals of • Accelerating student achievement and promoting student success; • Increasing teacher engagement and leadership in school and district governance; • Improving the productivity of bargaining practices; and • Instituting policies, structures, and practices for sustainable collaboration and reform. The partnership’s vision is that all Massachusetts K–12 district and union leaders collaboratively will develop the capacity to design and jointly implement systemic changes in practices that advance student achievement. Its long-term purpose is to establish sustainable cultures of

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collaborative practices in schools, districts, and the commonwealth. The partnership has launched two initiatives: The District Capacity Project, which provides facilitators to help district labor-management teams work intensively on particular problems or challenges facing their district. The Interest-Based Bargaining Institute, which provides training and direct technical assistance to school districts who want to transform the way they engage in contract negotiations, moving from a positional and often adversarial process to one grounded in a full exploration of the parties’ shared and competing interests. Source: Massachusetts Education Partnership Web site, http://www.massed partnership.org.

New Roles for Labor Relations Neutrals

Neutrals are also increasingly being called on to chair or facilitate labormanagement committees, to serve as consultants to labor and management in employee participation and workplace improvement programs, to facilitate the joint planning or design of a new plant or work system, or to work on other projects designed to solve long-standing problems in a bargaining relationship. All of these roles require the skills of a labor mediator. However, these roles differ from traditional mediation or arbitration roles in several important ways. First, most require that problems be addressed on an ongoing basis. Often this requires that the parties first undergo a team-building effort to change their attitudes and increase their levels of trust with each other. Second, these third parties must have specialized knowledge of the substantive problems the parties face. The third party is expected to be a consultant who brings technical expertise to bear on the problem and also is sensitive to the needs of both labor and management. Third, the time horizon of the process tends to be very long. Whereas the traditional mediator is mainly concerned with achieving a settlement of the immediate impasse, third parties involved in these new roles must focus on the effects of any decision on the quality of the longer-term relationship. The behavior of the parties to these new processes is also significantly different from traditional labor-management behavior. For example, to be successful, long-term problem solving requires the parties to share information more readily than they do in traditional collective negotiations.

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These services are provided by a growing number of individuals and private companies and some government agencies. In Singapore, the Manpower Ministry has supported a range of different technical assistance agencies and groups aimed at helping employers and unions improve productivity and the quality of work. As the issues involved in labor management relations become more complex and the public interest in having highly efficient and equitable employment relationships grows, the number and range of such programs is likely to increase. At the same time, however, the parties may still need to turn to traditional mediation and arbitration processes. In short, effective conflict resolution and longer-term problem solving are both critical to the success of contemporary labor relations.

Summary This chapter describes the two major impasse resolution procedures— mediation and compulsory arbitration. The use of these procedures has varied extensively. Mediation has been commonly used in most countries. It is the most flexible form of dispute resolution, since it can be adapted to fit different cultural norms and the parties maintain control over its use and over the final outcomes of the dispute. Compulsory arbitration has been used less frequently, most often in settings involving essential public (or private) services. The degree to which these two procedures constrain the actions of labor and management also vary. At one extreme is mediation, where the parties can (and sometimes do) dismiss the mediator or ignore the advice the mediator gives. At the other extreme is binding compulsory arbitration, where the parties must follow the decision of the arbitrator. The purpose of any impasse resolution procedure is to help the parties achieve a contract settlement that both labor and management find acceptable, that helps sustain a successful labor-management relationship, and that provides outcomes that benefit society. Good mediators, arbitrators, and other neutrals understand the issues that divide labor and management and have the ability to offer creative solutions to these problems.

Discussion Questions 1. Describe the objectives of mediation. 2. What three stages typically occur in mediation? 3. Why do you think union and management leaders often express a dislike of compulsory arbitration? 4. Contrast mediation-arbitration and judicial arbitration.

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Related Web Sites Commission for Conciliation, Mediation & Arbitration (South Africa): http://www .ccma.org.za Federal Mediation and Conciliation Service (FMCS): http://www.fmcs.gov/ internet/

Suggested Supplemental Readings de Lange, Jan. “The Rise and Rise of Amcu,” Miningmx, August 2, 2012 (about the Association of Mineworkers & Construction Union (South Africa): http://www .miningmx.com/special_reports/mining-yearbook/mining-yearbook-2012/A -season-of-discontent.htm. Gelfand, Michele J., and Jeanne M. Brett. The Handbook of Negotiation and Culture. Stanford, Calif.: Stanford University Press, 2004. Goldberg, Stephen B., Eric D. Green, and Frank E. A. Sander. Dispute Resolution. Boston: Little, Brown, 1985. Kolb, Deborah. The Mediators. Cambridge: MIT Press, 1982. Pruitt, Dean G., and Jeffrey Z. Rubin. Social Conflict: Escalation, Stalemate, and Settlement. New York: Random House, 1986. “Trade Unions in China: Membership Required,” The Economist, July 31, 2008 (about the All-China Federation of Trade Unions): http://www.economist.com/ node/11848496. Notes 1. The parties must adhere to the decision in a binding arbitration procedure. As discussed below, nonbinding arbitration is occasionally used. 2. Carl Stevens, Strategy and Collective Bargaining Negotiation (New York: McGraw-Hill, 1963). 3. One empirical study of mediation in the public sector did find a positive relationship between the level of experience of mediators (measured as the number of previous mediation cases) and the effectiveness of mediation, especially in terms of convincing parties to move toward settlement and decreasing the number of open issues in the dispute. See Thomas A. Kochan and Todd Jick, “The Public Sector Mediation Process: A Theory and Empirical Examination,” Journal of Conflict Resolution 22, no. 2 (1978): 209–240. 4. For analysis of mediation strategies, see Kennet Kressel, Mediation: An Exploratory Survey (Albany, N.Y.: Association of Labor Mediation Agencies, 1982); and Deborah Kolb, The Mediators (Cambridge: MIT Press, 1982). 5. One study shows a positive effect for mediator aggressiveness and noted that the more intense or difficult the dispute, the more aggressive the mediator tended to be. See Paul F. Gerhart and John E. Drotning, “Dispute Settlement and the Intensity of the Mediator,” Industrial Relations 19, no. 3 (1980): 352–359. 6. Eva Robbins, A Guide for Labor Mediators (Honolulu: Industrial Relations Center, University of Hawaii, 1976). 7. For a good discussion of this dilemma, see William E. Simkin, Mediation and the Dynamics of Collective Bargaining (Washington, D.C.: Bureau of National Affairs, 1971), 34–40.

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8. Orme Phelps, “Compulsory Arbitration: Some Perspectives,” Industrial and Labor Relations Review 18, no. 1 (1964): 8. 9. Arnold Zack, “The Quest for Finality in Airline Disputes: The Case for Arb-Med,” Dispute Resolution Journal (November 2003): 34–38. 10. Quoted in William Brown, “Third Party Process in Employment Disputes,” in The Oxford Handbook of Conflict Management, ed. William Roche, Paul Teague, and Alexander Colvin (Oxford: Oxford University Press, 2014).

PART 3

The Workplace Level of Labor Relations Chapter 8. Workplace Labor Relations Chapter 9. Employment Outcomes

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THE IMPORTANT ROLE OF THE WORKPLACE

This chapter moves to the lowest level in our three-tiered model from figure 1.1 and examines labor relations at the workplace level. The focus in this chapter is on the day-to-day employment relationship. It involves management of employees in the workplace, the participation, if any, of employees in decision making, and the administration of the labor contract below the level of formal contract negotiations in unionized settings. Managing the workplace on a day-to-day basis involves questions of how work is organized and what rules govern employee behavior. In recent years, competitive pressures have spurred the growth of different approaches to work organization and employee involvement in decision making. Although many workplaces still rely on the unilateral authority of managers and simplified, standardized work organization, others have adopted more flexible forms of work organization that include greater employee participation. When conflicts arise in the workplace, it is important to have some mechanism for resolving them. Organizations vary widely in their procedures for and approaches to conflict management. Different countries have distinctive national systems for conflict resolution that vary in their impacts on the workplace. How these elements of workplace labor relations function affects both organizational performance and individual employee attitudes and outcomes. This chapter examines how each of these elements operates and how they combine to affect workplace labor relations. 193

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Conflict Management and Due Process

Employee Attitudes and Behaviors

Organizational Performance

Realization of Employee Goals

Figure 8.1. A model of the workplace labor relations system

A MODEL OF THE WORKPLACE LABOR RELATIONS SYSTEM

The three basic functions any workplace labor relations system serves are the following: organizing work and implementing workplace rules; resolving conflict and providing due process; and developing individual employee attitudes and work behaviors. Figure 8.1 sketches the interrelationships among these three functions of workplace labor relations and their effects on the performance of the firm and the fulfillment of workers’ goals. Recognizing how the elements of workplace labor relations interact is key for understanding such relations as a system. Work organization and rules are important elements of workplace management. But workers may contest the management decisions that are made in workplace or feel that the rules are being applied to them unfairly. Managing and resolving these conflicts is critical to ensuring the effective operation of the workplace. The degree to which workers feel they are treated fairly and accorded due process is also important for their attitudes about their work and employment, and this in turn influences their motivation and behaviors in the workplace. Operating together, the elements of a well-functioning workplace labor relations system can enhance both organizational performance and worker outcomes. WORK ORGANIZATION AND PARTICIPATIVE PROCESSES

How work is organized on the shop floor is a key factor that shapes workplace labor relations and is critical to organizational performance. Over time, approaches to the organization of work have evolved from simplistic approaches that involve driving workers to exert greater effort to more scientific approaches to managing the production process to maximize production to

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more sophisticated recent approaches that entail involving employees in decision making to improve the flexibility and quality of production. Although we see an evolution of approaches to work organization that emphasize more participative processes, great variation in which practices are used continues. Many organizations, particularly in emerging countries, continue to use more traditional directive approaches to managing the workplace. In this section we describe a range of common approaches to work organization. The Drive System

In the early years of industrialization, employers initially gave substantial power to line foremen, who were considered the drive system of management.1 Hiring, firing, and general supervision of labor were all controlled by these foremen.2 The arbitrary and often discriminatory treatment of workers by foremen created extremely high turnover rates among both unskilled and skilled workers. One historical estimate, for example, put turnover in auto plants in the United States before 1913 at 370 percent per year! In the United States during and after World War I, the combination of tight labor markets, government pressure for wartime production, and a rising threat of unionization led a number of large firms to establish professional personnel departments. But the drive system continued to dominate the workplace in the majority of smaller establishments. Even today we see modern versions of this emphasis on the authority and discretion of managers in small businesses in advanced industrial economies. In emerging countries, the drive system of management continues to be a common approach in many workplaces. Where organizations lack professional management expertise and formal organizational structures for directing the firm, we find a tendency to allow lower-level managers and supervisors to use their own discretion and authority in organizing and directing the work force. Consider the example of the autocratic work practices at Foxconn, the Apple supplier that we discussed in chapter 5. The long hours, poor working conditions, and military-style drilling of employees at Foxconn all illustrate a version of the drive system of management. Some of these practices may be changing at Foxconn as a result of public pressure and the investigation of Foxconn factories by the Fair Labor Association. However, the drive system continues to be used in many other factories that compete on the basis of being a lowest-cost supplier. This approach also tends to be especially common in the informal sector and among smaller, independently owned businesses. It may also be used by some foreign owners to manage local factories where cultural and language barriers make it more difficult for expatriate managers to personally direct the labor force. Box 8.1 provides an example of this situation in Taiwanese-owned export-oriented clothing factories in Lesotho.

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BOX 8.1 Work Organization and Supervision in Garment Factories in Lesotho, South Africa In Taiwanese owned factories [in Lesotho], there is generally one Basotho [a local person from Lesotho] supervisor appointed per line, and one Taiwanese supervisor for every two or three lines. The Taiwanese supervisor is in charge of the technical aspects of work (e.g. setting up for new styles, showing workers a task), and the Basotho supervisor is in charge of ‘motivating’ the workers, or pushing them to reach their targets. . . . Hiring Basotho with this purpose in mind is one way to get past the language barrier, but it also predisposes them to be harsh and controlling with the workers. If someone makes a mistake, or a worker has a question, it is difficult to ask for help because they are worried they will be punished in some way. . . . In [the] factories, workers felt that it was the loudest workers who were selected. Because their primary role is to motivate and push workers, people who can be the harshest on workers tend to be promoted to supervisory positions. . . . The lack of a formal selection procedure impacted workers’ perceptions of fairness, creating feelings of resentment towards supervisors. Conflict grew from this resentment in different ways. . . . In [the] factories, in addition to supervisors being used to push the workers, they also must negotiate a language barrier with their Taiwanese supervisors. As such, they are often responsible for taking brief instructions and then relaying messages at large to workers . . . Supervisors complained that they are: (1) responsible for doing the tasks of several managers because they are able to communicate more easily with workers; and (2) often in the position of dealing with superiors who don’t understand why the work isn’t getting done faster. At one end, they are unable to please the workers because they must push them so hard, and at the other end they are unable to please their superiors because the expectations are so high. . . . Supervisors reported feeling under enormous pressure. Source: Reprinted from Kelly Pike, “Made in Lesotho: Examining Workers’ Perceptions of Compliance with Labor Standards in Lesotho’s Clothing Industry” (PhD diss., Cornell University, 2014), 171, 177, 179, 185–186.

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Scientific Management

An important element in establishing professional personnel management functions in firms was the introduction of scientific management. Although the ideas behind the scientific management movement can be traced as far back as the mid-1800s, Frederick Taylor’s promotion of this movement in the first two decades of the twentieth century was critical. Scientific management blended economic incentives and industrial engineering techniques to produce the “one best way” of organizing work. Proponents of this method assumed that by tying the individual worker’s wages to output, the interests of the worker—economic rewards—and the interests of the firm—productivity— could be made compatible. Box 8.2 describes how scientific management principles were applied on Henry Ford’s assembly line. Management’s function was to design the jobs and supervise and compensate the work force so as to eliminate conflicts of interest between workers and the employer. Industrial engineering principles (such as time-and-motion studies) and incentive wages were used to this end.

BOX 8.2 Scientific Management in the Auto Industry Production efficiency in the final assembly of cars rose, but the soaring demand for Ford’s Model T, introduced in 1908, rose even faster. Ford still had to rely on skilled mechanics to perform the complicated tasks in the Piquette Avenue plant in Detroit—such as filing and fitting together the parts for transmissions and engines. These workers were not protected by union work rules, but their monopoly of mechanical skills and their crucial role in the production process enabled them to work at their own pace. Even the less-skilled assembly workers had some control over their work pace. As they pushed their bins from car to car, they could slow down to rest or to speak a word with their workmates. Beyond a certain point, supervisors simply could not force the men to adopt a faster gait or completely abandon their occasional socializing. To gain greater control over the production process, Ford began to lay plans for a new plant in the rural village of Highland Park. It would be, he announced, the biggest automobile plant in the world, employing new production methods that would revolutionize the auto industry.

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Ford was not alone in seeking ways to spur production and lower labor costs. Factory owners had been mechanizing and deskilling certain kinds of production for many years, but after 1900, the nation’s larger corporations attempted to do so on a broader, more systematic basis. The principles of this new “scientific management” were most vigorously espoused by Frederick Taylor, a former steel mill supervisor who became, after 1903, the nation’s leading consultant on “productivity” —or worker output. Like Ford, Taylor complained that in most workplaces—whether union or nonunion—“The shop [is] really run by the workmen and not by the bosses. The workmen together carefully plan . . . just how fast each job should be done.” Taylor’s solution was simple: “All possible brainwork should be removed from the shop and centered in the planning or laying-out department.” Management, in short, should redesign every job and divide it into dozens of simple, repetitive tasks performed by unskilled laborers or semi-skilled machine tenders. Skilled workers with their relatively high pay would no longer have to be tolerated in such large numbers. With deskilling, most craftsmen would be replaced, in Taylor’s words, “by men of smaller attainments, who are therefore cheaper than those required under the old system.” When Taylor came to Detroit in 1909 and spoke to executives at Packard, Henry Ford was already planning to make his new Highland Park plant (dubbed the “Crystal Palace” because of its many windows) a model of “scientific management.” Between 1910 and 1913, he put his ideas into practice by standardizing parts production and developing the auto industry’s first moving assembly line. Where before entire engines had been built by a single mechanic with a few helpers, now the engine blocks were pulled past a line of over 100 workers. Each worker performed a specialized task as the engine (or its parts) moved past: one would ream bearings, one every seven seconds, all day long; the next would file bearings, one every 14 seconds, all day long; and the next would put bearings on camshafts, one every 10 seconds, all day long. H. L. Arnold, writing of Ford in 1916, concluded that the company “desires and prefers machine operators who have nothing to unlearn, who have no theories of correct surface speeds for metal finishing, and who will do what they are told, over and over again, from bell-time to bell-time.” Source: Reprinted from Steve Babson, Working Detroit (New York: Adams Books, 1984), 29–31.

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Scientific management directly contradicted the beliefs of those who advocated collective bargaining. Instead of seeing conflicts of interest as an inherent part of the employment relationship, advocates of scientific management argued that appropriate task designs and wage systems could eliminate the sources of conflict between workers and employers. Because the optimal work system was to be determined through “scientific” engineering studies, there was no role for bargaining and therefore no need for union representation. A major lasting effect of scientific management was its advocacy of industrial engineering principles and a narrow division of labor in organizing work. This form of job design and work organization gradually became the standard in the mass-production industries, and unions inherited this form of management when they increased their membership in the mass-production industries (such as auto, steel, and textiles). The importance of scientific management is indicated by its wide diffusion across the world. By the mid-twentieth century, factories in most advanced industrial countries were organized using the principles of scientific management. One particularly striking example is the fact that the Soviet Union adopted Taylor’s principles of scientific management despite the obvious differences between the capitalist and communist economic systems.3 Over time, however, the Tayloristic approach to work organization ran into increasing problems in advanced industrial countries. One set of problems arose from the relatively inflexible nature of the Taylorized workplace, which could not deliver the flexibility of production that companies were increasingly desiring and the quality of products that consumers were increasingly demanding.4 A second source of problems arose from workers, who were increasingly unwilling to work on deskilled, monotonous assembly lines and were dissatisfied with the declining economic returns as wages for this type of work stagnated or declined. The problems with Taylorism spurred a series of efforts to develop new forms of work organization, which will be described next. Part of the reason Tayloristic factory work has declined in advanced industrial economies is the increased cost-based competition from manufacturing based in emerging countries. A key advantage of the scientific management approach is that it is relatively transferrable to different settings. A factory can be organized on principles of scientific management as easily in Brazil or China as it can in the United States or Britain. When competition is based primarily on cost, factories in emerging countries that have lower wage levels are able to outcompete their counterparts in wealthier high-wage countries by using scientific management principles to achieve high productivity levels.

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Lean Production and Quality-Focused Involvement

One major alternative to the scientific management approach to work organization is the lean production approach that was developed primarily by Japanese firms in the 1960s. The lean production system, most famously exemplified by the Toyota auto company, was based on the idea of removing slack or waste from the production process and promoting an intense emphasis on enhancing quality. This emphasis on enhancing quality throughout the production process, sometimes known as total quality management, was influenced by the ideas of American management theorist Edwards Deming. Although Deming was largely ignored in his own country, Japanese firms adopted his ideas of quality maximization to transform their manufacturing from one with a poor reputation for quality in the 1940s and 1950s into world-leading levels of quality and productivity by the 1980s and 1990s. A key part of the lean production approach is giving workers responsibility for ensuring quality throughout the production process. This is done in part through the mechanism of employee involvement programs that are narrowly focused on enhancing quality. In these programs, sometimes known as quality circles (QC), hourly workers often meet as a group with their supervisors outside normal production time to discuss ways to enhance quality and productivity. This type of employee involvement is also known as off-line participation because it occurs off the traditional assembly line. The rate of adoption of lean production and quality-focused involvement programs was influenced by evidence of the successes of Japanese firms that used these approaches. Most famously, Japanese companies such as Toyota and Honda achieved levels of quality and productivity that far exceeded those of their American counterparts. This led companies in other countries to adopt lean production and total quality management approaches in the hope of achieving similar performance levels. Many companies initially reported large payouts from off-line participation programs such as QC. For some companies, scrap rates began to drop significantly after QCs were started up and for others the groups were able to quickly identify methods for cost savings through changes in shop-floor production processes. Over time, however, the gains from QCs dissipated in company after company. Some workers became frustrated by the fact that management had rejected or ignored their suggestions and recommendations, and in some cases they stopped attending QC meetings. In other cases, workers continued to attend QC meetings but ran out of suggestions to offer because all their new suggestions required that changes be made in work rules or contractual clauses and these were deemed to be out of bounds for the QC. This latter problem arose where both management and the union had defined

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QC activity as a supplement to normal collective negotiations and labor relations. In these cases, QCs were not normally authorized to address work rules, contractual issues, the nature of technology, or basic production methods. The most successful participation programs were those that eventually broadened to involve work rules, collective negotiations issues, and production methods (essentially all the things that initially had been kept separate from the participatory processes).5 When this broadening did not occur, the participation process was not able to address the important issues that affected economic performance and long-run employment security. Teamwork Production Systems

Teamwork production systems are another alternative approach to work organization that focuses on reorganizing the production process itself to enhance worker participation in decision making. One source for this approach to work organization was work on sociotechnical systems design, which emphasized analyzing the workers and technology used in the production process as an integrated system. Sociotechnical systems design principles promote the development of the technology of the production process in a way that enhances the ability of employees to participate in and control how it is done. This often involves giving work teams of employees the discretion to decide how best to perform work tasks. Some of the leading early examples of this approach came from Sweden, where in the Kalmar and Udevalla car factories self-managed teams of workers would assemble a complete vehicle using specialized production equipment that replaced the traditional assembly line. Teamwork systems require a fundamental reorganization of workplace relations because they replace multiple and narrow job classifications with jobs that are broader in scope, that involve workers in making discretionary judgments, and that require investments in training. Typically, work teams do their own inspections since they must take responsibility for quality performance. In some cases the teams also do their own scheduling, task assignment, certification of workers’ skill levels, material handling, housekeeping, and routine repair work. Team and other participatory meetings also provide a forum for sharing information about financial performance and business matters. Traditional supervisors often are replaced with team leaders who are sometimes (but not always) drawn from the ranks of workers rather than from members of the first line of management. Modular Production

Modular production is an innovation in the organization of the workplace that has become important in a number of emerging economies. Although it

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is used in a number of settings, some of the most significant examples of modular production are in auto assembly plants in Brazil and Argentina.6 In modular production systems in auto assembly, the company producing the vehicle (which is typically multinational) directly employs only a relatively small labor force in the factory. Much of the actual assembly work is done by employees of different subcontractors who work directly on the assembly line in the factory. Each subcontractor’s employees are responsible for a separate module that goes into the final vehicle. This approach separates the multinational company from responsibility for much of the assembly work and produces a reduction in wages and lower labor costs for most of the work force doing the actual assembly work. The use of modular production does not mean that other systems of work organization are not also being used in these workplaces, as aspects of lean production and teamwork approaches are also found in these auto factories. The use of modular production does, however, change the labor relations situation, as unions now have to try to represent employees of multiple different companies in the same factory. This creates problems in trying to coordinate negotiations and opens up the possibility that the employer will play one group of workers against another in seeking to reduce labor costs. The Relationship between Participation Programs and Union Representation

As participatory processes expand and become meshed with the organization of a workplace, unions that represent workers at the site face a challenge about how to manage and coordinate the overlap. On the one hand, unions are tempted to try to maintain a clear and sharp separation between participatory activities and collective negotiations procedures and issues. Drawing such a separation can help the union leadership, particularly when a participatory program has just begun and some workers (or union officers) remain skeptical about the program’s objectives and implications. One way the parties try to accomplish this separation is by adopting a rule declaring that during team meetings workers cannot raise issues that are normally dealt with through the grievance procedure or the collective agreement. Although separating participatory processes and collective negotiations issues might make sense in this early phase, if the participatory process matures over time, the line between collective negotiations and the participatory process blurs. As unions and workers participate more directly in decisions, labor and management often find that the formal procedures outlined in the labor agreement become less important. In some firms, participatory processes become a forum for workers to air complaints as team meetings begin to tackle

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serious issues. The parties then make alterations that might otherwise be processed through the collective negotiations and representation process. Unions may want to allow the participatory process to evolve and to produce the types of innovations that can lead to improved cost competitiveness and employment security. Yet unions also do not want to abandon complaint procedures and formal negotiations, both of which still play important roles. How then can a union maintain a proper balance between direct worker involvement in decisions and the union’s representation responsibilities? The answer seems to lie in a shift in union and union officer roles. The union must allow participation to proceed but must continuously coordinate and oversee this process and its connections to collective negotiations and representation. This requires that union committee persons, for example, stay aware of what transpires in any team meetings in their jurisdiction. The union also should discuss participatory programs at union meetings and report about any role the union plays in participatory activities through union communication channels. A number of cases show that if the union ignores or maintains an arm’slength distance from a participatory process, a confrontation develops at some point or the participatory process withers. This may be just the outcome a union opposed to participation wants, but for unions that support participation, it can be an unfortunate development. CONFLICT RESOLUTION AND DUE PROCESS

Managing and resolving conflicts in the workplace is a basic function of workplace labor relations. Conflicts can arise in any workplace and involve a range of different issues. Some conflicts result from the normal interpersonal differences that arise in any organization. Other conflicts result from the process of managing, especially management’s exercise of authority and implementation of discipline. Although many conflicts are individual in nature, collective interests and concerns also drive disputes. Even when disputes may appear to be individual in nature at first sight, they often can reflect the underlying interests and behavior of groups of workers.7 A key role for unions in representing workers is to help resolve conflicts that arise in the workplace. This is often done by workplace-level union representatives, who may be shop stewards, works council members, or union delegates or may fill other union roles depending on the setting. For workers represented by unions, an especially important category of conflicts is those involving violations of the labor contract. In resolving such conflicts, the

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union ensures due process for its members and respect for the contract it has negotiated. Although conflicts are often resolved informally in the workplace, formal conflict resolution procedures play an important role in making the resolution of employee grievances and appeals more systematic and fair. Formal conflict resolution procedures are particularly important in unionized workplaces as they help regulate the relationship between management and the union and ensure that the agreements negotiated by the parties are implemented. The Functions of Conflict Resolution Procedures

Conflict resolution procedures serve the needs of three separate constituencies—labor, management, and society. Employees have an interest in due process and fairness in the workplace. Conflict resolution procedures serve the interests of workers by delivering industrial justice and by protecting workers who use the conflict resolution procedure from recrimination for having exercised their rights. If workers lose confidence in the efficacy of these procedures, they may turn to other potentially more costly and disruptive mechanisms to provide due process. Thus, management often agrees to complaint procedures to provide employees with due process because of the high cost of the alternatives. Employers are also attracted to conflict resolution procedures because they reduce the likelihood that disputes that occur during the term of a labor contract will lead to stoppages in production. Some labor contracts exchange management acceptance of the conflict resolution procedure for the union’s agreement not to conduct a strike over an issue that is covered by the procedure. Another function conflict resolution procedures serve is that they address the common interests of labor and management. As Neil Chamberlain and James Kuhn have noted, labor and management have a mutual interest in achieving continuity and consistency in the implementation of a labor contract. They both also benefit from procedures that allow flexibility in addressing unforeseen developments and the unique needs of different groups and individuals.8 Finding the appropriate balance between uniformity and flexibility is a key challenge in administering the employment relationship, and it is a particular challenge for conflict resolution procedures. Conflict resolution procedures also serve the interests of society by preserving industrial peace during the term of the contract, by keeping industrial disputes from overloading the courts or regulatory agencies, and by ensuring that unions and employers comply with public policies that govern employment. An additional interest of the public follows from the idea that collective

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negotiations between labor and management establish a form of democratic governance in the workplace. In this vision of workplace democracy, neutral and fair resolution of conflicts serves a function similar to that of the courts in political democracies in providing independent adjudication of legal disputes. Types of Conflict Resolution Procedures

There is a wide range of conflict resolution procedures in the workplace. They vary from simple, informal procedures to elaborate formal complaint procedures involving outside neutrals. Procedures often vary greatly, depending on whether or not a union represents the workers. The most common types of conflict resolution procedure also vary between different countries, as does the degree of involvement of public agencies or outside third-party neutrals in resolving workplace disputes. The most basic type of conflict resolution procedure is the open door policy, under which employees are invited to bring their complaint or concern to a manager who will attempt to resolve it. More formal appeal procedures for review of employee grievances often specify the person (often a supervisor or lower-level manager) to whom complaints can be brought and the person(s) (generally a higher-level manager) to whom the employee can appeal if they are unsatisfied with the initial manager’s decision. If the workers are represented by a union, there may be provision for a union representative to attend the appeal meeting to present the complaint. These types of conflict resolution procedures will often involve multiple steps as the employee and/ or the union appeals to higher levels of management in the organization. After the initial steps of appeal to management, some procedures provide for review of the complaint by an appeals committee or board. In unionized workplaces, this may be a joint union-management grievance committee in which representatives of both sides try to arrive at a mutually agreeable resolution of the conflict. Some nonunion firms have established management appeals boards, where a committee of senior-level managers sits as a review board to hear and decide employee grievances. An important innovation that originated with nonunion firms in the United States is the use of peer review panels, where a board on which fellow employees of the complainant are a majority of the decision makers decides the resolution of the appeal. Depending on the country, labor laws and public policies may provide for certain procedures or pathways for resolving workplace conflicts. In some countries, public policy empowers a works council or complaint committee to resolve workplace conflicts. If resolution efforts in the workplace have

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failed, some countries provide for appeal to outside arbitration or a public labor court or employment tribunal. The example of Brazil illustrates how workplace-level and public dispute resolution systems can link together. Brazil has a system of labor courts that dates back to the 1930s that resolves allegations of violations of that country’s labor laws. This set of specialized labor tribunals is a part of the nation’s judicial system and includes both lower courts staffed by professional judges who hear cases and a set of specialized appellate labor courts that reviews the decisions of the lower courts. In 2000, Brazil supplemented this system by passing a law establishing preventative conciliation commissions in workplaces. These commissions, on which representatives of employers and employees participate equally, attempt to resolve workplace conflicts through conciliation before claims proceed to the labor courts. Initially it was mandatory that claims proceed to the commissions before they could go to the labor courts, but after a 2009 Brazilian Supreme Court ruling that this was an unconstitutional limitation on access to justice, the commission step became voluntary. China provides another example of a country that includes mixed elements in its labor conflict resolution system. China’s labor dispute resolution system originated in the 1950s, but it has been substantially modified under the new market-oriented economic system and was updated in 2007 with the Law on Mediation and Arbitration of Labor Disputes.9 The Chinese system establishes a three-step process for resolving labor disputes: mediation, then arbitration, then litigation. The usage of these terms in the Chinese system differs from that in some other countries. The mediation step involves a system of labor mediation commissions at the enterprise level consisting of representatives of the employer, the employees, and the official ACFTU union. In practice, many enterprises do not have active commissions and use of this step has fallen off, in part because the labor mediation commissions that do exist often lack credibility and expertise in mediating labor disputes. The arbitration step involves cases that are heard by members of local labor arbitration commissions. Unlike arbitration in other countries, which usually means adjudication by a private neutral third party, the arbitrators in these commissions are public employees, so in practice this is more like the specialized public employment tribunals or labor courts found in many other countries. Although the 2007 law represents an effort to strengthen China’s dispute resolution systems to respond to the growing number of labor conflicts in that country, one of its weaknesses continues to be the lack of effective, accessible conflict resolution procedures at the workplace level.

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South Africa has a system of labor courts to adjudicate complaints that allege violations of that country’s labor laws. In addition, South Africa’s Commission on Conciliation, Mediation, and Arbitration (CCMA) uses a range of alternative dispute resolution approaches to resolve labor and employment disputes. The CCMA is an independent tripartite body that includes representatives of labor unions, employers, and the government. ALTERNATIVE CONFLICT RESOLUTION TECHNIQUES

In addition to formal procedures for appealing complaints, a number of employers have instituted a variety of alternative processes for resolving workplace conflict, including ombudsman offices, internal or external mediation, “speak up” programs, employee counseling services, and attitude surveys and related communications programs. Ombudsman offices are an interesting alternative to traditional formal appeal procedures. The ombudsman is an individual employed by the organization to help resolve problems, complaints, or conflicts between or among employees, supervisors, and managers. Typically, the ombudsman reports directly to the office of the chief executive or to the head of the human resource management department; this positioning removes him or her from the general management chain of command. Since the ombudsman’s mandate is more open-ended than the mandate for a formal appeal procedure, ombudsmen play a more varied role in resolving conflicts and often handle a broader range of issues than the typical complaint procedure does. Box 9.3 lists a range of functions the typical ombudsman might perform. Indeed, the flexibility and informality with which the ombudsman can approach this role is one of its distinct advantages.10

BOX 8.3 Functions of an Ombudsman • To give a personal and confidential hearing, to defuse rage, to provide a caring presence for those in grief about a dispute • To provide (and sometimes to receive) information on a one-toone basis • To counsel people (confidentially) on how to help themselves by helping them develop new options, by problem solving, and by role playing

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• To conciliate (that is, to go between parties without bringing them face to face) • To mediate by bringing parties together face to face • To investigate formally (or informally) and present recommendations (or not) • To arbitrate or adjudicate, although this is a rare function • To facilitate systems or procedural changes by recommending “generic” solutions; by providing upward feedback, internal memos, and “management consulting” with institutions; by providing public reports; by making recommendations to legislatures; and by supporting education and training The classic phrase describing most ombuds practitioners is “they may not make, or change, or set aside any law or policy or management decision; theirs is the power of reason and persuasion.” Source: Mary P. Rowe, “Notes on the Ombudsman in the United States, 1986,” Massachusetts Institute of Technology, Cambridge, Massachusetts, in authors’ possession.

Grievance Mediation

Another innovation that has gained in popularity as a faster and less expensive alternative to arbitration in conflict resolution procedures is grievance mediation. In this procedure a neutral third party is asked to mediate a dispute. The process is typically highly informal and does not involve written transcripts, briefs, attorneys, or written opinions. Rather, the mediator meets with the union and management and then often conducts a series of separate meetings with each party in an attempt to discern any underlying reasons for the grievance and possible points of compromise. The hope is that the mediator will be able to mediate settlement of many of the disputes and thereby reduce the frequency of arbitration. Although the decision of the mediator is not binding on the parties, one study has found that 80 percent of grievance meditations are settled without the need for arbitration.11 In recent years a trend has emerged toward integrated conflict management systems. An integrated conflict management system introduces a systematic approach to preventing, managing, and resolving conflict that focuses on the causes of conflict. The key features of an integrated conflict management system are provided in box 8.4.

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BOX 8.4 Integrated Conflict Management Systems An integrated conflict management system does the following: • Encourages employees and managers to voice concerns and constructive dissent early • Integrates a collaborative problem-solving approach into the culture of the organization, promoting direct negotiation between those involved in a dispute • Provides options for all types of problems for all people in the workplace • Coordinates a web of options and structures enabling problem solving across areas and functions • Aligns conflict management practices with each other and with the mission, vision, and values of the organization, thereby contributing significantly to internal culture transformation • Is understandable to all • Is flexible and user-friendly Source: Institute on Conflict Resolution and Society of Professionals in Dispute Resolution, “Designing Integrated Conflict Management Systems: Guidelines for Practitioners and Decision Makers in Organizations,” Cornell Studies in Conflict and Dispute Resolution 4 (January 1, 2001), http://digitalcommons.ilr .cornell.edu/icrpubs/2/.

Many factors contribute to the development of sophisticated conflict resolution procedures. Complaints by employees against supervisors, peer disputes, complaints of poor service by some part of an organization, or disagreements among work groups or teams are some of the reasons organizations feel the need for systematic approaches to conflict resolution. In addition, disputes in the workplace now include complex problems concerning matters such as intellectual property, sexual harassment, and conflicts of interest. Why Complaints Are Filed

Employees commonly file a complaint when they think management is not behaving fairly. The conflict resolution procedure provides a mechanism for workers to air their displeasure with management’s actions, to change management’s behavior, or to receive some form of remedy for unfair treatment.

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Disagreements about employee discipline are a common source of complaints. Labor contracts commonly leave the right to discipline employees to management. Contracts often outline certain actions that can lead to discipline, such as repeated absenteeism or failure to follow a supervisor’s direct order. An employee might file a complaint against a disciplinary action taken by management because the employee contests management’s claim that the employee did something wrong or because the employee believes that a disciplinary action that was imposed for whatever mistake the employee made was too harsh. When labor and management negotiate the collective contract, they try to cover the major issues and write language that will guide future behavior. Yet the contract does not specify what is to happen under all circumstances. It would be impossible and too costly for negotiators to write contractual language that covers more than the most common events. Thus, the parties also turn to the conflict resolution procedure as a way to resolve issues that are not explicitly covered by the labor contract. Furthermore, at all workplaces things frequently happen that the parties did not anticipate when they were negotiating the labor agreement. What form of compensation, for example, should workers receive if they are sent home when a power outage forces a plant to close in the middle of the day? Should employees be paid for a full day’s work in such a case? Should the amount of compensation vary, depending on how much of the workday the employees completed before being sent home? If the labor contract does not include language that covers this type of occurrence and employees are upset about the compensation management has decided to provide, the employees might turn to the conflict resolution procedure to settle the matter. The filing of complaints can serve other purposes. Employees may file complaints as a way to demonstrate their concern about issues that are not addressed in the collective agreement. For example, employees who are concerned about the long-term health effects of working with dangerous chemicals may express their concern by filing complaints about the issue. In these sorts of cases, the conflict resolution procedure can serve the valuable function of warning management about problems that might otherwise be ignored. Employees and their union also might use the conflict resolution procedure as a tactical pressure device. For example, filing complaints over an issue can serve to rally employee interest in bringing the issue to the negotiations table in the next contract renewal negotiation. In this sort of case, union representatives may know that filing complaints will not lead to immediate changes in management’s behavior, but they believe it will put pressure on management and thereby increase the union’s bargaining leverage.

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Evaluating the Performance of Conflict Resolution Procedures

One important question about the effectiveness of the negotiations process is whether the parties can avoid strikes and impasses. Similarly, an important criterion for evaluating conflict resolution procedures is whether the parties can avoid a heavy caseload. The complaint rate, which is often measured as the number of complaints filed per 100 employees per year, is an important indicator of the state of workplace labor relations. The advantages of settling disputes informally or at the step closest to the site where the problems arise are large. A low complaint rate is often desirable, and high complaint rates are an important indicator of workplace problems. Yet complaint rates may be low because the union is not aggressively enforcing the terms of the contract or employees lack trust in the due process the conflict resolution procedure offers. For this reason, evaluation of the use of the conflict resolution procedure should be accompanied by consideration of the reasons for low or high usage. Another important aspect of the evaluation of conflict resolution procedures is what happens after a discharged employee has been reinstated. If the procedure is effective in carrying out industrial justice, a worker who has been unjustly discharged should be able to return to work and both perform well in the job and progress satisfactorily within the organization. However, the procedure itself may work against these results in several ways. First, the delays involved in processing a case may lead a grievant who has been discharged to seek alternative employment. Some reinstated employees thus do not return to their former jobs. Second, reinstated employees are frequently put back on their jobs against the will of their employers, often to the dismay of their immediate supervisors and sometimes to the dissatisfaction of their fellow workers. Some reinstated workers face hostility on their return to work. Even if management, supervisors, and fellow workers make a good-faith effort to treat the reinstated employee fairly, the employee may distrust their intentions or lack the confidence to perform effectively. A number of studies suggest that reinstated employees do not fit back into the workplace well.12 For example, one study showed that grievants in four firms, compared to employees who had not used the complaint procedure, later received lower job performance ratings, had lower probabilities of promotion, and were more likely to experience voluntary or involuntary turnover. Moreover, grievants who had appealed their cases to the higher steps of the procedure later had more negative performance and promotion experiences than those who had settled at the lower steps. And those employees who had won their

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complaints—that is, whose complaints were judged to be meritorious by management or a grievance arbitrator—had lower subsequent performance ratings than those whose complaints had been denied by management or an arbitrator. The same negative profile of aftereffects fit the supervisors of complaint filers. Relative to a comparison group, supervisors of complaint filers received lower performance ratings, were less likely to get promoted, and were more likely to experience involuntary turnover. This study suggests that complaint filers and their supervisors in the organizations that were studied faced considerable risk of retribution for using the procedure.13 An obvious implication of all this evidence is that both management and union representatives need to pay careful attention to what happens after a complaint is resolved. Even in the face of the problem of retribution, however, conflict resolution procedures serve an important function in establishing the rules that govern workplace behavior. Management and union representatives often learn from the ways that conflicts are resolved and then adapt their own behavior accordingly, improving the functioning of the workplace. In sum, the conflict resolution processes can have positive learning effects or negative retribution effects. Much depends on whether the management and labor representatives are committed to the goals the process was designed to foster. WORKPLACE ATTITUDES AND BEHAVIORS

How the workplace labor relations system operates affects the attitudes and behaviors of workers. Workplaces with fair treatment and high levels of employee participation in decision making benefit from greater levels of employee motivation and engagement. Conversely, workplaces with high levels of unresolved conflict and inadequate due process may find it difficult to retain workers and may experience problems with motivating workers to be productive. One useful framework for understanding the impact of workplace practices on employee attitudes and behaviors is the exit-voice model, which was initially introduced in the labor relations setting by Richard Freeman and James Medoff.14 The exit-voice model posits that employees respond to a deterioration in conditions in the workplace in two ways. The first is to attempt to ameliorate the problem through the use of voice, for example by expressing the concerns to management. The second is to remove him or herself from the negative situation by using the exit option of quitting. For an organization, high levels of use of the exit option can have negative consequences. The firm may lose valuable, experienced workers. It will

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experience greater costs related to the recruitment and training of new workers, who initially may have lower productivity levels. Constant turnover of the work force may have negative effects on the morale of the workers and reduce commitment to the organization. Problems in how the workplace is being managed may go unnoticed and unaddressed if workers do not raise concerns but simply quit when problems arise. This analysis indicates that stronger voice options for workers can enhance organizational performance by reducing the use of the exit option. Unions can enhance both organizational performance and worker outcomes by providing a voice mechanism in the workplace. One aspect of union voice is the ability to negotiate improved wages and other employment conditions through collective negotiations. Another aspect of union voice is the provision of representation to help employees express concerns in the workplace and ensure provision of due process when conflicts in the workplace arise. Unions can do this both by negotiating stronger employee participation and conflict management procedures and by representing employees when they use these procedures. Research provides strong evidence that the union voice effect produces large reductions in quit rates when study models control for wages and other economic benefits. For example, in a study of establishments in the telecommunications industry, Rosemary Batt, Alexander Colvin, and Jeffrey Keefe found that the union voice effect was associated with a reduction in annual voluntary turnover of employees of 4.9 percentage points (so if a nonunion workplace had a 15 percent annual turnover rate, a similar unionized workplace would have a turnover rate of only 10.1 percent).15 Participation programs can also provide a source of employee voice in the workplace. To the degree that participation programs allow employees to have their concerns addressed, this form of proactive voice can reduce use of the exit option. In their study of the telecommunications industry, Batt and her co-authors found that off-line participation groups reduced quit rates by 3.6 percentage points and use of self-managed work teams reduced quit rates by 2.5 percentage points. Conflict resolution procedures provide a different, complementary type of voice. They allow workers to express concerns about decisions that have already been made. This type of corrective voice can provide due process and enhance employees’ perceptions that workplace procedures are fair. Some experimental research suggests that when employees have access to complaint procedures, they will be more likely to continue employment and less likely to quit.16 Subsequent research has extended the exit-voice model to include other behavioral responses such as loyalty and neglect or sabotage. The exit-voice-

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loyalty-neglect model suggests that the nature of the response to workplace problems will depend on the individual employee. In the original exit-voice model, loyal employees were seen as more likely to use voice mechanisms in response to problems at work. However, subsequent research found that more loyal employees tended to use neither the exit nor the voice options and would more often suffer in silence with their workplace problems unresolved.17 For organizations, this behavioral response is an especial concern as it suggests that the loyal employees whom the firm values most are the ones who benefit the least from voice mechanisms designed to resolve conflicts. A possible solution to this dilemma is indicated by a study by Julie OlsonBuchanan and Wendy Boswell, who found that although more loyal employees were less likely to use the formal voice mechanism of a complaint procedure, they were more likely to use informal conflict resolution approaches in the workplace.18 This suggests that it is to the firm’s advantage to provide conflict resolution training for managers and adopt processes similar to those in integrated conflict management systems that promote informal, low-level resolution of conflicts. The neglect response of employees to workplace problems shows the danger to organizations that lack employee voice and fail to effectively resolve conflicts. This response may involve reduced motivation, commitment, and effort on the part of workers, behaviors that are likely to reduce productivity and organizational performance. This category can also include more negative responses such as retaliation against the other party to the conflict and workplace violence or sabotage or destruction of property. The threat of these negative behavioral responses further reinforces the importance to organizations of having effective mechanisms for employee voice in a wellfunctioning workplace labor relations system.

Summary The operation of the workplace labor relations system has a major impact on organizational performance and worker outcomes. How work is organized affects the level of productivity and quality the organization is able to achieve. In contrast to traditional management-directed forms of work organization, new approaches that incorporate employee participation in decision making have the potential to produce greater flexibility and higher quality of production while also increasing employee motivation and job quality. Conflict is an inevitable feature of workplaces, and the appropriate resolution of disputes is an important element of effective management and provides employees with due process in their workplace. A wide range of procedures for resolving

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conflict in the workplace exists. Some of the most effective are those that include a combination of neutral third-party decision makers, independent representation of employees by unions, and a range of conflict resolution options that include informal processes that resolve conflicts at lower levels in the organization. The presence of mechanisms for employee voice through union representation, workplace participation programs, and conflict resolution procedures affects attitudes and behaviors in the workplace. When employees have an effective voice, an organization is less likely to experience the negative consequences of exit behavior (i.e., quitting), loyal employees suffering in silence, or neglectful or destructive behaviors on the part of employees.

Discussion Questions 1. Compare the different systems of work organization. 2. What types of conflict resolution procedures might be included in an integrated conflict management system? 3. Describe the exit-voice-loyalty-neglect model.

Related Web Sites “Alternative Dispute Resolution,” HG.org: http://www.hg.org/adr.html American Arbitration Association: http://www.adr.org Commission on Conciliation, Mediation & Arbitration (CCMA; South Africa): http://www.ccma.org.za/ Scheinman Institute on Conflict Resolution: http://www.ilr.cornell.edu/ conflictres/

Suggested Supplemental Readings Appelbaum, Eileen, Thomas Bailey, Peter Berg, and Arne L. Kalleberg. Manufacturing Advantage: Why High-Performance Work Systems Pay Off. Ithaca, N.Y.: Cornell University Press, 2000. Kochan, Thomas A., Harry C. Katz, and Robert B. McKersie. The Transformation of American Industrial Relations. 2nd ed. Ithaca, N.Y.: Cornell University Press, 1994. Lewin, David, and Richard Peterson. The Modern Grievance Procedure in the American Economy. New York: Quorum Books, 1988. Lipsky, David B., Ronald L. Seeber, and Richard D. Fincher. Emerging Systems for Managing Workplace Conflict. San Francisco, Calif.: Jossey-Bass, 2003. Roche, William, Paul Teague, and Alexander J. S. Colvin, eds. The Oxford Handbook of Conflict Management in Organizations. Oxford: Oxford University Press, 2014. William L. Ury, Jeanne M. Brett, and Stephen B. Goldberg. Getting Disputes Resolved: Designing Systems to Cut the Costs of Conflict. San Francisco, Calif.: Jossey-Bass, 1988.

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Notes 1. For a good discussion of the drive system and other aspects of American management, see Sanford Jacoby, ed., Masters to Managers: Historical and Comparative Perspectives on American Employers (New York: Columbia University Press, 1991). 2. In 1890, there were an estimated 90,000 foremen in American industry. By 1900, that number had increased to 360,000. See Robert Reich, The Next American Frontier (New York: Bantam, 1983). 3. James G. Scoville, “The Taylorization of Vladimir Ilich Lenin,” Industrial Relations 40, no. 4 (2001): 620–626. 4. Michael J. Piore and Charles F. Sable, The Second Industrial Divide (New York: Basic Books, 1984). 5. Thomas A. Kochan, Harry C. Katz, and Robert B. McKersie, The Transformation of American Industrial Relations, 2nd ed. (Ithaca, NY: Cornell University Press, 1994), 62–65. 6. Mark S. Anner, Security Transformed: Labor Responses to Globalization and Crisis in Latin America (Ithaca, N.Y.: Cornell University Press, 2011), 37–50. 7. James W. Kuhn, Bargaining in Grievance Settlement (New York: Columbia University Press, 1961). 8. Neil W. Chamberlain and James W. Kuhn, Collective Bargaining, 3rd ed. (New York: McGraw-Hill, 1986), pp. 151–53. 9. Yun Zhao, “China’s New Labor Dispute Resolution Law: A Catalyst for the Establishment of Harmonious Labor Relationship?” Comparative Labor Law & Policy Journal 30 (2009): 409–430. 10. David Lewin, “Workplace Dispute Resolution,” in The Human Resource Management Handbook, Part II, ed. D. Lewin, D. J. B. Mitchell, and M. A. Zaidi (Greenwich, CT: JAI Press, 1997), 197–218. 11. William L. Ury, Jeanne M. Brett, and Stephen B. Goldberg, Getting Disputes Resolved: Designing Systems to Cut the Costs of Conflict (San Francisco, Calif.: Jossey-Bass, 1988). 12. David Lewin and Richard Peterson, The Modern Grievance Procedure in the American Economy (New York: Quorum Books, 1988). 13. Thomas R. Knight, “Feedback and Grievance Resolution,” Industrial and Labor Relations Review 39 (1986): 585–598. 14. Richard Freeman and James Medoff, What Do Unions Do? (New York: Basic Books, 1984). The exit-voice model was first developed in the context of customer-business relationships in Albert O. Hirschman, Exit, Voice, and Loyalty (Cambridge, Mass.: Harvard University Press, 1970). 15. Rosemary Batt, Alexander J. S. Colvin, and Jeffrey H. Keefe, “Employee Voice, Human Resource Practices, and Quit Rates: Evidence from the Telecommunications Industry,” Industrial and Labor Relations Review 55, no. 4 (2003): 573–594. 16. Julie B. Olson-Buchanan, “Voicing Discontent: What Happens to the Grievance Filer after the Grievance?” Journal of Applied Psychology 81, no. 1 (1996): 52–63. 17. Karen E. Boroff and David Lewin, “Loyalty, Voice, and Intent to Exit a Union Firm: A Conceptual and Empirical Analysis,” Industrial and Labor Relations Review 51, no. 1 (1997): 50–63. 18. Julie B. Olson-Buchanan and Wendy R. Boswell, “The Role of Employee Loyalty and Formality in Voicing Discontent,” Journal of Applied Psychology 87, no. 6 (2002): 1167–1174.

9

Employment Outcomes

THE IMPORTANCE OF WORKPLACE OUTCOMES

The nature of outcomes in the workplace is of critical concern to all of the parties involved in labor relations. Issues of concern at the workplace level include workplace outcomes such as wages, work rules, work organization, employment security, and health and safety, which, needless to say, are of primary concern to both employees and other parties. In addition to these outcomes, an array of rules and procedures guides how work is carried out and the roles and responsibilities of supervisors and employees. These include how pay is determined and administered and what influence, if any, employees’ seniority has on pay, promotions, shift preferences, and other matters. Critical influences on workplace outcomes in emerging countries include pressures from unions, NGOs, and government policies, and, in some cases, from the codes of conduct of MNCs or other pressures on suppliers. Where they exist and exert bargaining power, unions or NGOs can, for example, raise wages and negotiate procedures that decrease working hours and improve health and safety conditions and other workplace terms and conditions. Government policies also matter because where they are enforced, they too can lead to higher wages and affect other workplace terms and conditions. MNCs may exert both upward and downward pressures on wages and employment outcomes. Downward pressures come when MNCs choose suppliers based on labor costs. On the other hand, upward pressures may come from an MNC’s code of conduct requirements and/or from its wage and employment policies that may serve to raise standards for other companies competing for workers in the same labor market. 217

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The workplace is dynamic because employers will make adjustments in response to external factors and these adjustments will have subsequent effects on the workplace. As we trace these dynamics, we distinguish between shortterm and long-term effects. In the short term, as we will discuss, management can adjust technology and how work is organized on the shop floor, while in the long term management’s strategic responses will affect where work is carried out because it might choose to relocate production, perhaps even to another country, in response to the impact of the decisions and policies of unions, NGOs, MNCs, or governments. As they make both short- and long-term adjustments, employers are constrained by the logic of the employment patterns we discussed in chapter 5. Changes in one employment practice will interact with and work best with other particular work practices. Furthermore, as discussed in chapter 5, only a handful of distinct employment patterns exist. Thus, our analysis of workplace outcomes will take account of the constraining influence of the various employment patterns. THE EFFECTS OF UNIONS OR GOVERNMENT POLICIES ON WAGES

Unions, governments, or other external forces can have primary direct effects on wages (or some other employment condition). These direct effects will, in turn, set off a chain reaction because primary effects lead management to make adjustments that have consequences for employment conditions. Management first makes short-term adjustments and then makes longer-term, more strategic adjustments. Figure 9.1 diagrams the chain reaction that is set off when a union or some other external force raises wages. (Similar chains can be traced

Union power

Stage 1 PRIMARY UNION EFFECTS

Stage 2 SHORT-TERM MANAGEMENT ADJUSTMENTS

Stage 3 LONG-TERM MANAGEMENT ADJUSTMENTS

Wages

Technological change Change in employment level Changes in personnel administration

Job Security Work rules Health and safety Training

Figure 9.1. The consequences of union effects on wages for management decisions Note: The short-term and long-term management adjustments listed below may or may not benefit union members. The effects on union members of these adjustments and the nature of the adjustments themselves will depend on how much power the union has and the tenor of the labor-management relationship.

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for other employment conditions.) There are three stages in this chain reaction.

Stage 1: Primary Effects

The primary effects are on the compensation employees receive. Unions can push for higher wages through collective negotiations or a wage increase might come as a result of an action by a government, for example through an increase in a statutory minimum wage. Pressure to increase wages might also come from an NGO.

Stage 2: Management Makes Short-Term Adjustments

Management can take a number of actions in response to the primary wage effect. The central motivation for the employer is to try to recoup the costs associated with negotiated or policy-imposed improvements in wages through increases in productivity or through other measures. Increases in labor costs result in some combination of the following responses by the firm: (1) reduction in the scale of output and employment; (2) an increase in the price of the product; or (3) an increase in the use of capital and/or technology that can effectively substitute for labor. These are all mechanisms for increasing the productivity of labor. These managerial reactions may lead to higher prices or reduced employment opportunities, both of which are costly to society. At the same time, society will likely value the union’s or the government policy’s primary effects, namely, the direct benefit to the employees who are directly receiving the higher wage, to employees who might benefit indirectly as their employer feels pressures to match the higher wages to stay competitive, and to businesses that benefit from increases in purchasing power of the affected employees. It is also possible that after identifying ways to recoup the costs initially imposed by a wage increase, management may end up with productivity that is higher than it was before. In the 1940s, Sumner Slichter argued that such a shock effect was prevalent in management’s response to early unionism in the United States.1 The shock effect amounted to a wide variety of efforts management initiated to reduce costs and improve productivity when a firm or business unit was unionized. In addition to steps taken by management, wage increases can trigger other actions that lead to increases in productivity. Increases in wages, for example, may induce employees to quit less frequently and thereby reduce the hiring and training costs of the firm. Higher wages also should attract better-qualified workers for positions in the organization.

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In addition, improved wages might lead employees to be more motivated and work harder and/or smarter.

Stage 3: Management Makes Long-Term Adjustments: Responses Related to Location, Potential Outsourcing, and Employment Patterns

Over time, the impacts on employment outcomes created by union demands, government policies, or some other force can lead management to make strategic adjustments that affect both the employment patterns used in the organization and the location of production. For example, management may decide to outsource all or part of an organization in response to pressure to improve wages and other working conditions. This is what analysts mean when they observe that increased outsourcing has followed as a result of capital flight, the outsourcing of work to alternative domestic or international production sites. Alternatively, employers might change the employment pattern of their company. For example, an employer could change from a lowend bureaucratic approach to a high-end bureaucratic or human resource management (HRM) approach in combination with a strategy to move up market and compete on the basis of product innovation and quality rather than on the basis of low product cost. In particular, the flexibility and skills orientation of the HRM pattern could mesh with a more quality-oriented product strategy. Or an employer could go in the opposite direction, responding to improvements in wages or other work conditions by trying to lower production costs by moving to a low-end bureaucratic employment pattern, outsourcing parts of the production process, or operating with informal employment terms. This path can be viewed as an international version of the “escape” strategy Richard Walton, Joel Cutcher-Gershenfeld, and Robert McKersie describe in their analysis of employer strategies in the United States.2 In some situations, escape strategies have involved outside firms who take over or purchase operations and then extract wage concessions, using the threat of moving the work to a lower-cost setting. In doing so, the new firm transfers some of the gains achieved by the employees to its shareholders.3 In the last chapter of this book we analyze the long-term implications of various business strategies and what governments can do to promote favorable social outcomes. There has been extensive debate in the field of economics about the long-term impact of government regulations and policies on labor market outcomes. Neoclassical (or so-called free market) economists believe that

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market and competitive pressures generally dominate, even in emerging countries. This has led these economists to argue that while government regulations and policies are well intentioned, they in fact lead to a worsening of work conditions. This position is well represented by the following statement that appeared in the World Bank’s 1990 development report: “Labor market policies—minimum wages, job security regulations, and social security—are usually intended to raise welfare or reduce exploitation. But they actually work to raise the cost of labor in the formal sector and reduce labor demand . . . increase the supply of labor to the rural and urban informal sectors, and thus depress labor incomes where most of the poor are found.”4 Recent research has called this position into question. In a comprehensive assessment of research on the impact of government regulations and policies, Richard Freeman of Harvard University concludes that research “has not uncovered a general law for the effects of institutions on outcomes—economic circumstances and institutions probably vary too much among countries to support any single generalization—but it has yielded new and in some cases surprising findings on how institutions affect outcomes. This has led to a more measured view of what institutions do than in the World Bank’s 1990 proclamation.”5 Freeman identifies a number of key findings of research on how government labor policies affect working conditions. They including the following: 1. Labor institutions vary greatly among emerging countries, but less than they vary among advanced industrialized countries. Collective negotiations are less prevalent and weaker in emerging countries than in advanced countries, while labor regulations are nominally similar. 2. Compliance with regulations in the formal sector of many emerging countries is sufficient that minimum wages appear to be binding and raise wages. Most studies find that minimum wages reduce employment sufficiently modestly that minimums generally help the low paid. 3. Some mandated social benefits increase labor costs and reduce employment modestly while the costs of other social benefits are shifted largely to workers and thus do not appear to impact employment levels. 4. Recent statistical analysis reveals inconclusive results regarding the impact of government labor market and labor relations regulations on economic growth.

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THE EMPIRICAL EVIDENCE REGARDING UNION EFFECTS ON WAGES AND OTHER WORKPLACE OUTCOMES

Wages are of central importance to employees and employers. How do the earnings of union workers compare with what those workers would have earned if there had been no unions anywhere in the economy? This comparison is termed the absolute union wage effect. But because it is extremely difficult to estimate what employment conditions would have been in the absence of unions, most research has focused on assessing the relative union wage effect, which compares the earnings of union and nonunion workers.6 Although research on union impacts has been less extensive in emerging countries, in recent years a number of studies have been completed. These studies generally find that unions are associated with higher wages and nonwage shares of compensation and with lower turnover and a reduction in the differential in pay between white collar and blue collar employees. Estimates of the union effects on profits and productivity differ across countries. While the variation in union effects on profits and productivity across countries is consistent with the notion that what unions do differs across countries, it also reflects differences between the surveys and groups covered (which are often small) and limitations of the study designs. In a comprehensive review, Richard Freeman finds the following:7 1. The most extensive research on union impacts is on Mexico. Estimated differentials between union and nonunion wages ranges from 5 percent or less to 10–15 percent, with unions having their biggest effect on the wages of lower-paid workers. This implies that unions reduce wage differences between white collar and blue collar employees and inequality. 2. One study from Brazil finds an estimated union wage premium in manufacturing on the order of 5–7 percent, but contrary to most studies, it also finds higher wage dispersion among union workers than among nonunion workers. Another study finds that union density in Brazilian manufacturing firms is associated with a union wage effect of 12 percent and that unionized firms have lower productivity and profitability. But it also finds that union firms that introduced profitsharing schemes had substantial increases in productivity and profits. 3. Studies in other Latin American countries, based on small surveys, find that unions are associated with lower productivity or profits.

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4. In South Africa, unions appear to raise wages by 10–20 percent. 5. The estimated impact of Korean unions on wages is in the low single digits. Studies have found a union differential of 5 percent for all workers and a larger (12 percent) differential for women. These studies have also found that nonstandard workers, who are excluded from the enterprise union, are paid less in union establishments. Unionism is also associated with greater employment of nonstandard workers, suggesting that firms substitute them for more expensive union labor. Research Techniques

The following section discusses the techniques researchers use to derive the findings discussed above. It may be of special interest to readers with statistical training. Statistical techniques and problems that are similar to those discussed below are involved in the analysis of union impacts on nonwage employment conditions as well. The research technique most frequently used to measure relative union wage effects is a regression analysis in which the wages of a pool of union and nonunion workers are used as the dependent (or outcome) variable and the union status of each individual or group of workers is entered as an independent (or explanatory) variable, along with a series of controls for other determinants of wages.8 The types of control variables normally included in these regression equations are (1) human capital or labor supply characteristics, such as age, education, experience, and training of workers; (2) the region of the country; (3) the race and gender of workers (as measures of the effects of discrimination); (4) the industry and occupation; and (5) the size of the firm. Several technical problems make it difficult to know if these estimates of relative union effects provide a good approximation of the absolute effects of unions on employment conditions. The major problem in sorting out the net effects of unions is that union wages may spill over to the nonunion sector because in order to deter their employees from unionizing, nonunion employers may raise or, in the extreme case, match union-negotiated wage increases. The nonunion wage is therefore higher than it would be otherwise because of the threat effect of unionization. Thus, estimates of the relative union wage effect may understate the absolute effect of unions on wages because they do not fully account for the extent that union wages have spilled over to the nonunion sector. On the other hand, in response to an increase in union wages, unionized firms may cut back on employment. The workers who are displaced then

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seek employment in nonunion firms and industries. This supply effect results in lower wages for nonunion workers. Thus, the supply effect leads to estimates of the relative union wage effect that may overstate the differential between union wages and the wages that would exist if there were no union. Researchers have not been able to identify whether threat effects are larger than supply effects of unions. Another highly technical problem arises if union membership is influenced by wage levels.9 Unions tend to organize high-wage industries or workers. As a result, the union coefficient in a single-stage regression equation captures both the effects of unions on wages (the true effect of interest) and the effects of wages on unionization (that is, the fact that higher-wage jobs are more likely to be unionized). Estimates of the influence of unions on wages may therefore be overstated or understated unless this reciprocal causality is accounted for. HOW WORKPLACE OUTCOMES VARY ACROSS FIRMS BASED ON EMPLOYMENT PATTERNS

In the next section we trace how key workplace outcomes vary across the employment patterns that exist in emerging countries. In contrast to our discussion of the various employment patterns provided in chapter 5, here we organize the analysis based on each of the key workplace outcomes. Wage Administration (Method of Payment)

Wages can be paid on an hourly basis, they can be directly linked to the performance of specific tasks or the quantity of goods or services produced (piece rates), they can be based on earnings from sales, or they can be linked to a measure of performance or the skill level or other attributes of employees such as their seniority in the organization or time on a specific job. While employees are very concerned about the level of wages and any impact of unions or government regulations on that wage level, they also have strong feelings and reactions to the method a firm uses to determine wages and the factors that influence how pay is determined and administered. In the informal sector, workers are typically paid through their earnings from their sales (if they are engaged as street vendors, for example) or by piece rates that tie pay to the quantity of output. Or workers in this sector may be paid for a specific task; for example, day laborers might be paid for the construction or transport of a defined item. In both the low- and high-end variant of the bureaucratic patterns, wage administration tends to be more structured. Work organization is typically

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hierarchical (i.e., an assembly line), and wages are often tied to a specific job or task. In the high-end bureaucratic pattern, job evaluation or work procedures are often used to organize jobs and set pay according to the degree of difficulty in the job. In the low-end bureaucratic pattern, formal evaluations are rare and complete control often lies in the hands of the supervisor, who functions as an unregulated boss on the shop floor with little review by higher-level managers. Favoritism and nepotism often unfortunately are widespread in both hiring and pay determination in low-end bureaucratic workplaces; these factors can appear in high-end bureaucratic workplaces as well. In the human resource management (HRM) pattern, wages tend to be based on the skill level and characteristics of the individuals who hold particular jobs. HRM-oriented workplaces also tend to tie pay in some way to measures of the performance of the employee or of the organization. Since work organization in HRM settings often is team based, pay is often correspondingly linked to team performance. In organizations that follow the Japanese variant of the HRM pattern, seniority typically plays an important role in determining pay as a complement to job and other individual characteristics. In addition, the pay package in Japanese-oriented workplaces frequently includes a bonus scheme that has both individual and organizational components. For an example of a firm that uses Japanese-style work practices, see box 5.3, which describes a Brazilian firm. Due Process Related to Pay

Employees are concerned about the difficulty and nature of their work at the same time that they are concerned with how much compensation they receive for performing that work. Perhaps of most important to employees is that they be protected from favoritism and arbitrary treatment. The degree of influence employees have on decisions about pay is often closely related to their say in other workplace issues, an issue we discuss below in the section on employee voice and engagement. Employees in emerging countries sometimes work for unscrupulous employers who fail to actually pay employees for work performed or abruptly close a business and do not pay employees for work they have performed or give them the severance payments that are due. Sometimes a particularly unscrupulous employer will close a plant or a work site and essentially disappear overnight without paying employees for work they have done. Sadly, even though these practices may be inconsistent with government laws and regulations, they are commonplace in some countries.

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Unions and NGOs spend much effort trying to get redress for affected employees, often using press coverage or other forms of pressure campaigns to embarrass employers into action. Their efforts are hampered by difficulties in identifying who are the actual legal employers and operators of a given work site. The expansion of global supply chains to include geographically distant ownership partners makes this identification process more difficult. Migrant workers are especially vulnerable to injustices related to the payment of wages because sometimes agents that match migrants to jobs extract a fee directly from the workers or their employers. In some of the worst cases, migrants begin work in debt to these agents and therefore end up being able to keep less than the wage rates that attracted them to these jobs. In other cases, living expenses (housing, food, etc.) are deducted from migrants’ wages, again complicating the calculation of exactly what an employee’s take-home pay should be. All of this makes administration of wages complicated for employers, workers, monitoring agents, and government enforcement officials. Work Organization

In bureaucratically structured organizations, whether they implement a lowend or a high-end scheme, work tends to be organized using traditional hierarchical and assembly-line methods. The roles of workers and supervisors are sharply separate and the work includes numerous and detailed job classifications. Where the low- and high-end versions of the bureaucratic pattern differ is that in the low-end pattern, promotion paths are typically nonexistent or are poorly defined, while in the high-end pattern procedures or rules are often in place that guide promotions and the procedures used to assign workers to specific jobs. And, as discussed in chapter 8, in the low-end bureaucratic pattern, due process tends to be completely absent regarding complaints about work assignments, while firms that use the high-end pattern tend to have at least some formal process for resolving disputes, although at times they are not adhered to. In the HRM pattern, work assignments are more flexible and responsive to the individual skills of employees and the needs of an organization. In some enterprises this is accomplished through team systems of work. Organizations that use Japanese-style practices tend to facilitate the use of broad job classifications by investing in on-the-job training of employees and hands-on roles for first-level supervisors (see box 5.3 for an example of this in a Brazilian firm). Changing work organization practices as an economy develops and labor costs and/or productivity increase are critical challenges for managers in emerging countries. For example, as pressures to raise wages increase, so do the incentives to invest in advanced technology—to move upscale in all aspects of the production process. This in turn requires education for workers

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about how to use more sophisticated equipment and processes. Often, however, managers fail to think in systemic ways about how work organization needs to change in tandem with technological change. The famous Japanese saying that “it’s workers who give wisdom to these machines” suggests that more flexible, team-based work systems plus greater investments in the training and education of workers need to accompany investments in technology if the full return on these investments is to be realized. Employee Voice and Engagement

Employee voice at the workplace is often completely nonexistent in both the informal and low-end bureaucratic sectors as a result of the hierarchical command-and-control style these workplaces use. Although managers use tight controls in the high-end bureaucratic and HRM pattern organizations, when these workplaces are organized, there can be some role for employee and union voice. In high-end bureaucratic workplaces that are in the public sector, some form of civil service procedures often exists that provides opportunities for employees to lodge complaints and exercise their voice. In recent years, HRM-oriented organizations have increased their use of employee engagement mechanisms. These frequently include employee attitude surveys and enhanced communications efforts. However, it is not clear if these efforts to elicit employee input are genuine or if they are used as a strategy to limit the likelihood of unionization. Japanese-oriented organizations use quality circles and interactions between first-line supervisors and workers to promote problem solving and continuous improvement (a process known as kaizen). Working Time

A key issue in emerging countries is working time, especially the length of the workday. In both the informal sector and enterprises that use a low-end bureaucratic employment pattern, the workday and the workweek are often long and arduous. Even though NGOs and unions often focus on abusive work time situations, there is evidence from audits of MNCs and other sources that these practices are pervasive in some countries. Violations of working time, for example, are often the most widespread violation identified in audits of MNC suppliers and are the most difficult to remedy. A major reason for this is the pressures on companies to rapidly deliver goods that are in high demand as consumer tastes change or as new products (e.g., a new iPhone or similar product) take off faster than expected. The working time of domestic workers (maids, cooks, and the like) is difficult to regulate and the employer (a family) often has an unusually high degree of unilateral authority over those workers. As a result, it is commonplace

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for working hours of domestic workers to be excessive. Box 9.1 describes efforts by the ILO to create fairer working hours for domestic workers and the specific legislated changes in Brazil that were stimulated by the ILO work time directive.

BOX 9.1 Excessive Work Time of Domestic Workers in Brazil Although many countries have adopted a 40-hour work week, the weekly limit in most countries in Latin America is forty-eight hours. Domestic workers in Latin America often work much longer hours. In 2011, the ILO adopted Convention 189 and Recommendation 201, both of which seek to improve the working conditions of domestic workers. They are based on the principle that domestic workers who care for families and households must have the same basic labor rights as other workers. These rights include: • • • • •

Reasonable working hours A weekly rest of at least twenty-four consecutive hours A limit on in-kind payment Clear information about terms and conditions of employment Respect for fundamental principles and rights at work, including the freedom of association and the right to collective bargaining

The adoption of this ILO convention led several countries in Latin America, including Venezuela, Uruguay, and Costa Rica, to pass new laws and regulations improving workers’ rights. The number of domestic workers in Brazil has recently increased significantly, from 5.1 million in 1995 to 6.6 million in 2011. In March 2013, Brazil took a significant step in regulating the working hours of domestic workers in response to mounting evidence that these workers often toiled under abusive conditions. The Brazilian Senate unanimously passed a constitutional amendment establishing sixteen new rights for domestic workers, including the right to overtime pay, a maximum workday of eight hours, and a maximum work week of fortyfour hours. This legislative action by Brazil is a milestone for the entire Latin American region and is likely to spur legislative and regulatory actions in other countries. Source: BBC, “Fashion Chain Zara Acts on Brazil Sweatshop Conditions,” August 18, 2011, http://www.bbc.co.uk/news/world-latin-america-14570564.

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Seniority

Seniority rights are important to employees because they are used as a basis for allocating benefits and job opportunities. Seniority rights are important to employers because they restrict the discretion they have in administering their personnel. Seniority is normally defined as the employee’s length of service with the employer. In some cases and for some purposes it may be measured as the length of service in a particular department, job, or other subunit of the organization. There are pros and cons to adherence to seniority. Seniority provisions protect the security of the incomes and jobs of highseniority workers by reducing the threat that they will be laid off. This is done through a practice called bumping (displacing a newer employee when a layoff occurs). Seniority provisions also play an important role in shaping the career prospects of workers. Both the scope of the seniority unit and the weight assigned to seniority in promotions affect the range of possible paths for upward mobility and the probability that an individual worker will obtain a promotion. The weight given to seniority determines the expected length of time required to move up in the organization. Strong seniority provisions improve the chances of promotion for workers with average to below-average ability and motivation. Conversely, these provisions may serve to slow the career advancement of younger employees who have higher-than-average ability and motivation. Thus, seniority does not necessarily benefit all employees equally. Seniority provisions offer employers both advantages and disadvantages. By increasing the economic and job security of workers as their tenure increases, seniority provisions should help stabilize the work force and reduce the number of valued workers who leave the firm. They also may reduce psychological stress and increase older workers’ satisfaction with their jobs. Furthermore, if experience contributes to improvements in job performance, the use of seniority should help keep the most productive workers in the organization. Seniority provisions reduce managers’ and workers’ uncertainty about the ongoing makeup of the work force. As a result, the employer can design jobs and training programs to ensure that job performance improves with length of service thereby simplifying the task of administering personnel. Seniority provisions allow the employer to compute the probable movement of individual workers through different jobs in the organization over time. All of these benefits are greatest to firms that have relatively routine and unchanging technologies and thus individual differences among workers have little effect on job performance. The more variable the technology

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and skill requirements, the greater the costs associated with strict adherence to seniority. In these cases employers will seek to limit both the scope of the seniority unit and the weight assigned to seniority in promotion decisions. Strict adherence to seniority would entail large costs for jobs that require great technical, professional, or artistic skill. For example, it is hard to imagine seniority ever playing an important role in determining the starting lineup of a professional baseball team or the cast for a major motion picture. Job and Income Security

Job and income security is of critical importance to workers. This issue is ever-more significant in the context of the increased economic volatility that has been brought about by globalization, some of which is a product of MNCs’ fast-paced movements of capital. Unions commonly respond to these pressures by attempting to negotiate job and income security provisions that provide some protection from these adjustments or at least set rules about how the adjustment will be made (e.g., seniority rules about who gets laid off first if layoffs occur or limitations on management’s right to contract out work). Some security provisions make it more difficult or costly for the employer to substitute nonunion labor or capital inputs for union work covered under the contract. The union may also try to negotiate additional paid time off to reduce employment losses or require management to hire additional workers. Employers frequently oppose demands for job and income security provisions because they (1) increase labor costs; (2) reduce the employer’s ability to adjust labor costs to fluctuations in business conditions; and (3) limit the discretion and freedom of managers. The comprehensiveness of the job and income security protections that unionized workers achieve is a function of the bargaining power of the union. Bargaining related to these issues illustrates the classic conflict between the desire of workers for security and the desire of employers for autonomy and flexibility. While employees, whether unionized or not, have a strong preference for more stable and secure work, there is a significant trend in both emerging and advanced industrialized countries toward more insecure “contingent” work. This is evident in the growth of part-time, temporary, nonregular, or nonstandard work (see the account of the growth in nonregular work in Korea in chapter 5).

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Job Preservation

Some job security provisions are geared toward preserving jobs. One way unions try to preserve jobs is by negotiating work-sharing provisions that cut the workweek during periods of slack demand as an alternative to the employer laying off employees. Other types of work rule provisions that are geared toward preserving jobs are restrictions on the following: supervisors’ rights to do union member work; transferring employees and filling vacancies; the ratio of apprentices to journeymen; management’s right to change the pace of work; and the extent of subcontracting. Unions desire many of these provisions because they contribute to increased safety, among other reasons, in addition to their effects on job preservation. Management sometimes complains that these provisions mean that they must retain more workers than are needed to perform the work, sometimes called featherbedding. One of the most hotly contested employment security issues of this decade involves the contracting out of work that union members do, or outsourcing, as it is now commonly called. Outsourcing has become prevalent for three reasons: (1) the increase in availability of nonunion firms capable of doing many of the tasks unionized workers perform, especially unionized workers in manufacturing firms; (2) the popularity of reengineering processes that dominate much of the thinking and actions of management; and (3) the general downsizing trends and the desire of many firms to focus on only the core activities the firm has a distinct competitive advantage in performing. Together or separately, these have led to considerable bargaining activity and in some cases to considerable conflict. In some firms, employment security arrangements have been adopted to allay employee (and union) fears of employment insecurity. The nature of these arrangements varies. Some programs provide employment guarantees to only a subset of the work force, while others provide for the hiring of more temporary and part-time workers. As a result, these plans can engender intense political rivalries in unions between workers who have employment security and those who do not. It remains to be seen exactly how the new employment security programs will be implemented and what their implications will be. Safety and Health

Another important job outcome influenced by government regulations and unions is the health and safety of the work force. Unsafe work conditions often are accompanied by a variety of other abusive work practices, as is illustrated by the working conditions in an apparel factory in Brazil that were uncovered during a raid by government inspectors (see box 9.2)

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BOX 9.2 Unsafe Work Conditions in a Brazilian Apparel Factory Unditex, the world’s largest clothes retailer, employs over 7,000 workers at about fifty supplier locations in Brazil. In August 2011, government labor inspectors raided a factory of Zara, Unditex’s parent company, in Sao Paolo. They found mostly Bolivian immigrants working in unsafe conditions. The workers, who were illegally employed by a subcontractor, worked long hours in a cramped, unsanitary working environment and were being paid between twelve and twenty cents per piece. Electrical wires dangled from the factory walls above steep piles of fabric, setting the stage for fires. The Brazilian criminal code defines slave-like labor as work that takes place in conditions where a worker is forced to work exhausting hours, is subjected to an unsafe working environment, and is prevented or restricted in his or her movement to and from work. The conditions at the Zara factory clearly met this definition. The raid was followed by government penalties that led Unditex to change its work practices, including paying workers properly in accordance with Brazilian law (and in accordance with Unditex’s own Code of Conduct). Working conditions on Unditex factory floors also were improved and safety and health violations were brought up to the standard of Brazilian regulations. Source: BBC, “Fashion Chain Zara Acts on Brazil Sweatshop Conditions,” August 18, 2011, http://www.bbc.co.uk/news/world-latin-america-14570564.

Unions can affect safety and health at the workplace in two ways. First, they can demand a higher wage differential for workers exposed to higher risks as a form of compensation. Although the evidence is far from conclusive, there is some indication that unions have been successful in obtaining a positive wage differential for risky jobs. The differential has both a direct effect and an indirect effect. The direct effect obviously compensates workers who are exposed to risks. The indirect effect increases the employer’s incentive to lower the risks on the job in order to avoid having to pay a compensating differential. Second, unions can negotiate protections against job hazards, increased training for workers and supervisors, and changes in the work environment that will eliminate hazards. Whether these strategies are effective depends

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heavily on whether the parties have accurate information about the causes of injuries and occupational illnesses. Unions also frequently negotiate general contractual provisions stating that the employer is responsible for making the work environment safe or that the employer agrees to comply with applicable safety laws (something employers presumably have to do whether the union contract requires it or not). Where unions are not prevalent or are weak, however, the burden falls on governments or NGOs to improve safety conditions through direct actions or through bringing pressure to bear on employers. Unfortunately, especially in the informal sector in emerging countries, union, government, and NGO actions have not succeeded at stopping calamities such as fires or building collapses that have claimed many workers’ lives. One such tragic accident occurred in Bangladesh in 2013. Boxes 9.3 and 9.4 discuss that building collapse and efforts to improve building inspections and construction to prevent similar tragedies and the establishment of funds to compensate the victims of the building collapse. We focus on this one tragedy and its associated events not only because of the unfortunate scale of this tragedy but also because it well illustrates the shortfalls in worker safety that appear in many emerging countries and the recent efforts by NGOs, unions, and governments to remedy this situation. In April 2013, the collapse of the Rana Plaza building killed over 1,100 workers in Bangladesh. The Rana Plaza tragedy, along with other recent safety problems in the garment sector in a number of countries, prompted negotiations involving NGOs and the international lead-brand companies. Two novel consortium agreements followed that mandate more building inspections and funds to support safer building construction and repairs. Box 9.3 describes the fund that has been established to compensate the victims of the tragic Rana Plaza building collapse, and box 9.4 describes the building inspection and construction improvement fund and consortium.

BOX 9.3 $40 Million in Aid Set for Bangladesh Garment Workers Eight months after the Rana Plaza factory building collapsed in Bangladesh, killing more than 1,100 workers and leaving hundreds of families bereft and financially adrift, several prominent retailers and labor groups have joined with the Bangladesh government to create an estimated $40 million compensation fund to aid the victims’ families.

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So far, four retailers—Bon Marché, El Corte Inglés, Loblaw and Primark—have pledged to contribute to the fund, which is intended to compensate the families of those who died last April 24 in what was the deadliest disaster in garment industry history. The new fund is considered a landmark in compensating families of garment industry victims, in terms of both the amount to be paid and the sophistication of the arrangements. No United States-based retailers have signed on. Several officials involved in negotiations to establish the fund said in interviews that the families of the dead would receive, on average, more than $25,000 each, while hundreds of workers who were injured or maimed would also receive compensation. Per capita income in Bangladesh is about $1,900 a year. The fund’s members said they hoped to begin making payments in February, although they have yet to decide how much each firm will contribute, which depends in part on whether governments donate. The money is to be paid in installments to ensure that the families have a steady source of income for years to come. “We think the agreement is a really good result,” said Ineke Zeldenrust, international coordinator of the Clean Clothes Campaign, a European anti-sweatshop group that has pressed retailers to do far more to help the families of the disaster’s victims. “The agreement will deliver to all the victims and the families of the Rana Plaza disaster full and fair compensation in a credible manner. What we need now is for other companies to agree to pay into the fund.” Families of the victims have already received several months of shortterm emergency aid from the Bangladesh government as well as from Primark, an Anglo-Irish retailer. But these families have been pressing for long-term compensation. In some families, with the mother dead, children have quit school and gone to work. In other cases, workers who were seriously injured and cannot work are desperate for income. Talks to establish the fund, coordinated by the International Labor Organization, began in September but stalled over such issues as how to collect information on claims, how to determine which claims were legitimate and who should administer the fund. The amount to be paid will be based on the anticipated wage loss of each worker killed, tied to the number of children, or, if the beneficiary is a parent, to the life expectancy of an adult.

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With 1,800 workers having died in garment industry disasters in Bangladesh over the last decade, Dan Rees, program director for the Better Work organization, an affiliate of the International Labor Organization, said: “If you look at the history of compensation efforts in the Bangladesh garment industry, it’s not a good one. But this is a potential breakthrough.” Among the groups that signed the agreement to create the compensation were the Bangladesh Garment Manufacturers and Exporters Association, IndustriAll Global Union, the Bangladesh Employers Federation and the main Bangladesh coalition of labor unions. Some retailers and labor rights groups have expressed dismay that no United States retailers have agreed to join the compensation effort. . . . Labor rights groups say they found documents and remnants of apparel tying 25 European and American retailers and brands to the five garment factories spread across Rana Plaza’s eight floors. Several of the firms have since denied their apparel came from any of the factories. Mango, a Spanish apparel brand, said, for instance, that it only had a test order in a factory there. Walmart has been urged to help the Rana Plaza families because production documents found in the rubble indicated that a Canadian contractor was producing jeans for Walmart in 2012 at the Ether Tex factory inside the building. Walmart said an unauthorized contractor was producing garments there without its knowledge. It says it is focused on assuring that there are no such disasters in the future. Source: Reprinted from Steven Greenhouse, “$40 Million in Aid Set for Bangladesh Garment Workers,” New York Times, December 23, 2013.

BOX 9.4 Clothiers Act to Inspect Bangladeshi Factories [In July 20130], a mostly European consortium of 70 retailers and apparel brands . . . agreed to inspect within nine months all Bangladeshi garment factories that supply the companies. . . . The companies agreed that they would take responsibility and immediate action wherever serious safety problems are found. They pledged “to insure that sufficient funds are available to pay for renovations and other safety improvements.”

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The companies are announcing details of their ambitious, legally binding plan after negotiating with labor unions and nongovernment organizations. . . . The first group of companies signed on three weeks after 1,129 workers died when a factory building collapsed in Bangladesh. The number of signatories has increased to 70 from 30 in midMay, and includes H&M, Carrefour, Marks & Spencer and PVH, the parent company of Calvin Klein and Tommy Hilfiger. Very few American companies have joined the effort. Several said they disliked the plan because it was legally binding, might subject them to lawsuits and included some ill-defined potential obligations. . . . To allow for inspections, the Western retailers agreed to send in the names and addresses of all the Bangladeshi factories they use by July 15, [2013]. In an unusual move, the list of these factories, expected to total nearly 1,000, will be made public, as will the inspection reports. Companies often resist disclosing the names of their overseas suppliers for fear of competitors stealing them. . . . Under the plan, international teams of fire and building safety inspectors, working with their counterparts in Bangladesh, will inspect all the supplier factories within nine months. They will focus on serious concerns like inadequate fire exits and fundamental structural flaws that could cause buildings to collapse. The agreement also calls for developing “action plans” to correct serious safety problems within nine months. . . . Scott Nova, executive director of the Worker Rights Consortium, a factory monitoring group based in Washington, said that prosperous Bangladeshi factory owners would be expected to help finance safety improvements and that in such situations, Western companies would not be expected to shoulder the burden alone. The signatories say that when serious hazards are found at a factory, they will try to engage nonsignatory companies that also use the factory in the efforts to make needed safety upgrades. Wal-Mart Stores Inc., Gap Inc. and more than a dozen other North American retailers [have] struck a five-year deal to improve worker safety in Bangladesh following a deadly garment-factory collapse in April. The agreement, signed by 17 mostly U.S. companies known as the Alliance for Bangladesh Worker Safety, will require factory owners in the South Asian country to pay for their own safety improvements. To ensure that the owners have access to financing, the retailers have committed to providing $100 million in low-cost loans. They also are

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putting up $42 million to pay for worker training, factory inspections and administrative fees. Labor groups were quick to criticize the plan as inadequate, saying it falls short of a separate agreement signed by mainly European retailers that is more binding and covers more of the cost of bringing factories in Bangladesh up to safety standards. That agreement, known as the Accord on Fire and Building Safety in Bangladesh, commits the 70 companies that signed it to paying directly for all needed factory upgrades, which could reach hundreds of thousands of dollars for each factory involved. Labor activists have estimated that it will cost around $3 billion over five years to renovate all 5,000 such plants in Bangladesh. The country has quickly grown into the world’s second-largest apparel maker after China. In the race to keep up with demand, many older buildings that lacked structural support were converted to factories, and building codes were ignored. Factory owners and employees weren’t always trained in basic safety procedures. . . . The North American deal calls for drawing up factory-safety standards in the next three months, inspecting plants used by alliance members in the first year and backing elected worker committees at each plant. . . . Retailers will contribute to the safety fund based on their production in Bangladesh, with the largest producers paying $1 million a year for five years. The lending portion of the deal is voluntary and varies by retailer. The European-led accord calls for participants to contribute as much as $500,000 a year toward the administration of a separate safety plan and to underwrite factory repairs and renovations. . . . Labor groups complained that the U.S. agreement lacks teeth. No representatives from labor organizations will be on the alliance’s board, and the retailers will control the inspection process by choosing and paying the auditors, these groups said. The North American retailers said they have reached out to labor groups about playing an advisory role, and that nongovernment organizations will spot-check the factory inspections.” Sources: Reprinted from Steven Greenhouse, “Clothiers Act to Inspect Bangladeshi Factories,” New York Times, July 8, 2013; and William Mauldin, Suzanne Kapner, and Christina Passariello, “U.S. Retailers Move to Spur Factory Safety in Bangladesh,” Wall Street Journal, July 11, 2013.

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Facing pressure from protesting workers, NGOs, and multinational purchasers, the government set out to inspect buildings throughout Bangladesh after the Rana Plaza disaster. However, as box 9.5 reveals, efforts to inspect buildings faced a number of barriers, including efforts by some employers to hide problems and the limited number of well-trained inspectors.

BOX 9.5 After Disaster, Bangladesh Lags in Policing Its Maze of Factories Not even two months after the collapse of the Rana Plaza factory building claimed more than 1,100 lives, a team of engineers arrived to assess another factory in the center of the capital. It was named Al-Hamra Garments, and it was one of hundreds of factories undergoing postdisaster inspections as Bangladesh sought to prove that its critical apparel industry was safe. But this inspection, conducted in mid-June, was startling. The two engineers discovered that the eight-story factory was partly propped up by temporary cast-iron pillars placed on the ground floor. Several original beams and columns were cracked or disintegrating. And the factory was open for business, with more than 1,000 workers producing clothing for a Bangladeshi apparel conglomerate whose customers include Walmart and Gap. “Considering the severity of the building condition it is recommended that the use of the building be discontinued immediately,” the two inspectors, professors at the country’s top engineering college, concluded in their preliminary assessment report. Yet . . . nearly two weeks after the inspection, Al-Hamra Garments was still open. “The factory is fine,” said an administrator, Shafiul Azam Chowdhury, on Saturday afternoon. He said two other inspection teams had concluded that the temporary propping made the building safe enough to continue operations during structural repairs. “No problem,” he added in a telephone interview. Bangladesh’s garment industry, now the world’s second-leading clothing exporter, after China’s, is still struggling to recover from the April 24 collapse of Rana Plaza, the deadliest disaster in the history of the industry. To address concerns about unsafe buildings, government officials and industry leaders called for inspections to ensure the structural integrity of the country’s 5,000 garment factories.

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But two months after the collapse, the inspections process is disorganized and haphazard, with unclear lines of authority. The Ministry of Textiles is overseeing some inspections. An industry trade group is organizing others. The local development authority in Dhaka is involved, and the country’s top engineering school is playing a central role. Some global brands have also sent inspection teams. The situation at Al-Hamra Garments underscores the confusion. On Saturday, after a reporter for The New York Times visited the ground floor of the factory and began making inquiries, factory officials and the building’s owner initially defended the decision to remain open. But late that night, company officials reversed course. The next morning, they closed the factory. “We reviewed all the reports, and our managing director decided to close it,” Mr. Chowdhury said in a later telephone interview. “We were in a dilemma about what was to be done.” It was unclear what clothing was being made inside Al-Hamra Garments, but the factory is owned by one of Bangladesh’s leading apparel conglomerates, the Palmal Group. Palmal has at least 23 factories and has been praised by Gap and Walmart as a top supplier, according to the company’s Web site. Inspecting Bangladesh’s garment factories is an acutely complicated task. No government agency is certain of precisely how many such factories operate in Bangladesh, or where they are. Some inspectors are discovering that building plans filed with government agencies do not always match the actual buildings. Many factories built during the 1980s and 1990s have no architectural drawings at all. Critics often blame this lack of regulation on Dhaka’s development authority, known as Rajuk. Last week, the authority’s director told members of Bangladesh’s Parliament that roughly 8,000 buildings in Dhaka, the national capital, lacked required approvals or violated construction codes. In a later interview, the authority’s chief engineer blamed part of the problem on manpower: Rajuk has only 40 inspectors to oversee a million structures in Dhaka. “Impossible,” said the chief engineer, Mohammed Emdadul Islam, noting that plans to expand to 240 inspectors are still not sufficient. After the Rana Plaza disaster, there was a rush to inspect factories. The Bangladesh Garment Manufacturers and Exporters Association, a leading industry trade group, quickly hired a staff of 10 engineers and announced that 19 factories had been closed during inspections.

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But the inspection process quickly took on an ad hoc quality. One factory executive complained of submitting to inspections from five different entities. Most factories have not yet been inspected at all. Some brands have sent their own inspection teams, including Tesco, the British retailer, which stopped placing orders at one local garment maker, Liberty Fashions, after the chain’s inspectors found structural problems in the factory—a finding angrily disputed by the factory’s Bangladeshi owner. Meanwhile, reports in the Bangladeshi media about cracks in various factories have fueled fear and anger among workers. [In late June 2013], hundreds of people demonstrated in the industrial suburb of Savar after local officials closed their building, Razzak Plaza, in response to a local television report about cracks in the structure’s rooftop canteen. “This is false news!” shouted several shopkeepers, furious at losing business. The crowd blocked the main road and grew increasingly agitated as a local official pleaded for patience. The scene was unfolding less than a mile from the site of Rana Plaza. “Do we want another Rana Plaza disaster?” the local official shouted. To lead the inspections effort, the Bangladesh government, as well as industry leaders, are leaning on a small group of professors at the country’s leading engineering program, the Bangladesh University of Engineering and Technology. Yet the school has only 30 professors who are experts in structural and geophysical engineering, meaning the inspections process is moving slowly, especially since the professors must continue with their teaching loads. Mohammed Mujibur Rahman, chairman of the civil engineering department, said the university’s inspection teams had so far assessed about 100 buildings, including 66 containing one or more garment factories. Dhaka is estimated to have between 1,500 and 2,000 garment factories. “It is ultimately the government that should ensure the buildings are safe,” Mr. Rahman said, noting that the university, “as an institution, doesn’t have that capacity.” Still, Mr. Rahman said his staff considered the inspections its duty and was working around the clock. He declined to identify which factories his teams had inspected but said defects were widespread, ranging from superficial cracks to more serious damage to columns and beams.

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Inspection teams recommended that two buildings be closed because of risk of collapse. The Times later confirmed that the Al-Hamra Garments building was one of them and obtained a copy of the inspection report from a third party. The building, in the crowded center of Dhaka, went up about 20 years ago. It is divided into two sections: a five-story wing that contains two cinemas and an eight-story building that houses Al-Hamra and another factory, Amazan Garments, also owned by the Palmal Group. In response to the Rana Plaza collapse, officials at Palmal say, the company hired a leading local engineering firm, Shaheedullah and New Associates Ltd., to inspect all its factories. When problems were discovered at the Al-Hamra site, the Shaheedullah firm determined that the columns supporting about a third of the factory needed reinforcement. The firm then installed the temporary iron props and commenced with repairs. “Now the above garments factory is safe from immediate collapse under all vertical loads,” the firm stated in a report provided to AlHamra officials. On the same day, the Bangladesh garment trade group also sent an inspection team, which surveyed the temporary support beams and concluded that the building was “safe for garment operations” as the structural repairs continued. But the two-person team from the engineering university made a visual inspection and drew a starkly different conclusion. It found a “large number” of “severely disintegrated” columns. Other columns or beams had serious cracks. It also found design problems, reporting that in some areas, “framing with beams and columns were absent.” “The structure of the building needs immediate measures to counter the possible total failure and total collapse of the building,” the university inspection report stated. Asked about these findings, the building’s owner, Shafi Bikrampuri, initially argued that the three inspection reports were consistent. “They said it was not dangerous,” he said, indicating he was not aware of the details of the university report. “No danger, nothing.” By Saturday night, though, Mr. Bikrampuri and officials at AlHamra Garments had changed their minds. “Because of the conflicting reports and opinions from the multiple organizations involved,”

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Mr. Chowdhury said in a statement, “we were at a dilemma to reach an educated decision.” On Sunday morning, the factory was closed, with a notice telling workers that wages would still be paid. The company has hired yet another inspection team to conduct a comprehensive assessment. Source: Reprinted from Jim Yardley, “After Disaster, Bangladesh Lags in Policing Its Maze of Factories,” New York Times, July 2, 2013.

In Bangladesh, as in other developing countries, workers’ protests about unsafe working conditions are on the rise and have taken the form of both spontaneous mass actions and organized union-led campaigns. Box 9.5 mentions the role workers’ protests played in the pressure that has been put on the Bangladesh government and garment employers to avoid future building collapses like the one that occurred at Rana Plaza. The difficulties of enforcing building codes and other work safety standards (as discussed in box 9.5) have led many people in both the emerging and advanced industrialized countries to favor labor reforms that would promote the spread of unions that could press for and then monitor improvements in building safety and other work conditions. In Bangladesh, these calls for reforms recently led to changes in the country’s labor laws that make it easier for unions to form and act, though some argue that these reforms do not go far enough in promoting unionism and collective action (see box 9.6).

BOX 9.6 New Bangladesh Law Eases Path for Unions Bangladesh passed a much-awaited amended labor law on in July 2013 that government officials said would herald a new era for workers’ rights in the country. . . . Under the new law, workers will no longer need approval from factory owners to form trade unions and any factory that sells products within Bangladesh must set aside 5% of net profits in a welfare fund. The previous version of the labor law, passed in 2006, allowed factory owners to veto the creation of unions, which meant the number of unions in Bangladesh’s apparel industry remained small. . . .

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“This is a landmark legislation drawn up after extensive consultations with all stakeholders including workers, factory owners, retailers, the [International Labour Organization] and development partners,” he said. “All obstacles to freedom of association have now been removed.” The changes were promised this year after Bangladesh’s booming $20 billion garment industry came under intense pressure from Western retailers and foreign governments to help ensure better working conditions. In June 2013, the U.S. dropped Bangladesh from a list of developing countries that receive preferential trade access, citing poor working conditions and a lack of labor rights in the country, though the move didn’t cover garment products. Labor activists have argued that having stronger unions in apparel factories could help prevent another tragedy such as Rana Plaza. A government inquiry committee found that the factory complex had been built without proper permits and workers had been intimidated into entering a risky building after cracks appeared in the structure the previous day. . . . The law also stipulates that factories must deposit 5% of annual profits in provident and welfare funds for workers—although fully export-oriented factories have been exempted. Under the new law, factories will be required to set aside 5 percent of profits for a welfare fund for employees, although the law exempts export-oriented factories. Apparel is Bangladesh’s dominant industry, with $18 billion in annual exports, making it the world’s second-largest garment exporter after China. As under the old law, workers hoping to form a union must gather signatures of 30 percent of a company’s workers—a level that was onerous, labor leaders said, because many apparel manufacturers have thousands of workers. To make unionizing easier, labor leaders were urging lawmakers to adopt a 10 percent threshold. In Bangladesh, several unions might represent employees in a single factory. Business leaders complain that Bangladeshi unions are highly political and sometimes stage disruptive strikes as a complementary tactic to political blocs’ lobbying and infighting. In a step that could help unionization, the new law bars the country’s labor ministry from giving factory owners the list of the 30 percent of workers who want to form a union. Labor leaders said that after

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receiving those lists, owners often fired union supporters or pressed many to withdraw their names from the petition, bringing the number below the requisite 30 percent mark for a union to be recognized. Some labor leaders expressed concern that government officials would still give the names to factory owners, perhaps because of collusion or bribes. . . . Human Rights Watch said, however, that the new law would make unionizing harder. It criticized the legislation for adding more industrial sectors, including hospitals, where workers would not be permitted to form unions. The group noted that workers in Bangladesh’s important export processing zones would remain legally unable to unionize. In addition, the government would be empowered to stop a strike if it would cause “serious hardship to the community” or be “prejudicial to the national interest.” And workers at any factory owned by foreigners or established in collaboration with foreigners would be barred from striking during the operation’s first three years. . . . Under the new law, unions would need government approval before they could receive technical, health, safety or financial support from other countries. Sources: Reprinted from Syed Zain Al-Mahmood, “New Bangladesh Law Eases Path for Unions,” Wall Street Journal, July 16, 2013; and Steven Greenhouse, “Under Pressure, Bangladesh Adopts New Labor Law,” New York Times, July 16, 2013.

Summary Wage gains won by a union, policy regulations imposed by a government, or pressure from NGOs can set off a chain reaction that leads management to make adjustments. This chapter presents a framework for tracing these effects. As they make both short- and long-term adjustments, employers are constrained by the logic of employment patterns, because changes in one employment practice will interact with and work best with other particular work practices. There is much debate about the long-term impacts of unions and government regulations on labor market outcomes. Recent research reveals much variation in these impacts across countries, industries, and firms, so claims or estimates of “average” effects must be interpreted with caution.

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Workers, employers, governments, NGOs, and society care about more than wages and economic growth. Workers, for instance, care about how they are paid and not just about the level of pay. They also care about whether and how seniority rights influence their access to jobs. All parties should also care about workers’ safety and other workplace outcomes. As this chapter discusses, unfortunately, human tragedies continue to occur as a result of fires, building collapses, or other workplace hazards. The Rana Plaza building collapse in Bangladesh is a telling illustration of the shortfalls in government regulations and in enforcement and employer practices. At the same time, some positive steps have been taken in the aftermath of the Rana Plaza tragedy that have the potential to spur further improvements in safety standards and conditions across the globe. It remains to be seen if the parties take up the challenge to ensure real and sustained improvements in workplace safety and other workplace conditions.

Discussion Questions 1. Describe some of the short- and long-term adjustments management commonly makes in response to a wage increase. 2. What do you think is the best way to ensure that workers in global supply chains work under safe conditions? What might make it difficult to accomplish the safety conditions you favor? 3. Seniority is a vital issue in the workplace. Unions have argued that seniority protects employees against arbitrary treatment by the employer and promotes fairness. Employers, on the other hand, often argue that adherence to seniority leads to inefficient practices and will restrict the promotion of high-achieving individuals. Which side in this debate do you favor and why? 4. Explain how outsourcing can threaten employment security and suggest ways that workers’ interests in employment security can be reconciled with management’s interests in maintaining flexibility and high performance at the workplace.

Related Web Sites Accord on Fire and Building Safety in Bangladesh: http://www.bangladeshaccord .org/ “Decent Work for Domestic Workers: [International Labour Organization] Convention 189 and Recommendation 201”: http://www.ilo.org/wcmsp5/groups/ public/---ed_protect/---protrav/---travail/documents/publication/wcms _168266.pdf

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“The Eradication of Labour Practices Analogous to Slavery: The Good Practice of Labor Inspections in Brazil”: http://www.ilo.org/wcmsp5/groups/public/---ed _norm/---declaration/documents/publication/wcms_155946.pdf United States Government-Bangladesh Action Plan 2013: http://www.just-style .com/news/action-plan-sets-out-bangladesh-gsp-safety-steps_id118513.aspx Worker Rights Consortium: http://www.workersrights.org

Suggested Supplemental Readings Aidt, Toke, and Zafiris Tzannatos. Unions and Collective Bargaining: Economic Effects in a Global Environment. Washington, D.C.: World Bank, 2003. Freeman, Richard B. “Labor Regulations, Unions, and Social Protection in Developing Countries: Market Distortions or Efficient Institutions.” In Handbook of Development Economics, vol. 5, ed. Dani Rodrik and Mark Rosenzweig, 4657–4702. Amsterdam: Elsevier B.V., 2010. Freeman, Richard B., and James L. Medoff. What Do Unions Do? New York: Basic Books, 1984. Kuhn, Peter, and Gustavo Marquez, eds. What Difference Do Unions Make? Washington, D.C.: Inter-American Development Bank, 2005. Restrepo, Jorge Enrique, and Andrea Tokman, eds. Labor Markets and Institutions. Santiago, Chile: Central Bank of Chile, 2005. Notes 1. Sumner Slichter, Union Policies and Industrial Management (Washington, D.C.: Brookings Institution, 1941). 2. Richard E. Walton, Joel Cutcher-Gershenfeld, and Robert E. McKersie, Strategic Negotiations: A Theory of Change in Labor-Management Relations (Boston: Harvard Business School Press, 1994). 3. Brian Becker, “Union Rents as a Source of Takeover Gains among Target Shareholders,” Industrial and Labor Relations Review 49 (1995): 3–19. 4. World Bank, World Development Report 1990: Poverty (Washington, D.C.: World Bank, 1990), 63. 5. Richard B. Freeman, “Labor Regulations, Unions, and Social Protection in Developing Countries: Market Distortion or Efficient Institutions,” in Handbook of Development Economics, vol. 5, ed. Dani Rodrik and Mark Rosenzweig (Amsterdam: Elsevier B.V., 2010), 4657–4702. 6. H. Gregg Lewis, Unionism and Relative Wages in the United States (Chicago: University of Chicago Press, 1962). 7. Freeman, “Labor Regulations, Unions, and Social Protection in Developing Countries”; and Fernando Rios-Avila and Barry T. Hirsch, “Unions, Wage Gaps, and Wage Dispersion: New Evidence from the Americas,” Industrial Relations 53, no. 1 (2014): 1–27. 8. See Lewis, Unionism and Relative Wages in the United States; and Richard Freeman and James Medoff, What Do Unions Do? (New York: Basic Books, 1984). 9. See, for example, Greg Duncan and Frank Stafford, “Do Union Members Receive Compensating Wage Differentials?,” American Economic Review 70 (1980): 355–371; and John Abowd and Henry S. Farber, “Job Queues and the Union Status of Workers,” Industrial and Labor Relations Review 35, no. 3 (1982): 354–367.

PART 4

Special Topics Chapter 10. Labor Relations in the Public Sector Chapter 11. Global Pressures: Multinational Corporations, International Unionism, and NGOs Chapter 12. Economic Development Strategies and Policies

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Labor Relations in the Public Sector

THE IMPORTANCE OF THE PUBLIC SECTOR IN EMERGING COUNTRIES

The public sector in many emerging countries typically represents a significant share of the formal economy in those countries, and public employees often are represented by unions. Public employers also generally follow the bureaucratic employment pattern (described in chapter 6), which includes formal rules, structured pay and complaint procedures, and a relatively high degree of employment security. At the same time, as we discuss more fully later in this chapter, since 2000 there has been a significant amount of privatization or denationalization in many emerging countries that has shifted formerly public (i.e., state) enterprises into the private sector or at least made those organizations quasi-private in nature. This has led to significant changes in employment practices, including sizeable downsizing and the introduction of more market- and individualoriented practices, such as pay for performance. In the process, previous public sector (civil service) jobs have acquired the insecurities that are more typical of the private sector. And since 2008 as part of “structural adjustment” policies adopted in the midst of economic crises, public employees have faced or been threatened with even more drastic erosions of their wages, pensions, and other benefits and a further lessening of job security. To analyze these developments, this chapter applies the general framework developed in the previous chapters to examine labor relations in the public sector. It is important to recognize at the outset, however, that the public sector is in some ways fundamentally different from the private sector. 249

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Government is not just an employer and a provider of services; it is a provider of public services, and the public sector is affected more significantly than the private sector by political pressures and the demands of the public. There has been much debate about how appropriate the legal regulation of public sector labor relations is. Some analysts have argued that the unique nature of government as an employer makes collective representation as it is traditionally practiced in the private sector inappropriate for the public sector. Other observers feel that collective representation and collective negotiations are appropriate but in a shape and form adapted to meet the special circumstances of the public sector. The first section of this chapter examines the extent and scope of public employment in emerging countries and the trend since 2000 toward greater privatization. The following sections review the sources of bargaining power in the public sector and how labor relations in the public sector compares with labor relations in the private sector. The text then considers whether the norms of legal regulation of public sector unions should be different from those for private sector unions. In the final section of this chapter we assess the very recent changes that have occurred in public sector employment systems as a result of the 2008 financial crisis and its aftermath with particular reference to events in Greece. THE EXTENT AND SCOPE OF PUBLIC EMPLOYMENT

The share of employment and economic activity in state-owned enterprises or other parts of the public sector has been declining significantly in recent years in emerging economies. These declines constitute a key element of the spread of more market-oriented private sector employment in these countries. For example, figures in table 2.1 show that in China the share of employment in state-owned enterprises has dropped from 60.4 percent of total formal employment in 1978 to 14.5 percent in 2010, whereas employment in the private sector has rapidly increased. Privatization in India

India offers another illustration of the recent trend toward increased privatization that is common in most emerging countries. Below we provide a quick summary of the origins of the heavy influence of the government in the Indian economy and then look at recent developments. India provides a good illustration of the privatization developments and controversies that have occurred in a number of emerging economies.

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In recent years India has shifted from an economy dominated by state (i.e., public) enterprises and government regulations to a more market-oriented economy. In the process, the privatization of formerly state enterprises has been extensive. After India achieved independence in 1947 and Jawaharlal Nehru was elected as prime minister, the Indian government took a socialist and governmentally activist economic route that led to the rise of the public sector in the nation’s developing economy.1 Under the Industrial Policy Resolution of 1956, the Indian Parliament passed legislation enabling funding for public sector undertakings as mechanisms by which the national government, in conjunction with state governments, would develop infrastructure, redistribute income, create jobs, and decrease the trend toward income inequality. As a result, by the 1970s, the public sector constituted almost one-fifth of India’s total GDP. However, by the late 1980s, a global trend toward economic liberalization was emerging, particularly in socialist countries such as the Soviet Union, where policies such as perestroika and glasnost had opened up private sector markets and deregulated industries that had once been under absolute government control. As this trend of economic liberalization spread throughout other socialist countries, particular in Eastern Europe, India initiated its own economic liberalization reforms in response to its exploding debt crisis and the reforms recommended by the International Monetary Fund. The Indian National Congress established several economic reforms such as relaxing restrictions on entry into the marketplace and on equity funding so that competition among certain domestic industries would increase and channels for foreign investment would open up. Examples of Privatization in India Since 1991, a number of industries and firms have undergone privatization or partial privatization in the Indian economy. One such example is the Lagan Jute Machinery Company Limited (LJMC), a company that manufactured equipment for spinning jute. The company employed almost 400 people before privatization in 1998.2 Starting in 1996, LJMC started accumulating substantial losses. The main problem with LJMC was that national, state, and regional government regulations were inhibiting the speed and efficiency with which products were made, causing the company to reduce orders and lose profits. After 1997, when LJMC went private with the help of the Department of Divestment, it began showing a significant profit. Another example of how privatization has led to profits is Modern Food Industries Limited (MFIL). MFIL, which was founded in 1965, was a stateowned enterprise that was a national leader in running local and regional

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farming markets and in producing food and dairy products. By 1997, MFIL was showing significant losses. Through the process established by the Department of Divestment, MFIL underwent privatization and since then has earned substantial profits. Mixed Success of Privatization in India There have been many impediments to privatization in India. For example, according to the World Bank, there have been thirteen failed privatization efforts in companies such as Air India, Indian Airlines, Scooters of India, and the National Industrial Development Corporation, a construction firm that the government recommended for privatization in 1997.3 There are many reasons why these privatization projects have not been completed. Several are political and are due to the fact that Indian politics is still influenced by the socialist roots of the NehruGandhian ideology of the early post-independence years. One reason for opposition to privatization is that workers in India have traditionally been promised deep financial support from the national and regional governments, and pension programs and other social welfare provisions are diminished if privatization takes place. Thus, many politicians, particularly those in difficult reelection campaigns, are reluctant to support privatization. At the same time, in many ways it is remarkable that the process of privatization has progressed in India as far as it has since the mid-1990s. There is some evidence that privatization in India has led to increased profits, greater employment, and improved services for the general public, although critics point to growing income inequality in India as a harmful consequence of privatization. It remains to be seen whether privatization will continue in India and what the effects of these measures will ultimately be on the Indian people. Debates about the Effectiveness and Social Impacts of Privatization

The increase in privatization has been driven by belief that the private sector is more efficient, innovative, and responsive to consumers and less frequently prone to corruption than the public sector. However, there has been much controversy and political activity surrounding government efforts in recent years to increase privatization.4 Critics of privatization allege that it is not necessarily more efficient in part because public services can best be provided in large scale and this scale would not be possible if there was a shift to private sector provision. Also, there is concern that that the lower cost of private sector provision comes “off the backs of workers” because private sector firms pay less. Private sector employees also often speed up the pace of work and do

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not maintain the same levels of safety and health found in public enterprises. Related to these concerns is the fact that the public sector tends to be much more heavily unionized than the private sector in emerging economies, so privatization brings a decrease in the influence of unions and collective representation. The unions that represent public employees are among a number of advocates who have argued that privatization does not lead to more efficient public services and leads to harmful costs to workers in privatized companies and bad outcomes for the public itself. Box 10.1, which describes how petroleum workers in Mexico are opposing government plans to privatize oil refineries, illustrates how unions can get involved in debates surrounding privatization. Box 10.2 reports on a strike in Korea in response to government plans to privatize parts of the railroad industry.

BOX 10.1 Unions Protest Privatization of the Petroleum Industry in Mexico In October 2013, Mexican president Enrique Pena Nieto unveiled an ambitious and highly controversial package of economic reforms that would significantly alter Mexico’s state-run petroleum industry. In his reforms, President Nieto proposed that Petroleos Mexicanos, the current state-run oil agency, be allowed to engage in mergers with foreign firms and share revenues and profits with those firms. Currently, the Mexican constitution explicitly bans foreign enterprises from partnering with and sharing profits with the state-controlled petroleum entity. In addition, President Nieto proposes that the Mexican government provide more incentives through tax credits and subsidies for foreign firms to enter the domestic electricity market in order to bring down electricity prices, which are almost 25 percent higher than in the United States. While the president and his party argue that the petroleum and electricity sectors will remain under national government control and foreign enterprises can enter the market and share profits only if they partner with Petroleos Mexicanos, many opponents of these proposals, including unions and nationalist parties, argue that they amount to large-scale and harmful privatization of these sectors and would result in job losses for domestic Mexican workers and the loss of a national treasure (the petroleum industry) to foreign companies.

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In 1938, the Mexican legislative branch nationalized the petroleum industry and amended the nation’s constitution to ban foreign firms from entering the Mexican domestic petroleum industry. For the last decade, Petroleos Mexicanos has provided over one-seventh of total government tax revenues. Tax revenue is essential to the domestic economy in Mexico, where tax evasion is widespread. In addition, domestic oil output in Mexico has greatly decreased over the last decade. For example, in 2004, Petroleos Mexicanos produced 3.4 million barrels of oil a day, compared to 2013, when output fell to only 2.5 million barrels a day. Mexico now imports approximately half of its gasoline from firms in Texas and in other Latin American countries. As a result of these developments and the underutilization of Mexico’s domestic oil production abilities, President Nieto proposed these initiatives to spur innovation in Mexico’s domestic oil industry and to promote lower oil prices. Several political parties and a number of unions are adamantly opposed to these reforms. Ederico Estévez, a political science professor at the Autonomous Technological Institute of Mexico, notes, “Privatization here gathered itself a bad name because of cronyism.” Essentially, the majority of the Mexican population is opposed to more privatization because the last time the national government allowed an important industry to privatize, there was a great deal of cronyism, corruption, and government scandals. The 1990 privatization of the main Mexican telephone company, Telemex, helped make Carlos Slim a billionaire and resulted in job losses for many telephone workers. As a result, unions have conducted many protests and marches throughout Mexico City to persuade members of the Mexican Congress to vote against the proposed constitutional amendment that would bring the privatization President Nieto favors. Richard Galindo, a petroleum industry worker and protester claimed, “The reform means more jobs for the big oil companies in the United States and Europe but not for Mexicans.” The government has tried to counter the claims of protesters and unions by pointing to the statistics of the Mexican Institute for Competitiveness, which projects that these energy sector reforms could improve GDP output by 1.7 percent and create almost 300,000 jobs. It remains to be seen whether President Nieto will be able to muster the political power needed to overcome the opposition to his reforms and persuade the legislative branch to adopt the reforms.

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Sources: Ioan Grillo, “Mexico’s Looming Oil Battle: Bid to Bring in Foreign Investment Sparks protests,” Time, August 21, 2013, http://world.time .com/2013/08/21/mexicos-looming-oil-battle-bid-to-bring-in-foreign -investment-sparks-protests/; David Agren, “Mexico Proposes to Open Up Oil to Foreigners,” USA Today, August 12, 2013, http://www.usatoday.com/ story/news/world/2013/08/12/mexico-oil/2642629/; William Diebold Jr., “Review of Petroleum and Mexico’s Future, edited by Pamela S. Falk,” Foreign Affairs (Fall 1987), http://www.foreignaffairs.com/articles/42372/william -diebold-jr/petroleum-and-mexicos-future.

BOX 10.2 Korea Railroad Workers Face Government Assault after Protesting Privatization On December 22, 2013, a force of 5,000 South Korean police, allegedly without a warrant, attacked the headquarters of the Korean Confederation of Trade Unions (KCTU), the larger and more progressive of Korea’s two union federations, and arrested 135 persons who attempted to block their entry. The background is that the government of President Park Gyeun-He recently announced a unilateral decision to privatize part of KORAIL, the Korean railway system. Despite widespread opposition, KORAIL allegedly refused to engage in social dialogue about the decision. In response, the Korean Railway Workers’ Union (KRWU) struck on December 9. KORAIL immediately announced that it would fire 8,565 workers. It also filed a damages lawsuit against 194 KRWU leaders. The government believed that KRWU leaders were hiding in KCTU headquarters, and despite the fact that a judge had refused to issue it a warrant to enter the building, it sent police to enter by force. (No KRWU leaders were found in the KCTU building.) The strike ended after twenty-two days. Union leaders agreed to end the strike after two major political parties agreed to form an ad hoc committee in the National Assembly to study the feasibility of privatization, even though the management of KORAIL was not party to the study agreement and remained noncommittal about whether it would carry out the mass firings it had earlier announced. Heated disagreement over privatization of the railroad system has surfaced periodically since 2000 in Korea.

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Sources: PSPD People’s Solidarity for Participatory Democracy, “Urgent Appeal ROK KCTU Crackdown,” December 22, 2013, https://www.dropbox. com/sh/lsj7dg37r5kb5av/rWggJOukIV, accessed January 8, 2014; and Yi San, “South Korea Rail Workers Strike against Privatization,” Labor Notes, January 8, 2014, http://labornotes.org/2014/01/south-korea-rail-workers-strike -against-privatization.

THE SOURCES OF BARGAINING POWER IN THE PUBLIC SECTOR

Total power in the public sector is determined by the revenue (i.e., tax revenues, revenue sharing, and fees for services) available to the parties to be distributed between labor and management in a manner analogous to the role profits play in a private sector negotiation. Also, as in the private sector, both strike leverage and the elasticity of demand for labor are critical determinants of relative bargaining power in the public sector, even though the strength of their influence is altered by the particular circumstances that are common to public sector labor relations. For one thing, the fact that public sector employees do not commonly have the legal right to strike reduces (but does not eliminate) the leverage public employees gain from a strike action or strike threat. Some public employees do have the legal right to strike. Even more important is the fact that the absence of the legal right to strike does not prevent strikes from occurring or strike threats from being meaningful. Where binding compulsory arbitration (referred to in some countries as interest arbitration) is the impasse resolution procedure, the expected outcome from compulsory arbitration serves as the threat point in negotiations and thereby influences negotiated outcomes whether or not compulsory arbitration is actually called into play to settle a given negotiation.5 The elasticity of demand for labor is also a key determinant of relative bargaining power in the public sector. Public sector workers and unions, just like their private sector counterparts, are likely to consider the trade-off between improvements in contract terms and employment as they assess whether or not to use their ability to press for improvements in compensation. Here again the particulars of the labor relations situation and environment matter. Given the service nature of the public sector, alternative sources of production are typically much more limited than they are in the private sector and the demand for labor tends to be more inelastic in the public sector than in the private sector. In particular, international sources of supply are more limited for public services, although the availability of private domestic sources

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via privatization can make the elasticity of demand significantly more elastic and to some extent counterbalance the decreased role of international sourcing. How Marshall’s Conditions Operate in the Public Sector

Alfred Marshall’s first condition states that employees have more bargaining power and face a smaller reduction in employment from an increase in wages when it is difficult for management to substitute other factors of production for employees. Given this condition, public employees, on average, should have more bargaining power than private employees do. It is difficult, for example, to substitute machines for public employees that provide many public services. It would be almost impossible to substitute machines for public schoolteachers or police and fire fighters. Some substitution of capital for labor is feasible for some public services, however: computers can at least partially substitute for teachers, police can acquire more cars and other equipment, and fire fighters can use more and better equipment. Nevertheless, public employees probably have some degree of advantage because of the relative difficulty of substituting other factors for employees. Marshall’s second condition concerns the price elasticity of demand for the final good. Here again public employees, on average, should have an advantage over most private employees. Government is typically the sole provider of a public good or service. A public employer cannot typically go out of business or move to some other area to escape higher labor costs. As a result, the demand for many public goods is relatively price inelastic.6 This makes public employment relatively insensitive to increases in wages. Marshall’s third condition concerns what happens to the price of substitute factors of production if the demand for them increases. Here there is no clear difference between the public and private sectors. With regard to the fourth Marshall condition, the importance of being unimportant, public employees are likely to be at a disadvantage. In most cases, labor costs make up a substantial share of total production costs. The ratio of labor to total costs varies in the public sector from a high of around 90 percent in police and fire departments to a low of between 60 and 70 percent in education and other public services. This means that wage increases have a significant effect on total increases in government budgets. Labor costs are a prime target for cost-cutting efforts when the public demands lower taxes and expenditure levels. In the long run, then, the high percentage of labor costs to total costs may act as a major impediment to the power of public employee unions. On balance, Marshall’s conditions predict that the demand for public

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services is relatively price inelastic and that increases in labor costs should lead to relatively small declines in employment. Where the public sector differs most from the private sector in regard to the determinants of bargaining power is in the fact that politics brings direct influences to bear on the determination of employment conditions in the public sector. This occurs because expenditure or employment levels or compensation and other contract terms are often decided by elected officials or by voters. Labor relations is said to be multilateral in the public sector because of the diffusion of managerial authority, a factor that increases the variety of political factors and political channels that influence public sector labor relations.7 The Role of Multilateral Bargaining in the Public Sector

Multilateral bargaining is a negotiations process that includes more than two distinct parties. In multilateral bargaining no clear dichotomy exists between the union and the management organization. As a result, in the public sector both labor and management have a strong incentive to spend significant time and resources trying to influence public opinion or public officials through lobbying or through electoral politics. Consequently, for example, public employee unions in certain situations can use end runs around recalcitrant elected officials in an attempt to influence public decisions. Another form of multilateral negotiations occurs when a decision-making group rejects a negotiated agreement and refuses to implement it. Civil service commissions, public boards, or legislatures, for example, often must ratify the final agreement. At the ratification stage, constituents may pressure officials to change the terms and conditions of the bargain. Thus, another example of multilateralism arises when community interest groups become involved in the negotiations process. NORMATIVE DEBATES ABOUT THE LEGAL REGULATION OF PUBLIC SECTOR LABOR RELATIONS

The importance of politics in public sector labor relations comes to the fore in the debates about whether public employees should have the right to form unions and whether those unions should be restricted.8 Some argue for strict limits on collective negotiations rights and union rights on the grounds that public employees and their unions have undue political influence because they have complex interests given their dual roles as citizens and employees

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when they live in the jurisdiction where they work. These public employee/ citizens could influence decisions about public expenditures and about employment terms as citizen voters and not just as employees or union members/activists. At the same time, recognition of the important role politics play in public sector decision making does not necessarily lead to the conclusion that collective negotiations or union rights should be significantly limited in the public sector. Analysts point out that the bargaining power that labor or management actually has in a given public sector setting varies depending on conditions specific to the particular jurisdiction and the time period that are involved and is an empirical question. In particular, management may find ways to exert significant political power, potentially by aligning with community or business groups or other political actors in order to limit the power or gains of public employees or unions. AUSTERITY CRISES AND THEIR IMPACTS ON LABOR RIGHTS AND CONDITIONS: THE EXAMPLE OF GREECE

A number of emerging countries have at one time or another faced an economic crisis. In some instances these crisis have occurred at the time of a more widespread financial crisis. These crises typically are precipitated when the country in question is unable to meet bond or other financial obligations and country bankruptcy is threatened as a result. International agencies then become involved in the ensuing crisis by providing loans that are often tied to austerity measures that typically include large cutbacks on government spending and increases in taxes and often at least partial default on some of the loan obligations. These crises are important because they critically affect economic conditions in the particular country; have severe effects for the citizens of the country, especially public employees; and have broader economic and social consequences. Needless to say, deep debates are associated with these austerity crises, including (1) debates about what caused the particular economic and financial crisis in the first place; (2) debates about whether the austerity measures are effective or self-defeating; and (3) debates about whether it is fair or appropriate that public employees bear a heavy burden as part of the austerity plan. When Greece recently experienced an extreme financial crisis, it adopted a series of austerity measures that provide a concrete testing ground for these various debates. The Greece crisis started in April 2010 with the downgrading of the Greek government’s debt to junk bond status. This was followed by

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successive crisis negotiations and threats of formal country bankruptcy. Several rounds of austerity actions ensued, many of which were approved by the Greek Parliament. A so-called troika of international agencies (the IMF, the European Union, and the European Central Bank) provided loans that helped Greece avoid complete bankruptcy under the condition that it adhere to a variety of austerity measures. Before we discuss the economic and social consequences of Greece’s crisis, it should be noted that there was extensive debate about the causes of Greece’s financial crisis. Some argued that Greece had been brought to financial ruin through excessive government spending accompanied by high public employee wages, especially favorable public employee pensions. Many pointed to the fact that by 2009, the Greek federal deficit was 15.6 percent of GDP. Others argued that too much inexpensive credit in the several years before the crisis had fueled a speculative boom, which was particularly damaging because it artificially stimulated excessive growth in components of the Greek economy that did not compete in international markets. Others claimed that it was the lack of an effective and broad tax system that contributed to Greece’s problems along with cronyism and corruption in the government that included overspending and hiding previous debt levels. The Impact of Austerity on Public Employment and Public Sector Union Rights

The Greek government adopted successive emergency measures to bring the national deficit under control and to comply with terms demanded by the “troika.” These included large cuts in the wages and pensions of public employees (and cuts in other benefits) and dramatic cuts in government employment. The first wave of cuts (of five) in 2010 reduced the pay of public employees by 7 percent. This was followed by a further 8 percent cut in the second wave and another 10 percent in a third wave. The fourth and fifth waves involved the introduction of new pay systems for public employees. Over the 2010–2011 period, wages in the public sector were cut by a total of 30–35 percent. From December 2009 to November 2011, the total number of jobs in the Greek public sector was reduced by 7.2 percent. Although this was large reduction, it was still smaller than the 12.5 percent decrease in total Greek employment that occurred during this period. The right of public employees and their union representatives to be involved in decisions about employee pay were sharply limited as part of the austerity process. Although public employees in Greece had never had a formal right to engage in collective negotiations about their pay, they and their

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union representatives historically had influenced pay determination through various political and informal consultative channels.9 Effectively, in the past employees had indirectly influenced decisions about government pay and expenditures through political lobbying. This and other forms of social dialogue involving public employees were ended when the austerity plans were put into place. The Impact of Austerity on Private Sector Labor Relations

The austerity plans also led to changes in the prevailing labor relations system for private sector employees in Greece. Prior to the 2010 austerity package, which included reforms of private sector collective negotiations rights, collective negotiations in Greece were very centralized. Unions and a government agency, the Organization for Mediation and Arbitration, would work together to produce a National Collective Agreement (NCA), which established a new minimum wage and settled other issues in rounds of collective negotiations.10 During a bargain round, company executives could engage in collective negotiations with an individual union, but they could only improve (for the workers’ benefit) upon what had already been established in the NCA. However, after 2010, the austerity legislation overturned this procedure. Now employers are allowed to settle on terms that differ from the NCA and as a result they are no longer restricted to only improving upon what the NCA established for workers in firm-level bargaining. The new legislation and negotiating process increased the bargaining power of employers. Protests and Strikes over Austerity

Unions and citizens engaged in a number of protests and strikes (including a general strike) against the austerity plans, to no avail. Their protests were strengthened by accusations that bond holders and other creditors did not in fact absorb much of a real penalty as a result of the austerity plans because Greek citizens and public employees bore most of the costs the austerity plans imposed. The Effects of Austerity on the Economy and Society

The consequences of the austerity plans on the Greek economy and society were extreme. For example, Greek GDP declined by 6.9 percent in 2011.11 The unemployment rate rose from 7.5 percent in 2008 to a record high of 23.1 percent in May 2012. The youth unemployment rate rose over the same period from 22.0 percent to 54.9 percent. There were also widespread reports of increases in the number of health emergencies, in the homeless population, and in the number of suicides.

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Those who argued that the austerity measures were not only too extreme but were actually self-defeating pointed to the severity of the economic decline that followed the austerity plans that were imposed in Greece. Instead of austerity, these critics advocated a renegotiation of bond holdings (essentially a managed default) that put more of the cost of the adjustment process on the banks that had fueled the speculative boom that preceded (and possibly caused) Greece’s financial crisis.

Summary This chapter has examined the sources of bargaining power in the public sector and compared those sources to power sources in the private sector. The chapter also has analyzed how collective negotiations have affected the political access and influence of public sector employees. In addition, the chapter discussed the role the strike has played as a source of power in the public sector. Early statements that public sector collective negotiations would tip the balance of power in favor of unions have proved to be overly simplistic. There has been a diverse range of experience in public sector bargaining and major changes over time in the public’s reaction to public employee demands and unionism. Wide differences also have appeared in the economic power of public employees in various countries and at various times. Therefore, it is inappropriate to generalize about collective negotiations experiences for public sector employees. At the same time, in a number of emerging countries, as in many advanced industrialized countries, public sector labor relations has come under severe stress in the face of governmental financial/budget crises and accusations that public employees are overpaid, especially in terms of pensions. Recent developments in Greece provide an extreme example of pay cuts for public employees and new limitations on union and bargaining rights for public employees that were imposed as a key part of a structural adjustment plan. This chapter also describes the longer-term privatization measures that have reduced public sector employment in a number of emerging countries and the conflicts that have ensued over this retrenchment. At the same time, a long-term perspective reveals that unionism in the public sector does not appear to warp the democratic process. The evidence also suggests that a strike does not necessarily advantage the public employees involved in that strike. On the contrary, public employees often lose strikes. The high levels of union representation that still exist in the public sector even in the context of recent government retrenchments and financial crises

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contrast with developments in the private sector in many countries, where the level of union representation has become very low. Whether labor-management relations will diverge in this way between the public and private sectors in the future is an issue worthy of careful attention.

Discussion Questions 1. There is debate over whether public sector unions have more power than those in the private sector. Evaluate the power of public employee unions in terms of Marshall’s conditions. 2. Discuss the pros and cons of giving public sector employees the right to strike. 3. Some argue that privatization of public services is essential for bringing efficiency and service improvement to the public sector, while others have argued that privatization will not produce favorable outcomes. Explain where you stand in this debate and why.

Related Web Sites Collective bargaining in Greece: http://www.worker-participation.eu/National -Industrial-Relations/Countries/Greece/Collective-Bargaining Korean Confederation of Trade Unions: http://www.kctu.org Successful Privatization in India—Lagan Jute Machinery Company Limited: http:// www.divest.nic.in/chap10-old.asp

Suggested Supplemental Readings Bach, Stephen, and Lorenzo Bordogna, eds. “Reframing Public Service Employment Relations.” Special issue, European Journal of Industrial Relations 19 (2013). Iannou, Christos. “Greek Public Service Employment Relations: A Gordian Knot in the Era of Sovereign Default.” European Journal of Industrial Relations 19 (2013): 295–308. Sclar, Elliot. You Don’t Always Get What You Pay For: The Economics of Privatization. Ithaca, N.Y.: Cornell University Press, 2000. Vaughan-Whitehead, D., ed. Public Sector Shock: The Impact of Policy Retrenchment in Europe. Cheltenham: Edward Elgar, 2013. Notes 1. Anil K. Makhija, “Privatization in India,” Economic and Political Weekly, May 20, 2006, 1947–1951. 2. Department of Disinvestment, Government of India, “Successful Privatisations in India,” April 2001, http://www.divest.nic.in/chap10-old.asp.

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3. Makhija, “Privatization in India.” 4. See, for example, Elliot Sclar, You Don’t Always Get What You Pay For: The Economics of Privatization (Ithaca, N.Y.: Cornell University Press, 2000). 5. Henry S. Farber and Harry C. Katz, “Interest Arbitration, Outcomes and the Incentive to Bargain,” Industrial and Labor Relations Review 55 (1979): 55–63. 6. One early study (and many later studies) in the United States concluded that on average, the demand for labor in the public sector was more inelastic than the demand for labor in the private sector. See Orley Ashenfelter and Ronald G. Ehrenberg, “The Demand for Labor in the Public Sector,” in Labor in the Public and Non-Profit Sectors, ed. Daniel S. Hamermesh (Princeton, N.J.: Princeton University Press, 1975), 55–78. 7. Kenneth McClennan and Michael H. Moskow, “Multilateral Bargaining in the Public Sector,” in Proceedings of the 21st Annual Meeting, Industrial Relations Research Association (Madison, Wisc.: Industrial Relations Research Association, 1968), 34–41. 8. Harry H. Wellington and Ralph K. Winter Jr., “The Limits of Collective Bargaining in Public Employment,” Yale Law Journal 78, no. 7 (1969): 1107–1127. 9. This observation and others in this section drawn from Christos A. Ioannou, “Greek Public Service Employment Relations: A Gordian Knot in the Era of Sovereign Default,” European Journal of Industrial Relations 19, no. 4 (2013): 295–308. 10. “Collective Bargaining [in Greece],” http://www.worker-participation.eu/National -Industrial-Relations/Countries/Greece/Collective-Bargaining. 11. “Timeline: Greece’s Debt Crisis,” http://www.reuters.com/article/2012/02/13/ us-greece-economy-events-idUSTRE81C0M220120213.

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Global Pressures: Multinational Corporations, International Unionism, and NGOs

THE GLOBALIZATION CHALLENGE

The globalization of product, financial, and labor markets has made it easier for companies to produce many of the goods and services they sell wherever in the world the right skills can be found at the lowest cost. The desire to sell products worldwide has also created incentives for firms to have a presence in multiple countries. Together these facts have made labor relations in many industries global in scope. Globalization is of particular importance to emerging countries. Nearly 50 percent of the world’s manufacturing employment is now located in emerging countries.1 Globalization poses significant challenges to labor relations practices. Historically the laws, markets, institutions, norms, and practices of labor relations have developed on a national basis. Globalization has weakened, though not eliminated, the role of national systems of labor relations and given rise to a number of new institutions, structures, and processes for dealing with all of the labor relations functions discussed in previous chapters. In this chapter we will discuss these new arrangements and the challenges globalization poses to labor relations. To do so we will use the framework laid out in chapter 1 for analyzing labor relations.

THE EFFECTS OF EXPANDING MARKETS

A key argument put forward by John R. Commons, one of the early theorists in industrial relations, was that as products and labor markets expanded in 265

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scope, unions and other institutions also needed to expand if they were to “take wages out of competition” by standardizing wages in labor markets in which they worked.2 As markets expanded from local to national levels, so did unions, labor laws, and management policies and practices. Commons argued that failing to expand union coverage to the larger market would reduce workers’ bargaining power and put downward pressures on wages, what some now call a “race to the bottom.” Firms would move work to lower-wage regions or workers who were willing to work for wages below accepted rates in a community (or nation) would migrate to take jobs at lower rates. Another environmental change—advances in communications technologies—also promoted globalization of employment, especially in services. Call centers, editing, accounting services, tax preparation, radiology (X-ray reading), legal research, and document management are among the many services that are now available on a global basis “24–7.” Demographic trends also support the globalization of work. Emerging countries have added a significant number of workers to the global labor force in recent years, increasing competition in the labor market for work (see the discussion in chapter 4). As education and skill levels increase in emerging countries and/or immigration rules are eased, competition for work at all occupational levels will continue to increase. The Globalization of Business Strategies

This competitive process is now playing out on a global basis among multinational firms. Over the last fifty years the number of multinational corporations (MNCs) has increased greatly, to the point that they now have a major impact on world commerce and the conduct of labor relations in nearly every country. Every MNC must make strategic choices about where to locate different parts of their business and supply chain. This brings into play the role of business strategies as a key factor shaping labor relations in developing countries. One key variable that influences the business strategy of an MNC are the wage levels at various potential production sites and countries. Although access to resources and markets also influence business strategies, the expansion of trade and the increase in the number of MNCs has led to a steady movement of manufacturing and service work from higher-wage countries to lower-wage countries and regions, and this movement is of special interest and importance to emerging countries. Box 11.1 illustrates the evolving business strategy of Nike, one of the early firms to globalize its production of apparel and athletic equipment.3

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BOX 11.1 Nike’s Global Business Model Nike started operating as a company in 1964. Early on, its business model called for its products to be designed and marketed in the United States and manufactured abroad. First, it located manufacturing facilities in Japan. As Japan’s labor costs rose and Nike’s business expanded, the company moved production to Korea and later to lower-cost countries such as Indonesia, Vietnam, China, and parts of Latin America. Nike did not own or manage the factories that produced its products. Instead, it contracted with supplier companies located in these various countries. In doing so, Nike and other firms that followed a similar strategy developed global supply chains. Today 600 contractors in forty-six different countries around the world supply Nike with products (http://nikeinc.com/pages/frequently-asked-questions).

The Nike story told in box 11.1 is similar to that of many other MNCs that have become household names, such as Siemens, Apple, General Electric, Zaras, and Hewlett Packard. Essentially all large firms that sell products that can be easily transported globally and/or that sell to global markets have global supply chains. The development of global supply chains offers strategic economic development and business opportunities to emerging countries and to companies that specialize in contract manufacturing. Countries across the globe (and individual firms) compete for contracts from MNCs and the jobs that go with them by offering the lowest cost that is consistent with a company’s quality and delivery requirements. The effect of this is that competition in labor relations has become globalized. The Pressure of Diversity on MNCs

Managing an MNC involves issues of cultural, legal, and institutional diversity. Workers from various cultures often view work differently, attach different meanings to work, and place different demands on their unions.4 Of course, management in any firm faces some diversity among workers in terms of their culture and attitudes toward work. Some workers are most concerned about their pensions, whereas others may be most concerned about their current income and pay little attention to deferred compensation. Some workers have strong work ethics and would like to work on their own, whereas others may need constant supervision. The extent of this cultural

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diversity widens, however, as the firm crosses national boundaries. As a result, for example, compensation policies that work in one country may be inappropriate in another. Or communication and motivation techniques that succeed in one culture will fail in another. There is also wide diversity in the legal regulation of labor relations and employment conditions and the institutions that shape labor relations across countries (see chapter 3). In some countries, for example, national laws recognize workers’ rights to form unions and strike, but in other countries unions are outlawed or are dominated by the government. In some countries, the national government extensively regulates the substance of employment conditions. The ideologies and forms of the labor movement also differ markedly across countries (see chapter 2). The structure of unions also differs markedly across countries (see examples in chapter 6). The Degree of Labor Relations Centralization in Multinational Corporations

The multinational corporation faces control and coordination problems as a result of the wide diversity that exists across countries in culture, law, and institutions. The key decision for management that emerges from the diverse political and social institutions it faces in different countries is how much to centralize the direction of labor relations. At one extreme, labor relations management can be centralized in the corporate offices of the MNC. Alternatively, local management in each country in which the MNC operates can be allowed to independently direct labor relations. Management’s problem is how to pursue companywide objectives through labor relations policies in the face of all the diversity that arises in the MNC. Traditionally, MNCs have responded to this problem by maintaining a high degree of local control (decentralization) of labor relations. Analysts, in fact, generally conclude that the administration of labor relations of MNCs is more decentralized than other management functions, such as finance or marketing.5 MNCs found that there were substantial benefits to be gained from the decentralization of labor relations, including the ability to respond flexibly to the diversity discussed above. When local managers in each country where an MNC operates are allowed to shape labor relations policies, they can create policies and procedures that fit with local conditions and events. In recent years, however, MNCs have begun to centralize their control and administration of labor relations. Centralization of a corporate function has always had the advantage of providing consistency and economies of scale. However, in the past, the great diversity of many local environments has made it difficult to implement consistent policies.

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Why, then, the switch to more centralized control? The explanation appears to lie in the fact that MNCs are becoming more global in their strategies and organizational form. The emergence of global firms has led management to strive to integrate their internal operations and policies. When production is integrated, for example across national boundaries, it makes less sense for the MNC to maintain wide variations in its labor relations policies. The opening of trade through mechanisms such as the European Union and the North American Free Trade Agreement and the formation of other regional trading blocs has contributed to globalization and provides further impetus to MNC’s to coordinate labor practices across their global supply chains. This trend provides another illustration of one of the central themes of this book—namely, that managements are increasingly striving to link labor relations more closely to business strategies. Increased globalization further encourages MNCs to develop particular business strategies and then align their production and labor relations systems with those business strategies. This is not very different from the factors encouraging greater centralization in domestic firms. The special dilemma for labor relations managers in MNCs, however, is that culture, law, and institutions in many countries around the world shape labor relations at the same time that globalization has increased the premium on coordination and centralization. The literature on human resources at MNCs also provides evidence of how national institutions (i.e., laws and public policies) constrain the influence and spread of MNC practices; corporations find that they must conform to national and in some cases local institutional constraints and/or pressures. Some of the literature suggests that instead of MNCs bringing standardization in workplace practices across countries, it is MNCs that have to bend and modify their practices to fit institutional constraints and pressures. There is evidence that the intersection of MNC and country-specific institutions leads to “hybridization”—practices and forms of organization that are a blend of the practices of the home country of the MNC and the practices common in the country where the MNC operates. At the same time, studies of the labor relations practices of MNCs consistently reveal a strong effect from the MNC’s country of origin.6 The Globalization of Labor Relations and Human Resource Management: The Case of Colgate-Palmolive Corporation

Colgate-Palmolive (C-P) is an American-based multinational consumer products firm that has over 100 manufacturing facilities in thirty different countries. It offers a good case study of how a large MNC has restructured its global labor relations activities in recent years.7

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The sales and financial performance of C-P has been quite strong over the last ten years, and a key to their success is that the company, which historically had been more global in orientation than its competitors, has become even more globally focused. International sales now account for most of the company’s profits. In addition, the company has promoted a greater regional focus in its manufacturing and marketing operations, in part due to the regional trade pacts that have been reached in recent years and other pacts that are expected in the near future in regions including Latin America and Asia. Regional trade pacts have helped spur a movement toward regional “centers of excellence” through manufacturing consolidation, and the company has moved away from its practice of having more than one plant within a region (and, in some cases, within a country) produce the same product. Manufacturing consolidation was also facilitated by technological improvements that made it possible to produce greater volumes in a single plant and organizational (and labor relations) changes that allowed for three-shift-a-day, seven-day-a-week production. There was also a move toward a more simplified global supply chain (i.e., more global sourcing and fewer preferred suppliers) and less product variety across countries (less “tinkering” with the product). C-P has moved toward more globally similar products to take advantage of economies of scale in production and standardization of marketing. In addition, the ease with which consumer information now moves across countries is leading C-P to seek greater central control of marketing and products. These trends are all leading to greater regional and global coordination in the MNC’s internal staff operations. An increasingly global focus and structure first appeared in the internal functioning of C-P’s human resource management and labor relations. In C-P’s plants outside the United States, there is no clear separation between “labor relations” and “human resource management.” (This is also true for other MNCs.) C-P’s human relations and labor relations decision making traditionally has been decentralized; most decisions were made by facility managers or factory managers in facilities. Inside the company, there were countrylevel presidents and directors of manufacturing who became involved in facility issues only when there was a crisis in the corporation’s traditional way of operating. In addition, there was a small corporate staff (a vice-president of human relations and a vice-president of labor relations) in the United States at the company’s corporate headquarters in New York City that provided strategic guidance to country- and facility-level managers on labor relations and human resource matters. But often these corporate managers did

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not become involved in plant-level labor relations matters until a new labor agreement was being negotiated (and even then their input was only advisory) or when a strike or some other emergency was occurring. On an everyday basis, local managers controlled the labor relations function. C-P’s corporate managers decided that there was a need to move away from this extreme form of decentralization of labor relations because of the corporation’s increased need for coordination in the context of the increasing role of the company’s global supply chain. In addition, the integration of trade and the creation of several new “centers of excellence” in the late 1990s led to a consolidation of the company’s production system that was accomplished by closing a number of facilities and increasing output flows through increased mechanization and full-day and full-week operations in the plants that remained. One consequence of production consolidation and increased trade flows was that a labor disruption at a center of excellence would produce greater harm for the company’s sales and profits than had been the case in the past. Corporate managers wanted to have more control of these disruptive events and engage regional human resource and labor relations managers in efforts to minimize their occurrence altogether and minimize the effects of the disruptions that did occur. A mix of union and nonunion plants had evolved at C-P, and much of the corporation’s growth occurred in nonunion plants. Consolidation has been occurring disproportionately in unionized facilities in recent years, in part because unionized plants also tend to be older plants. In an effort to achieve more coordination and consistency across the corporation and greater interaction between human resources and labor relations managers and those involved in operations, C-P created (or expanded) regional human resource offices and gave them more direct involvement in plant-level labor relations activities. To improve the quality of human resource and labor relations inside C-P, a series of regional workshops were launched that involved the company’s top manufacturing and human resource and labor relations staff. The goals of these workshops were to (1) increase the regional focus across the company’s operations; (2) increase coordination between the manufacturing and human resource (and labor relations) staff inside the company (these groups had rarely met together in focused meetings in the past); and (3) teach a standard and strategic approach to setting key work rule and operations objectives in all (unionized and nonunion) facilities. Subsequently, related training programs were launched to help C-P managers acquire a more global perspective. Middle and shop-floor managers at C-P are now expected to convey the company’s labor relations goals and the methods that can be used to

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implement its global human resource and labor relations objectives. This is accompanied by workforce training programs that focus on instilling an appreciation for the increased need to make adaptive changes in the workplace. The various business units in C-P are now required to use a standardized “strategic labor relations process” to guide the preparation for, process of, and evaluation of collective negotiations (in unionized settings) and employee relations objectives (in facilities where employees are not represented by unions). The process includes a country-level planning meeting to set labor relations objectives; submission of those objectives for division approval; a strategically oriented negotiations process accompanied by an appropriate communications strategy; and subsequent evaluation of the overall process. Both bargaining objectives (which typically involve work rules and work processes) and compensation objectives are identified and then the parties are expected to consider how those objectives support one another. This process takes place with the guidance of a corporate global labor relations strategy developed by top manufacturing and human resource managers. A key outcome of this process is that various human resource performance metrics are now collected and compared across plants. The hope is that this data and the ensuing comparisons of plant performance will influence the objectives that are set in the strategic labor relations process that guides labor negotiations or the formation of employee relations objectives. Additional steps have been taken in other parts of C-P’s human resource and labor relations internal function to stimulate more regionally and globally coordinated operations. For example, the company introduced software to handle employee personnel records that enables employees to easily access their records so they can monitor and make changes in their personnel profile (e.g., when their family status changes because of events such as marriage or the birth of a child). The corporation also introduced shared information services that included centralized call centers to handle employee requests. This move was facilitated by the fact that there was increasing similarity in the nature of the business and technologies in the company’s various business units, spurred in large part by the increased role of the company’s global supply chain. At C-P’s central corporate, country, and plant levels, increased attention is now paid to working conditions throughout the company’s global supply chain. The company conducts a regular audit of labor practices at all of its supplier plants and the plants it directly operates that includes the monitoring of pay levels and work time and efforts to eliminate any child labor. In this respect, C-P is addressing issues that have received considerable attention in

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relation to other MNCs. We will take these issues up in a later section of this chapter. Impacts on the Middle Tier of Labor Relations Processes

The processes taking place at Colgate-Palmolive illustrate how one large organization is adjusting to globalization. For all organizations, globalization is raising questions and issues related to the functional level of labor relations as it is managed across global suppliers and contractors of multinational firms. These questions include: • Which employer is responsible for labor practices in global supply operations? Is it the MNC or the local supplier? More generally, should an MNC have an explicit global labor strategy and set of principles, and if so what should these be and how should they be monitored and enforced? • What standards should govern practices given that there is great variation in content; the level at which standards are set for issues such as minimum wages, overtime, child labor regulations; and the quality of enforcement of labor and employment laws in emerging countries? • Who, if anyone, represents workers in global supply chains? Unions are largely organized at the country level and have not expanded to serve workers across national boundaries. In addition, the level of unionization, as noted in chapter 6, is very low in many emerging countries. • What are the consequences of globalization on labor relations outcomes? Is it inevitable that globalization results in, as Commons predicted, a “race to the bottom” that lowers the standards of living in higher-wage countries and holds down wages and working conditions in low-wage countries or does globalization support economic development and improved employment outcomes in emerging nations? MANAGING A GLOBAL SUPPLY CHAIN AND LABOR PRACTICE POLICIES

Consider Nike’s history in dealing with these key questions. Initially, Nike, like many other MNCs, argued that the labor practices of its global suppliers were not its responsibility. As worker activists brought media attention to abuses of child labor and unsafe working conditions, pressures mounted on Nike to question and ultimately to revise its view. In the mid-1990s, Nike company leaders noted that there was a direct correlation between the

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growing number of media accounts of poor labor practices and conditions in its supply chain and the company’s falling stock price. In 1998, Nike’s CEO Phil Knight famously said he was tired of the fact that “Nike’s products have become synonymous with slave wages, forced overtime, and arbitrary abuse.”8 Nike changed its policies and practices and became an early leader in establishing corporate standards for its supply change. It established an internal Corporate Social Responsibility Unit and charged it with creating a code of conduct that would be used to monitor and evaluate the extent to which its suppliers are meeting the standards in its code of conduct. Eventually the company made public the locations where its products are made. Box 11.2 reproduces Nike’s Code of Conduct. Other large MNCs have followed a similar path. Unfortunately, too often it has taken a tragic accident to motivate companies to do so. Apple’s largest manufacturer in China, Foxconn, experienced suicides and considerable unrest in its factories before Apple began to actively monitor and seek to improve operations in its supply chain. The most visible and largest tragedy to date occurred in the collapse of an apparel factory in Bangladesh in 2013 (discussed in box 9.3).

BOX 11.2 Nike’s Code of Conduct Employment is voluntary • The contractor does not use forced labor, including prison labor, indentured labor, bonded labor or other forms of forced labor. The contractor is responsible for employment eligibility fees of foreign workers, including recruitment fees. Employees are age 16 or older • Contractor’s employees are at least age 16 or over the age for completion of compulsory education or country legal working age, whichever is higher. Employees under 18 are not employed in hazardous conditions. Contractor does not discriminate • Contractor’s employees are not subject to discrimination in employment, including hiring, compensation, promotion or discipline, on the basis of gender, race, religion, age, disability,

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sexual orientation, pregnancy, marital status, nationality, political opinion, trade union affiliation, social or ethnic origin or any other status protected by country law. Freedom of association and collective bargaining are respected • To the extent permitted by the laws of the manufacturing country, the contractor respects the right of its employees to freedom of association and collective bargaining. This includes the right to form and join trade unions and other worker organizations of their own choosing without harassment, interference or retaliation. Compensation is timely paid • Contractor’s employees are timely paid at least the minimum wage required by country law and provided legally mandated benefits, including holidays and leaves, and statutory severance when employment ends. There are no disciplinary deductions from pay. Harassment and abuse are not tolerated • Contractor’s employees are treated with respect and dignity. Employees are not subject to physical, sexual, psychological or verbal harassment or abuse. Working hours are not excessive • Contractor’s employees do not work in excess of 60 hours per week, or the regular and overtime hours allowed by the laws of the manufacturing country, whichever is less. Any overtime hours are consensual and compensated at a premium rate. Employees are allowed at least 24 consecutive hours rest in every seven-day period. Regular employment is provided • Work is performed on the basis of a recognized employment relationship established through country law and practice. The contractor does not use any form of home-working arrangement for the production of Nike-branded or affiliate product.

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The workplace is healthy and safe • The contractor provides a safe, hygienic and healthy workplace setting and takes necessary steps to prevent accidents and injury arising out of, linked with or occurring in the course of work or as a result of the operation of contractor’s facilities. The contractor has systems to detect, avoid and respond to potential risks to the safety and health of all employees. Environmental impact is minimized • The contractor protects human health and the environment by meeting applicable regulatory requirements including air emissions, solid/hazardous waste and water discharge. The contractor adopts reasonable measures to mitigate negative operational impacts on the environment and strives to continuously improve environmental performance. The code is fully implemented • As a condition of doing business with Nike, the contractor shall implement and integrate this Code and accompanying Code Leadership Standards and applicable laws into its business and submit to verification and monitoring. The contractor shall post this Code, in the language(s) of its employees, in all major workspaces, train employees on their rights and obligations as defined by this Code and applicable country law; and ensure the compliance of any sub-contractors producing Nike branded or affiliate products. Sources: http://www.nikeinc.com/system/assets/2806/Nike_Code_of_Conduct _original.pdf. See also Nike’s Corporate Responsibility Report at http://www .nikebiz.com/crreport/.

Monitoring Compliance with Codes of Conduct

Once a company creates a code of conduct, it must decide how to monitor and enforce it. Should the company do this itself, using audit teams staffed by members of the company’s social responsibility units? Should it hire and pay consultants to audit its labor practices? Should it work with and allow NGOs to do the auditing? Should it audit operations on an unannounced basis or tell

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suppliers in advance when audits will be done? Should it coordinate its own audits with the audits of other MNCs that purchase goods from a given supplier to avoid having multiple firms using different standards and engaging in auditing operations at different times? And finally, what standards should apply—ones that are consistent with the host country’s laws, norms, and competitive wage rates or companywide standards? Some MNCs, such as Walmart, have sought to avoid working with NGOs and instead have hired consultants and professional engineering firms to monitor suppliers. Others use a combination of internal auditors, consultants, and NGOs. Still others work together and with global labor organizations to perform auditing and training functions. We will discuss the roles NGOs play in these processes in more detail later in this chapter. The effectiveness of corporate audits is one of the most hotly debated issues in the field of labor relations today. The results of the best research on this topic indicate that when rates are arrayed on a scale of 0 to 100 percent compliance with the standards in corporate codes of conduct, the average rate tends to peak slightly above 50 percent. Moreover, few plants appear to be on a path of continuous improvement toward 100 percent compliance. Instead, over time some plants experience declines in compliance scores and improvements. Some plants do better than others on a consistent basis. Plants located in countries with strong laws governing labor and other business practices tend to have higher compliance scores. So do plants that have longer-term contracts with MNCs and plants where there is more management interaction and sharing of expertise on best practices in lean manufacturing and advanced HRM systems.9 However, the fact that periodic inspections of building safety do not ensure that workplaces are truly safe is well illustrated by the examples provided in a New York Times account of the steps managers at numerous garment factories took to avoid and manipulate the inspection/audit process (see box 11.3).

BOX 11.3 Fast and Flawed Inspections of Factories Abroad Inspectors came and went from a Walmart-certified factory in Guangdong Province in China, approving its production of more than $2 million in specialty items that would land on Walmart’s shelves in time for Christmas.

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But unknown to the inspectors, none of the playful items, including reindeer suits and Mrs. Claus dresses for dogs, that were supplied to Walmart had been manufactured at the factory. Instead, Chinese workers sewed the goods—which had been ordered by the Quaker Pet Group, a company based in New Jersey—at a rogue factory that had not gone through the certification process set by Walmart for labor, worker safety or quality, according to documents and interviews with officials involved. To receive approval for shipment to Walmart, a Quaker subcontractor just moved the items over to the approved factory, where they were presented to inspectors as though they had been stitched together there and never left the premises. Soon after the merchandise reached Walmart stores, it began falling apart. Fifteen hundred miles to the west, the Rosita Knitwear factory in northwestern Bangladesh—which made sweaters for companies across Europe—passed an inspection audit with high grades. A team of four monitors gave the factory hundreds of approving check marks. In all 12 major categories, including working hours, compensation, management practices and health and safety, the factory received the top grade of “good.” “Working Conditions—No complaints from the workers,” the auditors wrote. In February 2012, 10 months after that inspection, Rosita’s workers rampaged through the factory, vandalizing its machinery and accusing management of reneging on promised raises, bonuses and overtime pay. Some claimed that they had been sexually harassed or beaten by guards. Not a hint of those grievances was reported in the audit. . . . An extensive examination by The New York Times reveals how the inspection system intended to protect workers and ensure manufacturing quality is riddled with flaws. The inspections are often so superficial that they omit the most fundamental workplace safeguards like fire escapes. And even when inspectors are tough, factory managers find ways to trick them and hide serious violations, like child labor or locked exit doors. Dangerous conditions cited in the audits frequently take months to correct, often with little enforcement or follow-through to guarantee compliance. Supply chain experts and monitors say that far too often, factory managers play cat-and-mouse games with inspectors because they are desperate to avoid a failing grade and the loss of a lucrative stream of orders.

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The experts provided real-life examples. To avoid appearing illegally overcrowded, one factory moved many machines into trucks parked outside during an inspection, a monitor said. Whenever inspectors showed up at certain plants in China, the loudspeakers began playing a certain song to signal that underage workers should run out the back door, according to several monitors. During inspections in India, some factories displayed elaborate charts detailing health and safety procedures that, like stage props, were transferred from one factory to another, another monitor said. . . . Mr. [Auret] van Heerden [president of the Fair Labor Association] said, “You can never visit facilities often enough to make sure they stay compliant—you’ll never have enough inspectors to do that. What really keeps factories compliant is when workers have a voice and they can speak out when something isn’t right.” Source: Reprinted from Stephanie Clifford and Steven Greenhouse, “Fast and Flawed Inspections of Factories Abroad,” New York Times, September 3, 2013.

The evidence on the positive but limited effects of corporate codes of conduct has led to active debates about what else needs to be done to improve labor conditions in global supply chains.10 Meetings of the multiple stakeholders involved—MNCs, NGOs, unions, government officials, ILO representatives, and academics—have been held at various universities to seek consensus on how to improve monitoring and compliance with codes of conduct, but to date no clear consensus has emerged. One big problem that remains is that a root cause of the pressure to violate labor standards comes from the purchasing and sourcing staff of MNCs. Pressure to deliver products that have short life cycles (e.g., a particularly popular style of shirts or shoes or the newest iPad or similar electronic device) quickly reverberates down through the supply chain to contractors, who conclude that they have no choice but to pressure their work force to meet the schedule. Not surprisingly, violations of hours rules—forced overtime, long hours, shorter meal and rest breaks, and fewer days off—are among the most frequent violations of codes of conduct. INTERNATIONAL (FREE) TRADE AGREEMENTS

Increased international trade also has been spurred in recent years through various regional and international trade agreements. Our review of several of

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those agreements in this section focuses on the concerns about labor rights and labor conditions that surfaced during debates about these agreements and the provisions that were included in them to address those concerns. We focus on the three trade agreements the United States made with Canada and Mexico, Jordan, and Colombia. NAFTA

The North American Free Trade Agreement (NAFTA) linking Canada, the United States, and Mexico, which took effect in January 1994, removed tariffs and other trade barriers among the three countries over a fifteen-year period. Both the passage and the continuing effects of NAFTA have been extremely controversial. NAFTA has been widely criticized by labor unions, who claim that Mexico’s low wages have enticed many U.S. firms to relocate south of the border. Meanwhile, environmentalists worry that companies flee south in order to take advantage of weak pollution controls and lax enforcement of environmental regulations. Presidents Clinton, Bush, and Obama; the U.S. business community; and many economists, on the other side of this debate, support NAFTA on grounds that it provides gains to all three countries through trade. NAFTA supporters also claim that it will help integrate Mexico more fully into the world economy and thereby address Mexico’s social problems and their spillover effects in the United States (such as high immigration and the drug trade). To address its critics, side agreements were added to NAFTA concerning the environment and labor rights. The side agreements related to labor created national administrative offices that are authorized to investigate public charges that one of the NAFTA countries is not enforcing its own labor laws. The U.S.-Jordan Free Trade Agreement

In the U.S.-Jordan Free Trade Agreement of 2001, both countries made pledges related to “reducing barriers for services, providing cutting-edge protection for intellectual property, ensuring regulatory transparency, and requiring effective labor and environmental enforcement.”11 The effects of this treaty in Jordan were significant. American companies such as Walmart and Target quickly established stores in Jordan, and in the first year after the trade agreement was agreed, Jordan increased its exports by 213 percent. The U.S.-Jordan agreement was the first free trade agreement between the United States and a foreign country that directly included labor provisions in the text of the agreement itself. In the agreement, both countries agreed to

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comply with the statutes embodied in the ILO’s Declaration on Fundamental Principles and Rights at Work and to enforce their own domestic labor laws.12 Moreover, the free trade agreement established dispute resolution procedures and trade sanctions to be used if either country was seen as violating its domestic labor laws. However, although these provisions were hailed by the labor and environmentalist communities, the U.S. government’s policy with regard to enforcing the labor provisions of the agreement became much more pro-business when George W. Bush became president. In 2001, newly installed U.S. trade representative Robert Zoellick and the Jordanian ambassador to the United States announced that both the United States and Jordan had agreed not to resort to trade sanctions and that neither country would use the dispute resolution enforcement procedures outlined in the free trade agreement if they would block trade. Consequently, the labor provisions that had been hailed as revolutionary in this agreement were not implemented.13 In addition, after the implementation of the free trade agreement in 2001, Jordan passed a Public Assembly Law and other legislation that limited freedom of association and collective negotiations. In 2006, the National Labor Committee (an NGO) testified to the U.S. Congress that labor laws were not being enforced in Jordan and provided evidence that the Jordanian garment industry had sweatshops where workers worked 20-hour days, were not paid consistently, and suffered emotional and physical abuse. These companies employed migrant workers from China, Sri Lanka, and Bangladesh who were being forced to work as de facto involuntary servants. The U.S.-Colombia Trade Agreement

The U.S.-Colombia Trade Promotion Agreement came into force in May 2012.14 The agreement states that both the United States and Colombia will continue to maintain in domestic law the right to freedom of association (the right to form and join a union) and the right to engage in collective negotiations and will fulfill promises that all forms of forced and child labor will be eliminated. Observers claim that, as in Jordan and Mexico, the labor rights provisions in the Colombia trade pact have proven to be ineffective. Allegations surfaced that since 2010, 104 labor and human rights activists have been murdered in Colombia. Furthermore, the Congressional Monitoring Group on Labor Rights provided extensive documentation showing that the right to organize and engage in collective negotiations was being curtailed and undermined in Colombia.15

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The Controversy Surrounding Trade Agreements

These three trade agreements make clear that a great deal of controversy exists about the real impacts of trade agreements on worker rights and work conditions. Defenders of these agreements argue that higher levels of trade ultimately lead to higher rates of economic growth in emerging countries and improvements, even if they are gradual, in wages and work conditions. Critics, on the other hand, claim that trade pacts encourage MNCs to leave countries where wages and work conditions are better. And these critics allege that even in the emerging countries, any growth in employment largely occurs in low-wage sectors, often at the expense of already existing indigenous (and frequently more craft-oriented) production. LABOR RESPONSES TO THE POWER ADVANTAGE OF MULTINATIONAL CORPORATIONS

The expansion of economic activity across national boundaries creates a disadvantage in bargaining power for workers and unions. Multinational operation allows management to move production and capital across national borders and increases the competition for jobs among workers. Imagine, for example, the pressures highly paid Western European (or North American) workers experience when MNCs operating in their countries can shift production to countries where workers receive hourly wages that are a fraction of those received in Western countries and where environmental and other social regulations are weaker. This is what unionists refer to as “social dumping.” When management faces a strike in its operations in one country, it can gain leverage during the bargaining process if it can turn to alternative production facilities in other countries or substitute workers in other countries for those who are out on strike. In theory, one way a union could counter the advantages management gains from the expansion of markets is to expand the union’s jurisdiction so that it is coextensive with the boundaries of the multinational. This is how unions in the United States and a number of other advanced industrialized countries expanded their jurisdiction. They shifted from local or regional unions to become national unions as the product markets the companies they worked for grew national in scope. If this were accomplished, the resulting multinational unions would be better able to remove competition across workers in the different locations where the MNC operates. How successful have unions been at following a similar strategy and becoming multinational? This section examines that issue.

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Even though there are some examples of multinational unions or at least policies to coordinate national unions, these examples are few. Let us consider why this has been so and then look at some counterexamples. Union Difficulties with Operating at the Multinational Level

Unions have found it difficult to become multinational because of the wide diversity that exists across countries in culture, law, and institutions. It is difficult enough for a union operating in one country to maintain cohesion and solidarity among its members. When the economic and cultural differences, communication difficulties, and fears that exist among workers in different countries are added to the normal problems of unions, maintaining solidarity becomes a nearly insurmountable problem. Consider the problems that multinational operation creates for union solidarity in both emerging and highly industrialized countries. Workers in an emerging country, who earn low wages and face few employment alternatives, are generally very reluctant to support the bargaining demands of their high-wage counterparts in an advanced industrialized nation. There are strong short-run incentives for the workers in these two countries to view each other as competitors. Imagine how difficult it is for a union to communicate with its members if those members speak a variety of languages. In addition, the managers in an MNC typically have a lot of information about company objectives and worldwide activities, whereas workers and unions are often hard pressed to gain information about such activities. Mergers of independent unions across national borders has not been a solution to multinational pressures. Merging independent unions is difficult enough even in a single country where there are strong bargaining power advantages to be gained. Even greater impediments exist for such a merger if it were to involve two unions based in different countries that represent workers at the same MNC. It is quite likely that the structure of two unions that might consider merging would not be similar even if the workers were employed by the same firm. Similar problems would exist even if these unions were to merely work to coordinate their bargaining demands. Yet even given these difficulties, examples of cross-national union solidarity and support can occur short of mergers or coordinated bargaining. We examine efforts to build cross-national union solidarity below. Cross-border union strategies have taken many different forms. The strategies are different for a Thai garment worker or a German metalworker or a

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U.S. retail worker. Industry, company, union structure, political traditions, ideology, levels of bargaining power, and differing sets of goals all affect how cross-border union activities are structured. The Role of International Trade Secretariats

A number of international trade secretariats exist that provide information to member unions and coordinate activities across national borders. These are autonomous agencies that cover particular industries or groups of industries. The International Metalworkers Federation, one of the most active of these secretariats, includes members from many emerging countries and highly industrialized nations. Among its many activities, it issues research reports to its members. Many of the secretariats have a close working relationship with the International Confederation of Free Trade Unions (ICFTU), which includes affiliated unions that represent 48 million workers around the world. The ICFTU includes only non-communist unions. The World Federation of Trade Unions (WFTU) at one time represented 134 million workers in the Communist unions that were affiliated with it. While the expansion of global trade is leading unions around the world to communicate more extensively with unions in other countries, the political differences that have traditionally separated these federations and many of their member unions have impeded coordination among these and other union federations. Cross-Border Union Alliances

A number of unions have attempted to overcome these communications and political differences and have extended their reach around the world, either on their own or by forming alliances across national unions. Airline pilots have the most fully established international body. It is composed of 100 national-level pilots’ unions/associations and has a combined membership of approximately 100,000 pilots (see box 11.4).

BOX 11.4 The International Federation of Airline Pilots Associations (IFALPA) The mission of IFALPA is to be the global voice of professional pilots by providing representation, services and support in order to promote the highest level of aviation safety worldwide.

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This goal is realized through our core function which is to represent our members by: Interacting with international organizations to achieve the highest level of aviation safety. Developing common policies and positions and promoting the adoption of such policies by ICAO, regulatory authorities and the State of each Member Association. Promoting and enhancing the role and status of professional pilots in ensuring the safety of the aircraft and well being of passengers and goods entrusted to their care. Promoting a viable and expanding air transport industry. Providing training and education for the benefit of professional pilots. Providing Member Associations with services as needed. Assisting in the organisational development of Member Associations. Supporting Member Associations by providing expertise in the areas of Technical, Safety, Regulation and Industrial issues. Facilitating the exchange of information and the co-ordination of activities amongst Member Associations and Pilot Alliances through various forums such as Conferences, Regional Meetings and Standing Committees. Source: International Federation of Airline Pilots’ Association, http://www .ifalpa.org/, accessed Nov. 15, 2013.

Cross-National Union Strategies and Pressure Campaigns

Similar cross-border networks or formal agreements to coordinate when needed in order to offset the power of MNCs have occurred in other industries as well. One prominent example was formed in 2008 that involved the United Steelworkers (based in North America) and UNITE (based in the United Kingdom). Box 11.5 summarizes the goals of their joint effort, called Workers Uniting. To date, these unions have supported each other in strikes involving companies that have operations in Britain and North America.

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BOX 11.5 Workers Uniting—the Global Union Workers Uniting brings together Unite, the biggest union in the UK and Ireland, with the United Steelworkers, the largest industrial union in North America. Here are four reasons why this partnership is critical. 1. The economy is globalizing. From Brussels to Beijing, decisions about our economy are increasingly made far from home. A global union can provide us a voice in those decisions. 2. Politics is globalizing. Right wing politicians are using the same vicious tactics to undermine our livelihoods in the UK as they are in the U.S. and Canada. A global union can help us support progressive politics on both sides of the Atlantic. 3. Our employers are globalizing. A couple decades ago, only a few of our employers operated in more than one country. Now, nearly all of them do. A global union can help us stand up to our employers wherever they operate. 4. The movement is globalizing. Whether it’s standing up for fair trade or fighting back against bank bailouts, progressive groups are mobilizing and uniting everywhere. A global union can help us join them in the fight for a better world. Source: http://www.workersuniting.org/, accessed Nov. 15, 2013.

Comprehensive Union Pressure Campaigns

Unions have developed comprehensive or strategic campaigns in recent years that use a combination of research, rank-and-file activism, boycotts, and political leverage to bring pressure to bear on a company globally. These campaigns often target a single employer where workers have gone on strike, have been locked out, or are engaged in an organizing drive. They use indepth research to identify vulnerabilities in a company’s global operations. Comprehensive union campaigns build coalitions with communities, NGOs, and other unions around the world to target the company’s image, its suppliers, or its customers globally and to pressure the company to improve labor conditions. The 1986 Shell Oil boycott was one of the earliest truly global comprehensive campaigns. Using the consumer boycott as its central tactic, the campaign

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against Shell linked anti-apartheid activists, trade unionists, civil rights activists, politicians, church activists, and consumers in a global divestment campaign. The United Steelworkers in North America have used these types of campaigns extensively to pressure global multinational companies such as BASF, Ravenswood, Bridgestone/Firestone, and Goodyear to end strikes and lockouts and to support collective negotiations campaigns. This approach is not limited to North American unions. Central American banana workers, European dockworkers, and Taiwanese telecommunications workers have all used cross-border campaigns in recent years. However, while many campaigns have been successful, this type of global coordination and comprehensive campaigning requires large amounts of resources, funding, and long-term trust between unions. Companies have threatened unions with lawsuits for engaging in these types of campaigns, and weak transnational labor standards have made it difficult for unions to enforce gains that have been made. Cross-Border Union Networks

Union networks are groups of unions at a shared multinational employer that come together to create a transnational structure for the purpose of sharing information, coordinating activity, and bargaining with an employer on a transnational level. Networks first appeared in the 1970s and have been promoted by global union federations (GUFs) as a way for unions to overcome the imbalance in bargaining power that unions of workers for multinational employers experience. Networks create long-term relationships between unions that have enabled unions to share information about a common employer, to act as infrastructure during cross-border campaigns, and to act as decision-making bodies that can bargain with employers on a transnational level. Dozens of networks have been established in the auto, chemicals, food, and service industries. Networks of unions of employees at companies such as Carrefour and Arcelor have been able to sign agreements with employers on a transnational level such as international framework agreements (IFAs) that establish basic health and safety conditions and independent monitoring. Companies such as Volkswagen and Mercedes have created European-style works councils that meet annually with company management to discuss working conditions and compliance with basic ILO conventions. Finally, unions of employees at companies such as Gerdau and Sodexo have used networks as infrastructure during global campaigns. Unions in Brazil in particular have used networking as a strategy to coordinate bargaining nationally and establish transnational links with unions in the company’s home country.

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However, challenges remain. National differences with regard to labor laws, language and communication issues, and weak transnational legal regulations have hampered attempts to build long-term union network structures. Sweatshop/Garment/Apparel Campaigns

In the 1970s, sweatshops to produce garments reappeared in Latin America, the Caribbean Basin, Southeast Asia, and southern California. At that time, nations reeling from debt crises and structural adjustment programs turned to export processing zones for growth strategies. These zones are tax-free havens where MNCs can assemble low-value products such as garments, textiles, electronics, and toys with a low-wage-earning, mainly female workforce. Aided by free trade agreements and a system of subcontracting and global production, sweatshops became a prevalent source of supply for many high fashion apparel lines in the developed world and the embodiment of a race to the bottom for emerging countries. Workers, mainly young women, organizing in countries such as Guatemala, Sri Lanka, Thailand, and Haiti have used global solidarity campaigns as a means of winning improvements in individual garment factories and increasing pressure for industry-wide and retailer-wide codes of conduct. These campaigns bring together a broad group of actors, including garment workers and unions, transnational NGOs, labor union allies, consumer activists, and North American university students. Two factors are unique to organizing in the apparel industry. First, many of the products produced in the apparel factories of Latin American and South Asia are sold to consumers in North America and Western Europe. These consumers created an opportunity for garment workers to make alliances with unions and consumer groups in advanced industrial countries and create publicity about their working conditions. Second, as with the example of Nike discussed earlier in this chapter, many factories in emerging countries are actually subcontractors for large companies that produce well-known brand names and are headquartered in advanced industrial countries, such as Benetton, Disney, and Reebok. Because of the disparity between the high cost of luxury apparel in advanced industrial countries and the poor conditions of workers in emerging countries, garment worker campaigns have often relied on publicity that links well-known retailers such as the Gap and Walmart to poor working conditions in emerging countries in order to create enough consumer pressure to convince the retailers to assist in efforts to improve working conditions in garment factories.

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In addition, because many universities have large contracts with athletic companies such as Adidas and Nike, U.S. college students have become key supporters of these campaigns through groups such as United Students Against Sweatshops (USAS). Some unions have promoted international framework agreements as effective structures. IFAs are multilateral agreements that are signed between a corporation and a union, usually one of the global union federations, in order to ensure equal standards across a multinational corporation. IFAs establish core labor standards such as the abolition of child labor, nondiscrimination, and freedom of association. They attempt to cover all employees, including workers who are subcontracted or are employed by subsidiaries and suppliers of the firm, and are designed to establish an institutionalized relationship with the firm at the headquarters level to ensure some form of monitoring and a process for improving working conditions. Even though some unions have had some success in getting companies to sign IFAs, these agreements are voluntary and are difficult to enforce due to a weak transnational regulatory environment.

THE ROLE OF NGOS

NGOs are now playing active roles in identifying abuses, lobbying for improved standards and enforcement practices, and in some cases actively representing workers and/or auditing labor conditions in supplier operations. Some NGOs are funded by employers. Some are funded independently by private foundations, individual donations, or labor unions. Some choose to work at arm’s length with MNCs, some choose to work in collaboration with MNCs, and many implement both of these tactics. Various meetings have been held to bring together representatives of NGOs, unions, MNCs, and international organizations such as the ILO and the World Bank to try to learn from their experiences and about the research being done on global labor standards. But diversity of practices remains the norm. (See table 11.1 for examples of different NGO activities.) The Worker Rights Consortium

One of the most active of these NGOs is the Worker Rights Consortium (WRC). The WRC has been involved in efforts to improve labor conditions at Foxconn, at apparel factories in Bangladesh, and at Nike. The history and role of the WRC is described in detail in box 11.6.

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Table 11.1. Examples of labor NGOs and their activities

Name

Activities

Fair Labor Association (www.fairlabor.org)

Monitors factories independently and reviews company audits Certifies compliance with codes of conduct Reports on results of audits in participating companies Governed by board of industry, NGO, and university representatives

Social Accountability International (www .sa8000.org)

Certifies that manufacturers are in compliance with SA8000 labor standards Trains auditors Provides self-assessment software for supply chains with recommendations for how to improve performance Lists factories that have achieved SA8000 certification Governed by mix of industry, NGO, and legal specialists

Worker Rights Consortium (www .workersrights.org)

Investigates conditions in factories that sell licensed apparel to universities Publishes periodic reports on factory conditions in different countries Maintains public database of factories supplying to universities Governed by board of worker rights advocates consisting of university faculty and staff, students, and independent labor rights experts

United Students Against Sweatshops (www.usas .org)

Campaigns against abuses of workers’ rights in factories that supply apparel licensed by universities Advocates for fair working conditions for university employees Led by student representatives from participating universities

China Labor Bulletin (www.clb.org.hk/en/)

Provides legal assistance to workers and labor organizations in China Conducts research on labor conditions in China Maintains a Web site that provides information on strikes and collective bargaining in China Led by professional staff

BOX 11.6 Policing Workers’ Rights in the Global Economy: The Worker Rights Consortium The Worker Rights Consortium (WRC), a nonprofit organization started by the United Students Against Sweatshops in consultation with workers and labor rights experts, has become a watchdog for international sweatshop labor. The WRC was begun to help enforce the manufacturing codes of conduct adopted by colleges and universities; these codes ensure that factories that produce clothing and other goods bearing college and university names respect workers’ rights. The WRC has pressured universities to end their contracts with companies that do not comply with labor standards. For example, in

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March 2000, Brown University terminated its contract with Nike Inc., because of Brown’s requirement that Nike comply with the university’s licensing requirements and a monitoring system that is part of the WRC process. In its defense, Nike said that it had “serious concerns about the code and monitoring system included under the WRC” and that “the only effective way to make progress in improving factory conditions around the world is to have all stakeholders at the table.” Nike claimed that the WRC was excluding industries and that it should be working with them instead. The WRC at times has clashed with the Fair Labor Association (FLA), an independent group formed by the Clinton administration in 1999 to monitor the labor standards of overseas apparel manufacturers that sell their products to the United States. The FLA grew out of the Apparel Industry Partnership, a group of apparel manufacturers, consumer groups, and labor and human rights organizations brought to the White House in 1996. By 2000, over 100 colleges and universities had associated with the FLA so that they could be assured that clothing with their logos was not made in sweatshops. However, the WRC has criticized the FLA for being an industry-controlled monitoring system that only covers up sweatshop abuses and claims that only it, the WRC, can provide monitoring that is not swayed by corporate pressure. Recently, however, the WRC and FLA have begun to forge a working relationship that includes working together on various monitoring projects. The WRC’s membership now includes more than 100 colleges and universities. Sources: “Nike Terminates Contract with Brown after University Seeks Compliance with Code,” Daily Labor Report, April 4, 2000, A-2; and “Temple University Reviews Membership in ‘Fair Labor’ Apparel Monitoring Group,” Daily Labor Report February 22, 2000, A-5.

NEGOTIATING GLOBAL STANDARDS

The challenge of creating negotiations structures and ongoing relationships in global operations has generated a number of different approaches. The most basic approach is to promote union representation on the shop floors of supplier operations by providing technical assistance to unions in emerging countries. The ILO is active in providing this type of technical assistance. In Cambodia, the ILO has developed a particularly extensive Better Factories

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Cambodia program that provides training, outreach, dispute resolution, and monitoring and disseminates information about best practices related to unions, collective negotiations, and labor standards. Reports on the program are quite positive. Rates of union representation in apparel plants range up to 50 percent and compliance with the labor standards in the ILO’s code of conduct range between 70 and 95 percent. There continue to be reports of collusion and corruption among some employers and union leaders, however. This program has been sustained for over a decade in large part because of the continued support of the ILO and the Cambodian government. An independent evaluation of the ILO program has shown that the garment industry has continued to grow in Cambodia since the program was put in place and the firms that have complied with the employment standards the program monitors were more likely to survive over time than those that did not.16 While the Cambodian example is encouraging, it has yet to be replicated in other emerging countries, where unionization rates remain quite low and maintaining stable unions in industries and companies has proven to be difficult. In some ways NGOs are a substitute for traditional unions. They have led efforts to publicize abuses of labor standards. They have negotiated with companies to improve working conditions in specific countries. Some have created sophisticated software programs that enable firms to evaluate the state of labor practices in their supply chains and receive advice about how to improve them. Others, such as United Students Against Sweatshops, have used consumer boycotts and lawsuits against highly visible brand-name companies such as Adidas and Nike to press them to end labor abuses among their contractors.

BOX 11.7 NGOs That Conduct Union-Like Activities To improve working conditions in a number of countries, NGOs have emerged that include the direct negotiation of wages and other improvements in working conditions in their activities. Two prominent examples are found in India. We present them below as examples of the expanding role of NGOs in directly representing and bargaining on behalf of low-wage workers around the world. In India, as in most emerging countries, the activities of a number of NGOs include some of the roles unions play in advanced industrial countries. One such organization is the internationally acclaimed SelfEmployed Women’s Association (SEWA). Founded in 1972 by Nobel

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Peace Prize nominee Ela Bhatt, SEWA represents poor self-employed women in the rural and unorganized economic sectors of India. These women do not earn wages; they earn money through their own labor and small businesses. Dr. Bhatt’s main goal for SEWA, which has over 960,000 members, includes trying to move them out of the informal sector, helping them gain full-time work, and improving the compensation and benefits women receive for their work, whether or not that work is in the informal sector. Essential facets of SEWA’s activities are lobbying state and national governments to increase funding for social protection services, including health insurance and child care coverage; identifying microlenders; pressuring banks and other financial institutions to lower interest rates for first-time borrowers; and convincing financial institutions to provide more credit for women in business. Another highly significant NGO/union in India is the Kagad Kach Patra Kashtakari Panchayat (KKPKP), also known as the Trade Union of Waste Pickers. The KKPKP represents waste pickers, waste collectors, and informal recyclers, all of which are part of the unorganized rural sector of the Indian economy. A key aspect of the KKPKP’s role, like that of SEWA, is politically lobbying. KKPKP lobbies local municipalities and state governments to increase grants to the KKPKP’s credit cooperative, which offers loans to members and provides a social security fund, so waste collectors have retirement funds. The KKPKP also helps members negotiate and bargain with local municipalities and private firms that hire waste collector workers. In April 2013, the KKPKP engaged in a sit-in strike in the city of Pune to protest the low wages waste collectors received. In sum, India has numerous and multifaceted nongovernmental organizations, some of which perform critical union-like roles. Almost 60 percent of the Indian labor market consists of rural and informal sector workers, and these organizations represent workers in negotiations with government agencies and private sector employers. These NGOs help promote the emergence of an Indian middle class through advocacy, negotiations, protests, and political lobbying. Sources: “About Us: History,” Self-Employed Women’s Association, http://www.sewa.org/About_Us_History.asp; “Initiatives,” Kagad Kach Patra Kashtakari Panchayat, http://wastepickerscollective.org/index.php?mod=page &id=3; Leslie Vryenhoek, “KKPKP’s Six-Day Protest Wins a Promise from Municipality,” Inclusive Cities, April 11, 2013, http://www.inclusivecities .org/blog/kkpkps-six-day-protest-wins-a-promise-from-municipality/.

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Summary This chapter began with Common’s hypothesis that it would be difficult for unions to raise and standardize wages unless unions had a scope and jurisdiction that matched the expanding scope of product markets. MNCs have benefited from globalization because they take advantage of the efficiencies gained in global supply chains. The internationalization of production also shifts bargaining power in favor of MNCs in a number of ways. To date, no single institutional response or alternative source of power has been successful in counterbalancing this shift in power. Media exposure has been the most effective way to pressure MNCs to upgrade standards in their supply chains. However, this strategy has proven to be episodic. While media reports of tragedies or abusive work conditions do create a flurry of corrective activity, they tend to lose momentum fairly quickly after media coverage fades. In general, consumers have not responded in consistent ways or demanded data on labor standards or avoided products of companies with reported labor standards problems. However, led by students organizing on college campuses into branches of USAS, successful consumer campaigns have been mounted that require MNCs that sell licensed athletic and sportswear bearing university logos to comply with NGO-specified labor standards. Although codes of conduct have helped improve standards, they cannot, on their own, serve as a comprehensive strategy for achieving compliance or sustained improvements in labor standards in emerging countries. There is evidence that countries with stronger labor laws and enforcement practices have, on average, better wages and working conditions. The ILO’s Better Factories Cambodia experiment suggests that a heavy infusion of incentives (lower tariffs or other trade restrictions), government and international pressures, and support for workplace-based unions can also have positive effects. In addition, a number of cross-national union efforts have emerged, some of which involve international networks of unions and workers. Other union campaigns to pressure MNCs have linked with NGOs to make use of consumer and political pressure. Overall, it appears that achieving and sustaining acceptable work conditions in supply chains of MNCs will require a combination of the efforts of management, labor, NGOs, and governments, perhaps eventually reinforced by consumer purchasing behavior.

Discussion Questions 1. Why do international production opportunities and international trade generally advantage multinational corporations and disadvantage unions in terms of bargaining power?

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2. What factors led multinational corporations historically to typically prefer to decentralize their internal labor relations function, leaving most control of labor relations issues to local plant managers? 3. What recent factors/trends are leading many multinational firms to move toward more central coordination of their internal labor relations function? 4. Why is it so difficult for unions to forge cross-national alliances and launch successful cross-national pressure or bargaining campaigns? 5. Describe some of the basic steps you would take as the head of labor relations in a large multinational firm to make sure that work conditions are fair and defensible in your firm’s global supply chain.

Related Web Sites Colgate-Palmolive: http://www.colgate.com/app/Colgate/US/Corp/LivingOur Values/Sustainability/HomePage.cvsp Cornell International Labor Relations School International Labor Standards: https:// www.ilr.cornell.edu/globalPortal/laborStandards/ Global Unions: Standing Together for the Rights of Unions: http://www.global -unions.org/?lang=en Hewlett Packard Supply Chain Management: http://www.hp.com/hpinfo/ globalcitizenship/09gcreport/society/supplychain/strategy.html Sustainable Business at Nike: http://nikeinc.com/pages/responsibility

Suggested Supplemental Readings Bronfenbrenner, Kate, ed. Global Unions: Challenging Transnational Capital through Cross-Border Campaigns. Ithaca, N.Y.: Cornell University Press, 2007. “Cross-National Perspectives on Multinational Companies and Employment Relations.” Special issue of ILR Review 66, no. 3 (2013). Locke, Richard M. The Promise and Limits of Private Power. Cambridge: Cambridge University Press, 2013. Posthuma, Anne, and Dev Nathan, eds. Labour in Global Production Networks in India. New Delhi: Oxford University Press, 2010. Notes 1. International Labour Organization and Better Factories Cambodia, “Thirtieth Synthesis Report on Working Conditions in Cambodia’s Garment Sector and Statement of the Project Advisory Committee,” July 18, 2013, http://betterfactories.org/?p=6706. 2. John R. Commons, “American Shoemakers 1648–1895: A Sketch of Industrial Relations,” Quarterly Journal of Economics 24, no. 1 (1909): 39–98. See also Lloyd Ulman, The Rise of the National Trade Union: The Development and Significance of Its Structure, Governing Institutions, and Economic Policies (Cambridge, Mass.: Harvard University Press, 1958).

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3. For more on the history of Nike and evidence about labor conditions in global supply chains, see Richard M. Locke, The Promise and Limits of Private Power: Promoting Labor Standards in a Global Economy (Cambridge: Cambridge University Press, 2013). The material in this chapter draws heavily on this book and on the larger MIT-Stanford University Just Supply Chain research project. 4. See Jan H. Katz, “Cultural Issues in International Business,” in The Handbook of International Business, ed. Ingo Walter and Tracy Murray (New York: Wiley, 1988), 11-1–11-17. 5. For recent research on how MNCs internally structure and operate their labor relations function, see “Cross-National Perspectives on Multinational Companies and Employment Relations,” special issue of ILR Review 66, no. 3 (2013): 547–587. 6. Ibid. 7. Information in this section was obtained through interviews with managers conducted over several years by Harry Katz. 8. Quoted in Locke, The Promise and Limits of Private Power, 49. 9. Ibid., 47–77. 10. See, for example, the forum on this topic in The Boston Review 38, no. 3 (May–June 2013): 12–29. 11. Pablo L. Gradi, Trade Agreements and Their Relation to Labour Standards: The Current Situation, International Centre for Trade and Sustainable Development Issue Paper no. 3 (Geneva: International Centre for Trade and Sustainable Development, 2009), http://ictsd.org/ downloads/2011/12/trade-agreements-and-their-relation-to-labour-standards.pdf. 12. Eli J. Kirschner, “Fast Track Authority and Its Implications for Labor Protection in Free Trade Agreements,” Cornell International Law Journal 44 (2011): 386–415. 13. Solidarity Center. “Justice for All: The Struggle for Worker Rights in Jordan,” Solidarity Center, Washington, D.C., 2005, http://www.solidaritycenter.org/files/JordanFinal.pdf, accessed January 8, 2014. 14. Office of the United States Trade Representative, “U.S.-Colombia Trade Agreement,” http://www.ustr.gov/uscolombiatpa. 15. “The U.S.-Colombia Labor Action Plan: Failing on the Ground,” a staff report on behalf of U.S. Representatives George Miller and Jim McGovern to the Congressional Monitoring Group on Labor Rights in Colombia, October 2013, http://democrats.edworkforce .house.gov/sites/democrats.edworkforce.house.gov/files/documents/Colombia%20trip%20 report%20-%2010.29.13%20-%20formatted%20-%20FINAL.pdf. 16. Drusilla Brown, Rajeev Dehejia, and Raymond Robertson, “Is There an Efficiency Case for International Labor Standards?” Tufts University working paper, July 2013, http:// www.freit.org/WorkingPapers/Papers/TradePolicyMultilateral/FREIT574.pdf. See also International Labour Organization and Better Factories Cambodia, “Thirtieth Synthesis Report on Working Conditions in Cambodia’s Garment Sector and Statement of the Project Advisory Committee.”

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Economic Development Strategies and Policies

THE CHALLENGE FACING GOVERNMENT POLICY MAKERS IN EMERGING COUNTRIES

This book has examined the changing nature of labor-management relations with a focus on developments in emerging countries. While traditional unions and collective negotiations have declined in the United States and most other highly industrialized nations, new forms of labor-management relations and other new institutions are struggling to take hold in a number of rapidly growing emerging nations. We now have a basis for extensive cross-country learning about best practices in labor relations. Government policy makers need to be especially attuned to learning from both historical and current variations in policies and practice. In this chapter we describe the special roles governments play in influencing the future direction of labor relations in emerging countries. We give special attention to the relationship between economic development policies and labor relations practices, processes, and outcomes. But first a threshold issue must be addressed: Is there still room for national policies in a global marketplace? THE END OF NATIONAL LABOR RELATIONS SYSTEMS?

Some might think that globalization makes it impossible for individual national governments to regulate labor relations in their respective countries. Clearly, as noted throughout this book, globalization puts many jobs in 297

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competition across borders. Although international quasi-government agencies can and do force countries to modify labor market policies as conditions for getting loans or complying with trade regulations, variations in policies are still apparent across countries and there is substantial evidence that these policy differences do matter. They have a significant impact on working conditions and economic activity. China, for example, has retained its unique mix of state-owned and private enterprises but has gradually begun to introduce labor market and labor relations policies that embody principles that are accepted in many democratic societies. Other countries also vary in the extent to which they have centralized planned economies that rely heavily on state-owned enterprises, as opposed to free market systems. Meanwhile, the privatization of telecommunications, energy, and other key sectors in Brazil and other emerging countries indicates that countries do face real choices, just as they can choose where they want to be in the spectrum that runs from a planned economy to a free market economy. For the past four decades, the so-called Asian tigers (Hong Kong, Korea, Singapore, and Taiwan) have followed a path of state-led development. In each of these cases, government policy has favored the development of particular industries and companies and governments have invested heavily in public education and skills development. These countries provide another clear example of government choices that have shaped labor relations systems and workplace outcomes. At the same time, labor relations and market policies in advanced industrialized countries can be grouped in distinct clusters. One well-known distinction that has been noted is between liberal market economies and coordinated market economies.1 Liberal market economies such as the United States, Great Britain, Canada, and Australia have fewer labor market regulations, stress competition across firms, and favor decentralized collective bargaining structures; coordinated market economies such as Germany and Scandinavian countries have more labor market policies protecting workers, emphasize coordination of training and other practices among companies, and favor industry or regional bargaining structures. Other research reveals common trends in advanced industrialized economies yet also shows a continuing role for national institutions.2 Variations are also apparent within countries in the relationships that exist between employers and unions. Some firms have adopted sophisticated human resource management and collaborative labor relations systems while other firms continue to use low-end bureaucratic strategies. Thus, room still appears to exist for a country to shape a distinctive national system of labor relations that fit its values, form of government, political

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environment, and economic policy goals. The difference today is that public policies are visible on a global stage—to potential investors, to NGOs and advocates for human rights, and, with the help of social media, to a growing number of citizens and consumers within and across national borders. Countries thus have the discretion to shape their labor relations policies and institutions within the constraints of a global economy and global expectations about basic human rights in the workplace. This perspective will guide our discussion of government policy. DEMOCRATIC VALUES AND LABOR RELATIONS

We begin our analysis of government policies by recalling the International Labour Organization’s list of fundamental workplace rights, introduced in chapter 3. They call for bans on forced labor, child labor, and discrimination and for support of freedom of association. These are bedrock, universal principles that all countries, regardless of their level of economic development, are expected to meet, in terms of both the content and the enforcement of their labor relations policies. They apply to all types of workers, including migrants, those in the informal sector, contractors, and those in standard employment relationships. These principles serve as a moral foundation for labor relations policies. The first three of these fundamental rights focus on substantive terms and conditions of employment. The fourth, protecting freedom of association, requires attention to labor-management interactions. The fourth right reflects a normative premise, introduced in chapter 1, that conflicts of interest are an inevitable and enduring feature of all employment relationships. Care must therefore be taken to ensure that workers have the freedom to act in their interest so they can gain a voice in determining their wages, hours, and working conditions. Protecting freedom of association requires acceptance of some degree of workplace conflict. This is a critical defining feature of a democratic society, one that is often the first to be suppressed by totalitarian regimes. Yet no economy or society can tolerate violent or unlimited levels of workplace conflict. Thus, with freedom of association comes a need to build policies, institutions, practices, and social norms for negotiating and resolving conflicts and for protecting the interests of the third parties (e.g., customers, students, citizens) that may bear some of the costs of excessive conflict in labor relations. Achieving the right balance between the expression of and the resolution of conflicting interests is a critical function of a nation’s labor relations policies. There is no objective or single criterion for determining what the right

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balance should be. This is often a contested issue among policy makers, labor movements, employer interest groups, and citizens at large. Thus, we do not propose a single best solution to this policy issue; instead, we outline the range of choices different countries draw upon to find the balance most appropriate to their economic and political systems and circumstances. Understanding the range of choices allows policy makers in a given country to experiment with different approaches and to modify them as their economy changes and develops. ECONOMIC DEVELOPMENT POLICIES

As noted in chapter 1, the economic environment has a significant effect on work practices. In turn, the labor relations policies of a country have an important bearing on its economic development. John Dunlop’s industrial relations systems framework views labor relations policies as a subset of the broader economic policies of a nation. According to Dunlop, this is true at all stages of economic development. Indeed, there is significant evidence to suggest that labor relations policies influence the ability of a national economy to move up from one stage of development to another. We will focus here on the particular problem all emerging economies face (some more successfully than others), namely the challenge of moving from competing in global markets by having the lowest labor costs to competing on the basis of innovation, advanced technologies, and a highly skilled work force. From Low-Cost to Middle-Income Stages

Ever since Adam Smith’s classic text An Inquiry into the Nature and Causes of the Wealth of Nations was first published in 1776, the starting point for analyzing the relationship between economic development and labor relations policy has been the theory of comparative advantage. A country needs to identify what products and services it can provide more efficiently than competing countries and then structure policies to promote and support those types of work. While too often this simple proposition has led emerging countries to focus on the advantage of maintaining lower wages than in other countries, modern theories of comparative advantage no longer view this as a sufficient strategy for supporting sustainable economic growth and development. Low labor costs can attract initial interest and consideration from foreign investors, but as the sole focus of a national policy, it will not promote sustained foreign investment or growth of the domestic economy over time. A focus on low labor costs leads to a lack of innovation, flexibility, and skill generation. Focusing solely on keeping labor costs low often results in

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severely limiting workers’ rights and tolerating labor practices that do not meet basic ILO standards or the expectations of global citizens. Fostering steady economic development and implementing acceptable labor standards require policies that support broad-based education, the development of work force skills, and the implementation of labor relations policies that support productive and collaborative labor-management relations. Many countries that started their development with a low-labor-cost strategy have had a difficult time making the transition to a more comprehensive economic development approach. This becomes particularly troubling at the point when labor costs begin to rise relative to those in economies that are less developed. This is sometimes referred to as the “middle income” trap.3 Yet some countries, such as the four Asian tigers mentioned earlier, have successfully transitioned to a comprehensive economic growth strategy. There are undoubtedly many reasons for this, but one important reason is the priority these countries have placed on education and work force development. Singapore is often used as the showcase example (see table 12.1). It has invested heavily in universal public education and in vocational training. The Table 12.1. History of productivity-related organizations in Singapore

Period

Organizations

Description

1964

Productivity Unit, Economic Development Board

Created Charter for Industrial Progress and productivity “Code of Conduct”

1967–1972

National Productivity Center (autonomous division within the Economic Development Board)

Created Tripartite Interim Management Committee to prepare plan for a National Productivity Board

1972–1995

National Productivity Board (statutory body initially affiliated with the Ministry of Labor and later with Ministry of Trade and Industry)

Worked in tandem with Singapore Productivity Association

1996–2001

Productivity Standard Board (government body affiliated with Ministry of Trade and Industry)

Built awareness, promoted compliance with international standards for quality and productivity in industry

2002–present

Standards, Productivity, and Innovation Board (SPRING)

Successor agency to all of above that disseminates information, provides advice on best practices, and encourages use of internationally accepted quality, safety, and other standards throughout industry

Source: For current activities of SPRING, see http://www.spring.gov.sg/RESOURCES/Pages/e-Newsletters .aspx#.U1gqhfldWSo.

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government has created a number of centers within its Manpower Ministry that disseminate information about state-of-the-art productivity, quality, leadership, and other practices that are essential to building what we referred to in chapter 5 as human resource management systems. Most of these have been tripartite, including representatives of employers, unions, and academic experts who work to advise government policy makers on the actions that are needed to help the economy develop and utilize its human resources. Yet even in Singapore, as discussed in box 4.2, migrants appear to be poorly treated and protests have surfaced. This shows that the policies of a country may be innovative on certain economic and social issues but be deficient in other policy areas. Promoting a High-Value Economy: The Role of Labor Relations Policies

Labor relations policies are central to supporting or hindering the transition from a low-wage to a higher-value-added economy. Suppression of workers’ rights, suppression of collective negotiations, or highly adversarial collective negotiations tend to lead to periodic violent workplace protests. This labor relations dynamic makes it difficult for skill-generating strategies to emerge. They also make the environment less attractive to international investors. That is why countries such as Singapore and, more recently, Korea have encouraged tripartite consultations and partnership among representatives of what they and many countries in Europe refer to as the “social partners”— labor, management, and government. Japan and many European countries relied heavily on social partnerships as they rebuilt their economies and societies in the aftermath of World War II. The national-level dialogue that took place among these social actors in the crisis period helped promote negotiated consensus and compromises on wage policies, which in turn kept wages from fueling inflation or falling too far behind rising costs of living (and thereby avoided a growth in income inequality). This social partnership approach also helped build support for the expansion of “safety net” policies such as unemployment insurance, pension plans, and health insurance. China is perhaps the most visible country that is currently facing the challenge of the middle-income transitional. After experiencing double-digit growth rates for over a decade by attracting foreign investors to take advantage of an abundant supply of low-wage workers, it now finds its labor costs rising faster than in neighboring countries such as Bangladesh, Vietnam, and Cambodia. At the same time, China’s one-child family policy, which has carried over from an earlier era, is now contributing to the tightening of labor

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markets. Recognition of this problem led the Chinese government to relax its one-child policy in 2013. Tighter labor markets will increase the significance of workers’ demands for voice at the workplace, improved wages and working conditions, better representation, and bargaining structures. China’s great challenge lies in finding how to channel what are very likely to be continuing labor protests into a stable labor relations system in order to bring about productive and fair workplace outcomes. South Africa faces a related but somewhat different economic and political environment. It has a long history of collective negotiations in a number of industries. At first, the agreements that resulted applied only to white workers, but they rapidly spread to black workers as apartheid ended. The close links between the black trade union federation (COSATU) and the postapartheid government gave great hope that South Africa’s labor relations policies and practices would be well aligned with its national economic policies. A National Economic and Development Council, which includes representatives from government, business, and labor, was created to help achieve this vision. Nearly two decades after the end of apartheid, however, South Africa is experiencing declining levels of unionization and growing conflicts and divisions within its labor movement that have fueled several violent workplace conflicts, as noted in chapters 2, 6, and 8. There is also a growing gap in South Africa between the centralized industry-level structures that were set up to support collective negotiations and the harsh reality on the ground in specific workplaces. Addressing these issues will be critical to South Africa’s economic future. That is why some experts in South Africa are calling for greater flexibility in centralized negotiations. Others are working hard with union leaders to resolve internal union conflicts. They are also advising companies and unions about how to build labor-management partnerships. Failure to reform labor relations practices will deter foreign investment and increase export costs in South Africa. The latter is an especially acute problem for that country’s resource-intensive industries. The success of these efforts will have a significant effect on South Africa’s future economic development and quality of life. Brazil is further along in this transitional process and yet is also experiencing increased work force protests over high prices and low wages and the high level of income inequality that has characterized its economy for years. As noted in chapter 6, it has a highly developed labor relations system with wagesetting structures that spread wage patterns across firms within industries and regions. Like China and India, Brazil has benefited from strong economic growth over the past decade. The key challenge facing Brazil’s labor relations system is whether it can use its regional and industry-wide collective

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negotiations processes to help middle-class workers cope with rising living costs. More broadly, Brazil will need to maintain the support of labor and business as it seeks to control price increases, return to a solid pace of economic growth, and maintain social stability. India’s decade and a half of strong economic growth (which averaged about 8 percent per year from the mid-1990s through 2010) has recently slowed somewhat, but it remains a significant competitor for jobs in the service, information technology, and related sectors that have been outsourced from more advanced economies. The large numbers of literate English-speaking citizens in India gives it a significant advantage in attracting work that involves direct communication with global business partners and customers. As a result, jobs in India’s information technology and service industries that require college degrees and English-language fluency have contributed to the country’s path of strong economic growth. Yet these advantages have not reduced the high level of income inequality and poverty in this vast country. Nor have they reduced the share of the population working in the informal sector. Labor relations in the formal sector also are increasingly dominated by management actions, most of which are hostile to unions and collective negotiations, even among MNCs in traditionally highly unionized industries such as the auto industry. A relatively new group, the Confederation of Free Trade Unions, is organizing workers in India’s informal sector and is estimated to have about 600,000 members out of the over 370 million informal workers in the country. Thus, India’s labor relations system has yet to find its role in helping move the country forward on its economic development path. Increasing union or NGO representation in the informal sector could contribute to reducing inequality and poverty and reinvigorating unions and collective negotiations. This approach also might overcome employer hostility toward unions and shift collective negotiations to a more cooperative direction in the formal sector. From a Middle-Income to a Knowledge-Based Economy: The Example of Singapore

The economies that have successfully transitioned through and beyond the middle-income stage often they have set their sights on becoming worldleading knowledge-based economies. As noted in box 12.1, Singapore aspires to become the talent capital of Asia, if not the world. Being competitive in today’s knowledge-based economy requires policies and workplace practices that go well beyond protecting and enforcing minimum employment standards. We have covered many of the individual elements of a policy agenda

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that promotes productivity growth, innovation, effective use of advanced technologies, and collaborative labor relations. With the example of Singapore, we emphasize the linkages among these elements to suggest how they might fit together to form a proactive strategy for promoting and supporting a knowledge-based economy.

BOX 12.1 Singapore as a Home for Talent For a small country like Singapore, acquiring and nurturing human talent is a matter of survival. Without much of anything else, we rely on human ingenuity and effort to build our economy and society. We have therefore made major investments in education, lifelong learning and talent development. . . . Singapore does not exist in isolation. We live in a globalised world. People move from one country to another, and talent is especially mobile. Talented individuals see Asia as one playing field. They often work in multiple places, gaining experience and raising their own value, but also spreading ideas and expertise across the region, and creating valuable inter-linkages between our various economies. No country can monopolise or lock in their human capital. What Singapore can do, and tries to do, is to make ourselves stand out as an exciting and inviting corner of the world. In other words, we want to be a Home for Talent. Source: Excerpt from speech by Prime Minister Lee Hien Long to the Singapore Human Capital Summit, September 29, 2009, http://www.pmo.gov.sg/ content/pmosite/mediacentre/speechesninterviews/primeminister/2009/ September/speech_by_mr_leehsienloongprimeministeratthesingaporehuman capita.html.

High-Quality Basic Education

As noted earlier, Singapore’s strategy began with high-quality basic education for all children and access to lifelong education and work force development for adults. A knowledge economy requires a work force that is literate and able to use mathematics and statistics, adapt information and other technologies, use basic scientific methods to solve problems, and work together in teams. In turn, this requires that teaching and learning go beyond rote memorization of facts and mathematical and scientific rules. A knowledge-based

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economy needs an education system that instills the ability to learn through experimentation with peers and from expert teachers and the ability to communicate and apply fundamental principles to new problems. Adapting to this twenty-first-century style of teaching and learning is a challenge for countries with cultures that have historically valued respect for elders (i.e., teachers). Box 12.2 illustrates how one school in Singapore is using these new principles to support its nation’s economic development objectives. BOX 12.2 Teaching Creativity in Singapore The Haig Girls’ School in Singapore is a prime example of a school that has a clear mission of fostering creativity and innovation in their students. At this elementary school, teachers have developed common criteria to monitor their students’ progress in critical thinking and in creative thinking. The Haig Girls’ School often asks students to engage in innovative activities to promote inventive thinking. For example, when teachers asked students to participate in a collective brainstorming activity, a small group of pupils developed an inventive way to close an umbrella. The students wondered, why use two hands to fold your umbrella and risk one of them getting wet when you could do it with just the one hand holding the handle? The girls decided that to speed up the closing process and keep both hands dry, the snap fastener on the small band that is generally rolled around the fabric to fasten the umbrella tight should be replaced with a magnet. This activity allowed the students to engage in creative thought and come up with a solution to a problem. More broadly, Singaporean schools have changed their national exams to incentivize teachers and students to focus more attention on creative skills. Altering the way students are assessed has led teachers to be more precise and confident in developing their pupils’ creative skills and learners to be better able to understand what creativity entails and to record evidence of their progress. Such tools are an important step in raising daily awareness of thinking skills and creative skills and seeing them materialize in school learning. Source: Stéphan Vincent-Lancrin, “Creativity in Schools: What Countries Do (Or Could Do),” Education Week, April 23, 2014, http://blogs.edweek.org/ edweek/global_learning/2013/04/creativity_in_schools_what_countries_do _or_could_do.html.

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Lifelong Learning

Education should not stop when a young adult graduates from whatever level of formal schooling he or she completes; rather, education must be lifelong. Lifelong learning is often viewed as an aspiration for knowledge-based economies, but this goal is difficult to achieve in practice. One of the reasons is that no single employer has an incentive to invest in the education and training of its work force if other employers are not making similar investments. A single employer that does so risks paying the costs of work force development, only to see others to reap the benefits by hiring away the newly skilled workers. Knowledge-based economies can solve this problem by getting employers in a region and/or industry labor market to collectively invest and share the costs of training and work together with educational institutions (colleges and universities, vocational and technical schools, unions that provide occupational and professional training programs, etc.). Governments can do their part by funneling whatever public funds are available for adult education and training into these types of joint programs. Germany has often been held up as a best-case example of this type of vocational and technical education. In this system, unions, employers, and vocational schools work together to establish the curriculum and certification requirements for approximately 400 occupations. Germany’s apprenticeship training system is described in box 12.3.

BOX 12.3 The German Vocational Education and Apprenticeship System In Germany, training for many vocations is provided by means of a dual program of training and education. Apprentices spend three to four days a week at a company that provides vocational training in the practical skills required for their field of work. The remaining one or two days are spent at a vocational school, where apprentices receive a theoretical grounding in their future job. Depending on the vocation and the level of basic knowledge, an apprenticeship lasts between two and three-and-a-half years. During this period, apprentices receive a training allowance from their company. On average, this is around €650 a month, depending on the field of work. Those who successfully complete their training are often taken on permanently as skilled workers by the company that trained them.

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In addition, if they perform well in the workplace, they have the opportunity to train further to become a master craftsman or a statecertified engineer and then to rise to a managerial position in the company or set up in business and become self-employed. Many prominent people, including former German chancellor Gerhard Schröder, began their career with a course of vocational training. Source: “Vocational Training in Germany,” Make It in Germany, http://www .make-it-in-germany.com/en/working/prospects-in-germany/vocational -training-in-germany/.

While other countries need not copy the German system exactly, some functional equivalent tailored to a nation’s particular institutional arrangements is needed to support a knowledge-based economy. In the United States, for example a significant number of unions and employers in industries such as construction, health care, manufacturing, and hotels negotiate and sometimes jointly manage apprenticeship and other training programs that provide access to jobs and career development. Other countries, such as France and Korea, have at various times required employers to pay a training tax that is waived if the employer invests an equivalent amount in training its workers. These training and lifelong learning systems are part of a collaborative and modern labor relations system. The more unions and professional associations can play a role in the lifelong training, development, and supply of skilled workers, the more sustainable they will be and the more they will be able to use the knowledge of their members as a source of power for advancing their interests. WORK-FAMILY POLICIES

Investments in education and training will realize their maximum return only if all members of work force—men and women, the young, the middle-aged, and seniors—are given the opportunities to integrate their work and personal or family lives over the course of their careers. Thus, work and family policies are central to a successful knowledge-based economy. Korea, for example, is a clear illustration of a society that has a number of male-dominated traditions that need to change for social and economic reasons. Private sector and government leaders recognize this challenge and are working to address it. The Korean government is now fostering a national dialogue over how to better accommodate the needs of working parents in order to more fully utilize the

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heretofore underutilized knowledge and skills of its female work force.4 Private groups are also promoting this objective. A network of over 200 businesses organized as the New Paradigm Institute actively promotes the expanded use of both flexible work-family practices and lifelong learning in order to promote further economic development through better human resource management of both men and women.5 Most advanced industrialized countries (the United States excepted) have some form of paid family leave that supports parents who take time out of the paid labor force to care for their children or aging parents. This is a necessary element of a comprehensive set of work-family policies and practices. Changing workplace cultures to support flexibility in careers and working hours is an equally big challenge. Here again, we see the value to be gained from linking work-family policies to labor and management practices. A research center at the University of California, Berkeley, the Labor Project for Working Families, is a strong advocate for bringing work and family issues directly into collective bargaining. Box 12.4 describes some of their work.

BOX 12.4 The Labor Project for Working Families The Labor Project for Working Families at Berkeley promotes progressive work-family initiatives through collective bargaining and other provisions. The project encourages employers to adopt services that provide employees with more work-family benefits. These services include adoption assistance programs, legal services, tuition assistance, and professional development programs. Work-family provisions cover a range of benefits that include expanded coverage, benefits that promote physical well-being (gym memberships and smoking cessation programs), retiree benefits (pensions, 401Ks), and adoption benefits (a cash benefit or reimbursement to offset the costs of adoption). The Labor Project for Working Families also promotes a progressive childcare program. Provisions regarding childcare cover a wide variety of programs that include subsidies and stipends for care that is provided in licensed childcare centers, by a family childcare provider, or by an informal caregiver. Parents with school-age children who work regular overtime or weekend shifts can also receive extended house care, before/after school care, holiday and summer care, emergency care, and so forth.

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Through the Labor Project unions can bargain to form a wide range of committees that provide advice and oversee the development of a work-family program for employees. The project also assists unions by providing model contract language on a variety of issues such as defining the term “family” to help determine who employees can use their leave for or which family members are eligible for benefits and provisions for elder care, flexible work schedules, and language permitting workers to take time off to care for their families, deal with emergencies, or recuperate from a serious illness. Source: LEARN, “Understanding Work Family Benefits,” http://www .working-families.org/network/pdf/understanding_12.pdf.

LABOR RELATIONS STRATEGIES THAT PROMOTE A KNOWLEDGE-BASED ECONOMY

A nation that aspires to have a knowledge-based economy also needs to deploy a conscious labor-relations strategy. In some ways this represents the frontier of labor-relations policy and requires greater experimentation. Ways that governments can support knowledge-based labor relations practices and relationships include encouraging unions and professional associations to (1) view knowledge as a key source of power by sponsoring occupational training and lifelong learning and continuous updating of skills; and (2) providing information on job vacancies, serving as a supplier of skilled labor to employers (as many craft unions do), and negotiating for joint training funds and programs for their members. Government policy makers can also facilitate regional and/or industry-level labor-management efforts to provide education and training programs. They can also disseminate research and other information on state-of-the-art workplace practices—the human resource management systems described in chapter 5. As noted in chapter 7, mediation agencies can work directly with unions and employers in using interest-based negotiations and problem-solving processes, as they are now doing in Britain and the United States. All of these are ways governments can foster modern labor relations systems that support and advance a knowledge-based economy. Undoubtedly we will see further experimentation with ways to do this in the years ahead. Employment Standards

All countries face the task of setting minimum standards for the terms and conditions of employment, beyond those included in the ILO core principles.

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These include standards related to safety and health; minimum wages; limits on working hours or compensation for longer daily or weekly hours; safety net features such as health insurance, unemployment insurance, and workers’ compensation for people injured on the job; and retirement pensions. The ILO provides technical assistance to countries seeking to assess and/or upgrade each of these employment standards. Its annual World of Work Report provides benchmark data for countries in different regions and at different levels of economic development.6 Some countries, such as the United States, establish relatively low minimum conditions for employment standards and leave it to collective bargaining and the human resource practices of employers to go beyond these minimums. Others, such as many countries in the European Union, require higher standards. France, Germany, and all of the Scandinavian countries, for example, have minimum wages that are closer to the country’s median wage than is the case in the United States. Still others, again most notably countries such as Germany, Sweden, France, and Demark, require that the wages and some other benefits negotiated by leading unions and employers be extended to other companies and employees within that union’s industry. These are often referred to as extension agreements. South Africa has adopted this practice, but now it is under pressure from some employer groups to weaken or abandon it. As in South Africa, the coverage and the levels of workplace standards that employers are required to meet are often highly contested areas of public policy. Going too far (e.g., China’s “iron rice bowl” of an earlier era) requires significant government subsidies, perpetuates labor market rigidities and inefficiencies, and limits investment and economic growth. Doing too little means that employment conditions may fall below accepted social and ethical norms, possibly leading to tragedies of the sort that occurred in Bangladesh when a building collapsed, as discussed in chapter 9, and/or work force protests. Some Scandinavian countries have tried to overcome this trade-off with what has been called “flexicurity” (i.e., flexibility and security) strategies.7 These involve relatively high levels of benefits and standards but few limits on the laying off workers. In these countries, extensive labor market policies help unemployed workers get training and find new jobs. The coverage and levels of workplace standards and benefits have, as noted earlier, been scrutinized and often curtailed by international agencies as a condition of loans or other assistance. Such structural adjustment policies aim at increasing labor market flexibility, but these policies have come under increasing criticism for failing to provide anything more than short-term reductions in government spending (see the discussion about recent events in Greece in chapter 10). This suggests that if national policy makers become

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involved in negotiations with international agencies, they need access to good data and accurate analysis of the costs and benefits of their employment policies and how their policies fit into the nation’s growth strategy and its overall social system. Enforcement of Employment Laws

Many emerging countries have been criticized for having relatively strong but poorly enforced labor laws.8 Box 12.5 describes a tragic example of this in Guatemala, where the failure to enforce basic labor rights that were embodied in a regional trade agreement resulted in the death of several union activists.

BOX 12.5 Labor Unions Call for Arbitration Panel to Protect Workers’ Rights under CAFTA-DR On October 22, 2013, the AFL-CIO and Guatemalan trade unions called for an arbitration panel to be instituted in Guatemala to enforce labor laws under the Dominican Republic–Central America–United States Free Trade Agreement (CAFTA-DR). In a letter to the U.S. Department of Labor, U.S. trade representative Michael Froman, and the Guatemalan ministers of labor and economy, U.S. and Guatemalan labor unions said that the CAFTA-DR labor rights enforcement plan that was signed in April 2013 has been a failure and does not protect Guatemalan workers adequately. The enforcement plan, signed by both the U.S. and Guatemala governments, was made to resolve a labor case brought under CAFTA-DR in 2008. The AFL-CIO and Guatemala labor unions are concerned that even if the enforcement plan were to be implemented perfectly, it would remain inadequate to create the rule of law and a culture of compliance with international standards and to protect fundamental workers’ rights. The letter described six killings of trade unionists in Guatemala in 2013, one of them after the plan went into effect, and numerous incidents of judicial and administrative noncompliance with the enforcement plan. The letter also cited fifty other killings of Guatemalan trade unionists and described the harassment, abuse, and denial of basic workplace protections thousands of Guatemalan workers have endured during the five years since the first labor complaint was filed in 2008 under CAFTA-DR.

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The eighteen-point labor rights enforcement plan includes requirements that Guatemala strengthen labor inspections, provide a comprehensive consultative process to give workers a voice in the implementation of the plan, publish information about labor law enforcement, improve the monitoring and enforcement of labor court orders, create a verification unit to confirm whether employers are complying with court orders, transfer prolonged cases of employer noncompliance to the criminal justice system, and train judicial officials about the details of the enforcement plan. Source: Susan R. Hobbs, “Labor Unions Call for Arbitration for Worker Rights Protection under CAFTA,” Daily Labor Report, October 25, 2013, A-11. For the text of the letter, see AFL-CIO Guatemala to U.S. Trade Representative Michael Froman, U.S. Secretary of Labor Thomas E. Perez, Carlos Contreros Solorzano, Ministro de Trabajo y Previsión Social, Ciudad de Guatemala, and Sergio de la Torre, Ministro de Economia, Ciudad de Guatemala, http://op .bna.com/dlrcases.nsf/r?Open=shos-9ctn4r, accessed May 6, 2014.

Alternative Ways to Enforce Labor Standards

Traditional enforcement of labor standards related to issues such as safety and health or wages and hours has relied on what some call a command-andcontrol model. In this model, the law defines the required minimum standards and employers are expected to meet them. Labor inspectors periodically check up on employers or follow up on workers’ complaints to assess compliance. If violations are found, a monetary penalty/fine is assessed and employers are ordered to bring their practices into compliance. Appeals of these assessments can usually be challenged in court. Some countries establish specialized labor courts to handle cases related to employment; others allow appeals to be heard in the country’s regular court system that handles other civil or criminal cases. The limitations of this command-and-control model have been the source of much recent attention. The criticism includes the fact that no country will have sufficient budget resources to hire enough inspectors to serve as a strong deterrent to noncompliance. Furthermore, inspections are rare events and when they do occur, whether they are announced to the employer in advance or are unannounced, they often do not cover the entire workplace or all the workplace standards involved. This is even more difficult in settings where inspectors are charged with enforcing all employment laws rather than just one particular law (e.g., a law about safety and health or one about wages

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and hours). Others feel that the fines imposed when infractions are uncovered are too small to deter violations or to incentivize better compliance. These and other problems have led to a host of proposals for alternative approaches to enforcing employment standards. One approach stresses the value of combining training for employers to show them how to improve their business operations and employment standards with monitoring of compliance—a carrot-and-stick strategy. This has proven to be quite effective in a number of Latin American countries, including Brazil and the Dominican Republic.9 Other analysts have shown the value of engaging with civil society organizations and/or unions to help enforce government regulations.10 The advantage of engaging these groups is that it creates an ongoing presence at the workplace. The U.S. Occupational Safety and Health Administration provides incentives for employers to follow best industry practices in return for freedom from random inspections. Companies must achieve and sustain performance outcomes that put them well above minimum legal compliance in order to retain this special status. The advantage of these approaches is that they build and sustain capacity and commitment to enforcement on the part of employer and labor representatives and therefore offer the promise of more sustainable enforcement and continuous improvement in practices. An enforcement menu approach has the special virtue of allowing employers and workers to choose the most efficient way to achieve good results. It is also important that approaches to enforcing employment standards provide effective, fair, and trusted dispute resolution procedures for individuals who experience violations of their individual or collective workplace rights. The principles for effective internal dispute resolution systems, mediation, and arbitration processes discussed in chapter 7 should be built into these enforcement strategies. Informal Work

One enormous challenge most emerging countries face is the high proportion of workers in the informal sector. While it is hard to estimate the size of the informal sector, as discussed in chapter 4, the informal sector in emerging countries is clearly very large. One study even provides evidence that the informal sector has been growing in recent years in many emerging countries and attributes this increase to pressures emanating from structural adjustment policies (i.e., privatization and labor market deregulation) imposed by the international agencies as conditions for loans.11 There is no single strategy for improving working conditions in the informal sector. The most common is to try to bring standard employer-employee

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relationships to informal economy jobs and thereby cover these workers under existing employment laws. Another strategy is to encourage unions to represent informal workers or to form coalitions with NGOs that do so. A third strategy is to encourage or require certification and/or licensing of, for example, construction workers and contractors, street vendors, or professional service providers in the health, information technology, legal, and real estate sectors. Migrant Labor

Another challenge relates to the migration of workers from rural to urban areas and/or the flow of migrant workers into or out of a country (see the discussion of migration in China in chapter 4). Much of the cross-border flow of migrants is the result of political and/or religious conflicts that force families to flee war-torn regions and nations. Other cross-border and internal migration is attributable to the movement from agricultural to industrial work during the process of industrialization. Still other incentives for migration come from highly industrialized countries that lack enough workers who are willing to do low-wage work (in agriculture, construction, or domestic service, for example). At the other end of the skill distribution, some countries seek to attract migrants with specialized skills that are in short supply (i.e., nurses, information technology specialists, and software engineers). Migrants face a host of social and economic difficulties and exploitative work experiences that are extremely hard to monitor and remedy. This is especially so for migrant workers who cross borders illegally. They live in fear of being deported if they complain of poor treatment or illegal employment practices. Often labor brokers, individuals or organizations that offer to supply migrants with jobs for a fee or offer to supply employers with the number of migrant workers needed to complete specific tasks (such as a construction project or the harvest of a crop), are important actors in these migratory flows. Some labor brokers exploited and abused workers. Efforts to regulate brokers through licensing requirements are difficult because many operate in highly clandestine ways. Thus, as is the case with workers operating in the informal sector, no single enforcement strategy will work to address the numerous risks associated with migrant work. China, for example, passed a Contract Labor Act in 2008 to protect migrant workers from the worst abuses. In 2013, China took another step toward integrating migrant workers into its biggest cities by eliminating rules that excluded migrant workers and their families from the social welfare policies and benefits covering permanent residents in these cities. Research shows that in order to address these problems, governments

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need to integrate the enforcement of employment policies with the enforcement of immigration laws. ACCOUNTABILITY IN GLOBAL SUPPLY CHAINS

Throughout this book we have emphasized the growing importance of global supply chains that involve multiple buyers and sellers (suppliers, contractors, MNCs) and, increasingly, international agencies such as the ILO, NGOs, and global and local unions. This is a rapidly evolving arena for global labor policies. What is needed are improvements in labor standards both for those who work directly in these supply chains and those who work in other domestic firms that compete for the same workers. Let’s briefly review the evolution of practice (and debates) related to how to monitor and improve working conditions in global supply chains. The pressure for improvement in these supply chains has come from NGOs that expose violations of core labor standards. Often it has taken tragic examples of the consequences of violations to draw attention to an issue and spark action. At first, MNCs that purchase goods through supply chains argued that it was not their responsibility to enforce basic standards since they did not directly employ the affected workers (see chapter 11). Instead, these MNCs initially argued that this was an issue for local suppliers and governments in the emerging countries. Few companies still hold this view. Over time, companies developed global labor policies as they came under intense pressure to accept responsibility for the work conditions in their suppliers, and they also came to recognize the strategic importance of their sourcing and marketing strategies. A third phase came as leading companies developed codes of conduct and began experimenting with various ways of monitoring: some companies do their own monitoring, others use outside professional consultants, other monitor in collaboration with independent NGOs, and others combine the latter two methods. A fourth phase is now in play that is being led by companies, unions, the ILO, and the governments of Cambodia and Bangladesh. This newest approach involves a multiparty and multifaceted strategy that combines two elements: 1. Reforms of national labor laws and enforcement regimes to bring the country into compliance with the ILO’s core labor standards, including freedom of association and collective negotiations 2. Multi-stakeholder negotiations and agreements involving MNCs, international labor organizations and NGOs, and the ILO on

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substantive standards, education and technical assistance for local suppliers, monitoring and enforcement mechanisms, provisions for joint consultation, and arbitration of disputes related to enforcement and compliance The Accord on Fire and Building Safety governing the apparel industry in Bangladesh that was discussed in chapter 11 is an example of this type of multi-stakeholder approach.12 This accord is notable for its comprehensiveness: it covers all levels of apparel suppliers (called tier one, tier two, and tier three suppliers); it provides a joint governance structure that includes NGO and union representatives, representatives of the MNC, and representatives of local suppliers; it combines inspection with technical assistance, training, and education; and it provides for arbitration of disputes that arise over its implementation. It is funded by MNCs based on the size of their supplier base in Bangladesh. Not all MNCs are willing to join this type of multi-stakeholder accord. Walmart, Gap, and some other U.S.-based MNCs have resisted doing so because of their opposition to engaging directly with unions and their fear of excess litigation. Instead these firms have created their own enforcement improvement programs and have promised to provide substantial funds to support them. At the same time, there are many impediments to effective and widespread enforcement of building codes and safety measures in Bangladesh, as is the case in many other emerging countries. Time and follow-up research will tell which, if any, of the various approaches is successful in improving and monitoring labor conditions in global supply chains. What is clear, however, is that it is now an accepted principle that all stakeholders share responsibility for meeting basic standards and for contributing human, financial, and organizational resources to improving them. This provides an opportunity for government policy makers in emerging countries to use the influence and resources of the various stakeholders to help shape and enforce employment policies and standards. BEYOND GOVERNMENT POLICY: BUILDING CAPACITY FOR EFFECTIVE LABOR RELATIONS

In many countries the role of government policy is not limited to enacting and administering sound legislation and workplace regulations. A growing number of government officials recognize the need to promote effective, state-of-the-art labor relations practices and be actively engaged in efforts to

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foster innovation and improvement. We review a number of examples that illustrate how government can serve as a catalyst for innovation in labor relations. As noted earlier, many countries have created national tripartite forums that involve representatives of government, management, and labor to promote dialogue, consultation, and, in some cases, joint actions to address key economic and labor relations issues. These forums were widely used in European countries in the decades following World War II. They dealt with broad topics such as wage levels and labor market and social welfare policies. Some of these tripartite efforts atrophied and were abandoned in the 1990s, but a number have since begun to reappear to take on specific challenges such as those associated with pension and retirement reforms.13 In countries that have decentralized labor relations systems, such as the United States, the use of formal national tripartite structures is more limited. In those countries, tripartite forums have been mostly used in time of war or during other crises as a means of minimizing strikes and controlling inflation. In the aftermath of the 1997 Asian financial crisis, Korea established a tripartite national structure to seek consensus on wages, employment adjustments, employment security, and related issues. This represented a major departure from past practice in Korea and produced mixed results. Divisions within both business and labor made it difficult to get all the factions represented and participating in the national structure, and this made it hard to implement and enforce the agreements that were reached in the national deliberations. Yet the need for a national dialogue has persisted in Korea. In 2013, the newly elected government announced a national-level Tripartite Jobs Pact that was signed by business, government, and union leaders. The objective of the agreement is to reach a 70 percent employment-to-population ratio. Its provisions focus on the needs of small- and medium-size enterprises, young workers, and part-time workers. Government leaders see the Jobs Pact as the first of a series of national tripartite discussions aimed at addressing key contemporary labor issues, including building a positive culture for labor relations, fostering lifelong learning, shortening work hours, lowering the retirement age, improving productivity, and fostering a better trade-off between wages and employment security.14 While dialogue in national-level forums such as these can be useful in establishing or reinforcing a norm of cooperation among business, union, and government leaders, efforts are also needed to build labor relations capacity at the industry, regional, and enterprise levels. Informal and formal structures and processes have been used in different countries to build such capacity. In

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the United States, for example, the growth of unions and increased strike activity after World War II led to the creation of labor relations education and research programs in major universities. These growth of unions and increased strike activity also motivated academics and practitioners to form new professional associations such as the Industrial Relations Research Association (later renamed the Labor and Employment Relations Association) and the National Academy of Arbitrators. These university and professional programs helped build a generation of well-educated, well-trained, and (eventually) experienced professionals who shaped the development of human resource and labor relations policies and practices and a broad range of government labor and employment agencies. These individuals went on to serve as third-party neutral mediators, arbitrators, and facilitators. Building a stock of business, union, government, education, and research experts who interact and discuss issues of common interest is an important task for any labor relations system.

Summary This chapter stresses the importance of adapting employment and labor relations policies as a nation’s economy develops. While there is no one best way or universal solution to these challenges, several generic principles apply. The first relates to the critical role of the ILO’s Declaration on Fundamental Principles and Rights at Work. These principles and rights need to be honored at all stages of economic development. They become even more important as an economy develops and domestic citizens and global observers demand better enforcement of fundamental rights and fair working conditions. Second, attention to education and human capital development is absolutely essential for a higher-value-added, knowledge-based economy. Third, development of labor relations institutions is essential. Policies need to be put in place to generate high-quality worker representation processes, state-of-the-art collective negotiations mechanisms, problem solving and dispute resolution systems, collaboration between labor and management, and industry- and nationallevel consultation or tripartite institutions. These institutions cannot be molded in cookie-cutter fashion. They have to be adapted to fit the national culture and political history and context of a country. In South Africa, for example, the history of racial divisions and tensions cannot be ignored as that country shapes its next generation of labor relations policies. In China, the legacies of a state-run economy and unions controlled by the Communist Party must be addressed. In Brazil, controlling the rate of price increases and reducing the gaps between the urban rich and the rural and urban poor are essential to that country’s future economic

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growth and social stability. In India, the enormous number of people and families still living in abject poverty and surviving in the informal economy are particular challenges. Other countries face their own challenges and legacies. The universal challenge for policy makers is to shape the institutions discussed in this book in ways that take into account but are not trapped by their national customs, cultures, and political traditions.

Discussion Questions 1. What aspects of national labor and employment policies remain in the control of an individual country? What features are largely dictated by global competitive pressures and/or by internationally accepted labor standards? 2. Why is it difficult for an emerging country to make the transition from emphasizing its advantages as a low-wage country to a strategy that emphasizes higher value added? 3. What are some of the common problems migrant workers experience? What are the best ways to address these problems? 4. What are the most important issues business, labor, and government (tripartite) groups should be addressing in emerging market economies today?

Related Web Sites EU, “Flexicurity”: http://ec.europa.eu/social/main.jsp?catId=102 ILO, Improvement of Working Conditions and Environment in the Informal Sector through Safety and Health Measures: http://www.ilo.org/safework/info/ publications/WCMS_110306/lang--en/index.htm ILO, Fundamental Rights at Work and International Labour Standards: http://www .ilo.org/wcmsp5/groups/public/---ed_norm/---normes/documents/publication/ wcms_087424.pdf

Suggested Supplemental Readings Hall, Peter H., and David Soskice. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press, 2001. ILO. World of Work Report: Repairing the Economic and Social Fabric. Geneva: ILO, 2013. Katz, Harry C., and Owen Darbishire. Converging Divergences: Worldwide Changes in Employment Systems. Ithaca, N.Y.: Cornell University Press, 2000.

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Spence, Michael. The Next Convergence: The Future of Economic Growth in a Multispeed World. New York: Farrar, Straus and Giroux, 2011. Notes 1. Peter A. Hall and David Soskice, Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (Oxford: Oxford University Press, 2001). 2. Harry C. Katz and Owen Darbishire, Converging Divergences: Worldwide Changes in Employment Systems (Ithaca, N.Y.: Cornell University Press, 2000). 3. Michael Spence, The Next Convergence: The Future of Economic Growth in a Multispeed World (New York: Farrar, Straus and Giroux, 2011). 4. Chang-won Lee, “The Model of Future-Oriented Labor-Management Cooperation of the Park Administration,” Korea Labor Review 10 (Summer 2013): 4–9. 5. K. H. Moon, “New Paradigm: Responsible Corporation,” presentation to the Canadian Industrial Relations Association, Toronto, May 31, 2013. 6. These annual World of Work reports are available at www.ilo.org/world-of-work/lang -en/index.htm. 7. Peter Auer and Kazutashi Chantani, “Flexicurity: Still Growing or in a State of Crisis?,” in Research Handbook on Work and Employment, ed. K. Townsend and A. Wilkinson (Chattanham: Edward Elgar, 2010). 8. Roberto Pires, “Promoting Sustainable Compliance: Styles of Labour Inspection and Compliance Outcomes in Brazil,” International Labour Review 147, no. 1 (2008): 199–229. 9. Michael Piore and Andrew Schrank, “Toward Managed Flexibility: The Revival of Labor Inspection in the Latin World,” International Labour Review 147, no. 1 (2008): 1–23. 10. Matthew Amengual, “Pathways to Enforcement: Labor Inspectors Leveraging Linkages with Society in Argentina,” ILR Review 67, no. 1 (2014). 11. Susan Schurman and Adrienne Eaton, “Trade Unions Organizing Workers ‘Informalized from Above’: Case Studies from Cambodia, Colombia, South Africa, and Tunisia,” Report to the Solidarity Center, January 2013, http://smlr.rutgers.edu/research-centers/ research-partnership-with-solidarity-center. 12. Accord on Fire and Building Safety in Bangladesh, May 13, 2013, http://www .laborrights.org/creating-a-sweatfree-world/resources/bangladesh-fire-and-building-safety -agreement. 13. Lucio Baccaro, “What Is Alive and Dead in the Theory of Corporatism,” British Journal of Industrial Relations, 41, no. 4 (2003): 683–706. 14. Lee, “The Model of Future-Oriented Labor-Management Cooperation of the Park Administration.”

Glossary

ability to pay Management’s financial ability to meet union demands, which is determined by company earnings and assets. absolute union wage effect A measure of how much union workers earn above what those workers would earn if there were no unions. attitudinal structuring The degree of trust that exists in a relationship between management and labor. bargaining power The ability of either party (management or labor) to achieve its goals. The parties are affected by the total bargaining power labor and management has in a particular situation and by their respective relative bargaining power. bargaining structure The scope of employees and employers covered or affected by the terms of a collective bargaining agreement, whether it be formal or informal, centralized or decentralized. broad bargaining unit A bargaining unit that includes employees with a variety of skill types. The broadest unit is an industrial unit that includes all the unionized employees in a plant (both skilled and unskilled). bureaucratic pattern A labor relations pattern characterized by highly formalized procedures, detailed job classifications, and job evaluation schemes. business strategies High-level management decisions that involve matters such as investments, the sourcing of supplies, and production strategies. carrot and stick strategy A popular strategy in Latin America for enforcing employment standards that mixes traditional compliance (inspections, fines for violations) efforts with training and education of employers to help them both improve their business operations and their employment standards. centralized bargaining structure Bargaining that covers all the companies in an industry with the same collective agreement. In some extreme cases, such a bargaining structure covers multiple sectors or regions. 323

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civil law legal systems Law systems that are premised on the enactment of a general code of law that governs economic and social activity. Under a civil law system, judges decide cases by direct reference to and application of the legal code instead of turning to past case precedents, as in the common law systems. Civil law systems trace their origin to Roman law and (more recently) the Napoleonic Code, which was adopted widely in continental European countries and their colonies during the nineteenth century. codetermination Employee representation on boards of directors and in works councils. This system is mandated by federal law in some countries. collective bargaining agreement codified in written form.

The results of labor-management negotiations

collective labor law The laws governing unions and collective negotiations in the unionized sector of the economy at the national level. collective negotiations A mechanism organized groups of workers and their employers use to resolve conflict and to pursue agreement over common interests. command and control models of labor law enforcement A system of enforcement that relies upon laws that define the minimum standards employers are required to meet. Labor inspectors periodically check up on employers to assess compliance. If violations are uncovered, a monetary penalty/fine is assessed and employers are ordered to bring their practices into compliance. Appeals of these assessments can usually be challenged in court. common law legal systems Systems that are premised on the importance of judges’ interpretations of the law based on the precedents of decisions made in past cases. Common law systems trace their origin to the British legal system and are found in countries that were historically part of the British Empire. competitive menaces A term coined by John Commons to refer to the pressures employees face from market expansion and industrialization. Commons argued that workers form unions to counteract the effects of competitive menaces such as child labor, prison labor, and immigrant labor. compulsory arbitration A dispute resolution procedure in which both parties are required to adhere to the settlement imposed by an arbitrator if they are unable to reach a negotiated settlement on their own. concessionary bargaining The negotiation of pay freezes, pay cuts, rollbacks, or changes in work rules that have occurred frequently in recent years as union power has weakened. conflict A situation that arises from a difference in economic or other interests between workers and employers. constitutional law Constitutional law issues typically focus on questions such as election processes, the powers granted to different parts of the government, and the rights of individual citizens. For labor relations this may include questions of which branch or level (in federal systems) of government has the power to

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325

regulate labor relations and the rights of individual workers, especially public employees, in relation to the government. constitutive function of labor law Aspects of labor law that deal in collective labor law with regulating the process of union formation, and the establishment of collective negotiations, and in individual labor law with the determination of employment status and the formation of the employment relationship. consultation Informal meetings between labor and management to settle disputes. contract ratification A vote by union members to approve the settlement of a negotiated agreement. contract zone The potential contract settlements created by the overlap between what management and labor are willing to accept during negotiations. craft unions Unions organized on the basis of skill or trade. decentralized bargaining structure Bargaining that involves just one or only a few plants in a firm. demand for labor The quantity of labor a firm or industry is willing to employ at various prices of labor. democratization The spread of political democracy in countries that were previously governed by totalitarianism or a dictatorship. demographic context The factors in the environment that influence labor relations such as the size and educational levels of the work force. dependent variable The outcome caused (explained) by various independent variables. deskilling Lowering of the skills required in jobs. discipline The punishment given to an employee for not abiding by an organization’s rules. dispute resolution The process by which labor and management settle their differences (e.g., arbitration or mediation). distributive bargaining A win-lose bargaining process in which one side’s gains are the other side’s losses: also called zero-sum gain bargaining. downsizing A decline in the size of the required labor force for the firm, displacing workers from their jobs. This may be caused by factors such as plant shutdowns, worldwide consolidation, and technological upgrading of manufacturing facilities. drive system A workplace in which the supervisor exercises great control over the work force, including making decisions about matters such as discipline, hiring, firing, and pay levels. due process Procedures that provide employees with fair opportunities to seek redress for managerial decisions with which they disagree. economic context Factors of the environment that influence the negotiations process and bargaining outcomes such as the unemployment rate, the growth in the economy, and the rate of inflation.

326

Glossary

elasticity of demand The degree to which the demand for a good or input changes when its price changes. employee The individuals (blue- and white-collar) who work for a firm or organization. employer The firm or organization that makes decisions about employment practices and the production of goods and services. employer association A group of employers who join together to pursue their mutual interests. These associations typically provide member firms with advice and engage in political lobbying. employment stabilization Management’s use of measures such as transfers, overtime cutbacks, and reductions in subcontracting to avoid layoffs during business downturns. enterprise union A union whose membership includes both the blue- and white-collar workers of a single company. Most Japanese unions are structured in this fashion. equal employment opportunity programs Programs that aim to provide equal wages for equal work and that promote hiring and promotion decisions without concern for an individual’s race, sex, creed, or religion. escape A union avoidance strategy management uses that consists of finding or threatening to find a nonunion alternative location or a nonunion work force to do the work that is currently done under a union contract. European Union (EU) An economic and political union of twenty-eight European countries that has removed explicit trade restrictions and tariffs to create greater stabilization in government regulation of employment practices, products, and taxes. EU countries use a common currency. exit-voice-loyalty-neglect When an employee experiences a conflict in the workplace, he or she can respond in one of four different ways: exit (quitting the job); voice (complaining, often using a dispute resolution procedure); loyalty (suffering in silence); or neglect (reducing job effort or engaging in disruptive or destructive behavior). extension agreements Agreements that extend wages and some other benefits negotiated by leading unions and employers to other companies and employees within their industry. These are required by national law in some countries. external environment The key dimensions (the economy, laws and public policies, demographics, and technology) that set the context for labor relations. facilitator An individual who seeks to create compromises in disputes between quarreling parties. flexicurity strategies Government labor market policies that promote both flexibility and security. These involve relatively high levels of benefits and standards but few limits about laying off workers. In countries that implement this approach, extensive labor market policies help unemployed workers get training and find new jobs.

Glossary

327

formal appeal procedures Formal procedures that allow an employee to appeal a management decision to higher authority, some type of review board or panel, or an arbitrator. formal bargaining structure The bargaining unit (employees and employers) that is bound by the terms of a collective agreement. fringe benefit insurance.

Compensation that supplements wages, such as a pension or health

functional level The middle tier of labor relations activity that involves the negotiation and administration of a collective agreement. global supply chains The range of companies that supply component parts of final products to a multi-national company that sells the product(s) under its name. global union federation An association of unions in several countries that have become prominent through their promotion of union networks at a shared multinational employer. Such federations come together to create a transnational union structure for the purposes of sharing information, coordinating activity, and bargaining with an employer on a transnational level. government Local, regional, state, and national structures that perform legislative and executive duties. grievance A complaint by an employee (or union) that management has treated the employee unfairly or is inaccurately or unfairly implementing the labor contract. grievance arbitration A final step in a grievance procedure in which a neutral third party is selected to resolve the dispute. grievance mediation A type of mediation in which a third party is selected to mediate settlements for grievances, thereby reducing the frequency of arbitration. Hicks model of strikes A model developed by John R. Hicks that argues that strikes occur as a result of miscalculations by labor and/or management. hukou system A formal system that restricts migration from rural to urban areas in China. The system was first imposed by the Communist Party in 1949 for the purpose of preventing citizens from moving without permission to cities, where the standard of living was higher. human resource management pattern A labor relations pattern that includes policies such as career development, team forms of work organization, skill-based pay, and elaborate communication and complaint procedures. hybridization Organizational forms and practices that combine those of the country in which the multinational company (MNC) is operating and those of the home country of the MNC. impasse The point in negotiations where no compromise appears achievable and a strike or lockout is imminent.

328

Glossary

impasse resolution Process of resolving disputes between labor and management through use of neutral third parties such as mediators or arbitrators. income security programs Programs that provide income support to laid-off workers through a collective agreement. independent variable The manipulated or controlled variables that explain why a particular outcome occurred (i.e., the variables that cause an outcome). individual labor law Laws that govern employment contracts and terms and conditions of work for individual workers. Common issues that are regulated by a country’s individual labor laws include minimum wages, hours of work and overtime pay, unfair dismissal, employment discrimination, and workplace health and safety. industrial relations A broad interdisciplinary field of study that encompasses all aspects of the employment relationship. industrial unions levels.

Unions that represent workers across a number of different skill

industrialization The process of technological change and industrial development that results in economic expansion and modernization. inelastic A lack of responsiveness in demand (or supply) to price. informal bargaining structure The employees or employers who are affected by the results of a collective agreement, even though they are not a direct party. informal employment pattern Work practices that prevail in the informal sector of an economy. These typically give management a high degree of control. Such as include piece rate pay and unstable jobs. informal sector The part of an economy that is not regulated by the government, taxed, or included in estimates of the gross national product (GNP) of a respective country. institutional economists Individuals who reject the view that labor can be viewed and analyzed as a commodity. These economists study the roles that history, politics, and conflict play in determining employment conditions. integrated conflict management systems Systems that provide a range of procedures for resolving workplace conflicts, including both interest and rights based options like mediation and arbitration, and are flexible and accessible to employees. integrative bargaining A win-win bargaining process in which solutions to problems provide gains for both labor and management. interest arbitration The binding determination of a collective agreement by a third party that is called into play after labor and management have reached impasse. interest-based bargaining A form of integrative bargaining whereby labor and management jointly frame and solve issues in order to reach solutions that provide gains for both sides.

Glossary

329

international framework agreements (IFAs) Multilateral agreements that are signed between the corporation and a union, usually one of the global union federations, at a global level in order to ensure equal standards across a firm. International Labour Organization (ILO) conventions Conventions designed to guide the development of labor laws of ILO member nations. The two central conventions for labor relations and collective bargaining are Convention 87, on Freedom of Association and the Right to Organize, and Convention 98, on Right to Organize and Collective Bargaining. An individual member nation must ratify an ILO convention in order for the convention to come into force in that country. International Labour Organization (ILO) fundamental rights The ILO promotes four fundamental rights related to labor relations. The first three focus on substantive terms and conditions of employment. The fourth, which protects the freedom of workers to associate, requires attention to labor-management interactions. These are bedrock, universal labor relations principles that all countries, regardless of their level of economic development, are expected to meet and enforce. international trade secretariat An autonomous agency that provides information to member unions and coordinates union activities across national borders. intra-organizational bargaining Bargaining over differing interests within the union and/or management. job classification A description of the skills needed for and responsibilities of a particular job as formally stated in a collective contract or personnel manual. job definition The breadth and responsibilities of a job. job security A clause in a collective agreement that provides employment or income protection to workers affected by layoffs or plant closings. joint union-management grievance committee A committee including union and management representatives that seeks to resolve grievances, often through negotiation between committee members. judicial approach A formal and legalistic style of arbitration in which the arbitrator acts like a judge and not like a mediator. labor A term used to refer to employees and the unions that represent them. labor brokers Individuals or organizations that offer to provide migrants with jobs for a fee or that offer to supply employers with the number of migrant workers needed to complete specific tasks. labor-management committee A group of workers (and possibly union representatives) who meet with management in an effort to resolve problems and improve the performance of an organization outside of formal collective negotiations.

330

Glossary

labor relations staff The management personnel with responsibility for handling union-organizing attempts and negotiations, contract administration, and litigation related to union activity. laundry list (of issues) A long list of proposals and inflated demands labor presents at the start of negotiations. lifetime employment The practice of employing employees from the time they finish school until they reach retirement age. This is common in Japanese firms. living wage The establishment of a minimum wage level that is sufficient to provide for the basic needs of a worker and his or her family. Supporters of the living wage idea argue that many existing minimum wages are too low to provide for basic living needs. local labor market

The employment opportunities in a specific geographic area.

lockout The action an employer takes to close operations (and lay off employees) after an impasse is reached in contract negotiations. locus of power The amount of power workers and the union exert in society. Labor’s power in national political affairs is a major component. management The individuals who are responsible for promoting the goals of employers and their organizations. Encompasses owners and shareholders of an organization, top executives, line managers, and labor relations and human resource staff professionals. management appeals boards A committee of two or more managers, usually at the executive level, that hears and decides employee grievances involving appeals of management decisions. Marshall’s conditions Four factors that influence the elasticity of labor demand: the degree to which labor can be replaced by technology; the elasticity in demand for the final product; the elasticity of supply of non-labor factors of production; and the share of labor costs in total costs. mediation A voluntary form of intervention in labor relations disputes in which the objective is to help the parties reach a settlement. Mediators only make suggestions and give advice; they do not make binding decisions. mediation-arbitration process An impasse resolution procedure in which a third party first tries to mediate a settlement and then acts as the arbitrator if mediation fails. miscalculation Labor negotiations in which either labor or management is excessively optimistic about what will settle or result from a strike. modular production A system of production in which employees of subcontractors work directly on the assembly line in a factory taking responsibility for installing specific modules in the final product. multilateral bargaining Collective negotiations that include many individuals who have some managerial responsibility and input into management’s decisions. This form of bargaining is common in the public sector.

Glossary

331

multinational company (MNC) A firm or organization that engages in economic activity in more than one country. multinational unions boundaries.

Unions whose jurisdiction or coordination spans national

multiple-interest perspective An industrial relations perspective that recognizes the diversity of goals and conflicts across the parties involved in the employment relationship. mutual-gains bargaining nascent democracy

See interest-based bargaining.

An emerging democracy.

negotiations process The efforts by labor and management to resolve conflicts until they reach a collective agreement. The process typically involves tactics, strategies, and counterstrategies. neoliberal economics An economic philosophy that promotes privatization, deregulation, economic liberalization, free trade, open markets, and the reduction of the role of government in an economy. nongovernmental organizations (NGOs) Activist-driven organizations that are nonprofit, voluntary and separate from any government that work toward several goals related to service and humanitarian functions, such as providing expertise, conducting research, and monitoring international agreements or violations of international law. normative argument

An argument based on ethics or morals.

North American Free Trade Agreement (NAFTA) An agreement between the United States Mexico, and Canada that went into effect in January 1994. NAFTA removes tariffs and other trade barriers for the parties to the agreement over a fifteen-year period for the purpose of stimulating trade. objectives The specific terms or items that the union or management is hoping to achieve in bargaining. ombudsman A professional neutral employed within the organization, but outside the regular chain of command, who uses a range of dispute resolution techniques to resolve workplace conflicts. Ombudsman offices usually promise confidentiality in resolving disputes, but will not impose a solution to a conflict. open door A policy that management’s doors are always open to any employee bringing a concern or complaint. One of the least formal types of appeal procedures. organizational change Efforts to reshape relationships between workers and managers often accomplished by building trust or making changes in work assignments. outsourcing Management’s contracting out of work previously done by union members to nonunion workers in order to lower its labor and production costs. part-time work Work that is less in hours than the regular work week; in many countries this means less than a 40-hour week.

332

Glossary

past practice Customary policies or methods. Arbitrators often give much weight to past practice in making decisions about how to resolve grievances. pattern bargaining The imitation of collective settlements by parties who are not directly involved in the initial negotiations. peer review panels A panel that hears and determines the resolution of grievances on which a majority of the panel members are fellow employees at the same level as the employee filing the grievance. political power Leverage achieved through actions involving ballot measures, the election of government officials, or political lobbying. positional bargaining A traditional form of collective negotiations in which each party starts with a specific proposal or demand, there is a gap between the parties’ initial positions, and each party seeks concessions from the other until a compromise agreement is reached. power-broker function of labor law The aspects of labor law that deal with regulating and influencing the relative bargaining power of the parties. private sector The sector of the economy that includes firms that are privately owned (i.e., not the public sector). product market Where goods and services produced by companies are sold; firms compete against one another for the share of this market. productivity The volume of goods and services a company, sector, or nation creates; formally measured as a ratio of output to inputs. profit sharing Compensation awarded to employees based on the profits of the firm (a form of contingent compensation). public sector The sector of the economy that includes organizations and jobs that are part of the government (i.e., not in the private sector). quality circles Groups of employees who meet with a supervisor to discuss ways to enhance quality and fix problems in the production process. rank-and-file members Members of a union who are not union officials. relative bargaining power The amount of power labor or management has in a particular situation in relation to the power held by the other side. This is heavily influenced by strike leverage and the elasticity of demand for labor. relative union wage effect A comparison of the earnings of union and nonunion workers given the presence of the union. Nonunion earnings are measured without considering what they would be if there were no unions. restructuring Management’s development of new work structures geared toward achieving greater flexibility in the deployment of the workforce. scientific management A way of managing the work process that separates the thinking from the doing by having industrial engineers design the work so as to maximize productivity, while workers simply follow the instructions specified by management. Popularized by Frederick Taylor, this approach to work organization became widely practiced in the twentieth century in mass

Glossary

333

production factories, but was associated with high productivity at the expense of quality. scope of bargaining

The breadth of issues discussed in labor negotiations.

secondary boycotts Strikes directed at employers other than the primary employer involved in a collective negotiation. seniority rights Rights to benefits or job opportunities based on an employee’s length of service. service sector The sector of the economy that includes jobs that produce some sort of service rather than a tangible good. Service workers include retail clerks, social workers, teachers, and the like. shock effect Improvements in the performance of an enterprise spurred by management’s efforts to increase worker productivity in response to wage gains won by a union. shop steward An employee who serves as the union representative who provides union services at the shop-floor level when a grievance or other dispute arises. skill- or knowledge-based pay A wage system that provides greater pay (often in stepped increases) as a worker becomes competent in more skills and jobs. social dumping A practice whereby multinational firms move production to other countries whose labor laws and environmental and business regulations are weaker than those of the home country. sociotechnical systems An approach to work organization that views the workers and technological as an integrated system. It tends to emphasize worker participation in deciding how the work is done, including the use of self-managed work teams. strategic level The top tier of labor relations activity that involves both managerial and union strategies and structures. At this level the goals that have long-term influences on collective negotiations are shaped. strike authorization a strike.

A vote by union members expressing their support for

strike deadline The date at which a collective contract expires and a strike can start if a settlement is not reached. strike leverage The degree to which labor or management is willing and able to sustain a strike. subprocesses of bargaining The various aspects involved in the negotiation of any collective agreement. The subprocesses include distributive bargaining, integrative bargaining, intra-organizational bargaining, and attitudinal structuring. supervisor An employee who has authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees if such authority is not merely routine or clerical but requires the use of independent judgment.

334

Glossary

supply effect The lowering of the wages of nonunion workers because of employment reductions in the union sector (and subsequent crowding of the labor market in the nonunion sector) caused by union-negotiated wage increases. surface bargaining Bargaining opposite a representative who lacks the authority necessary to make commitments that will stick within the organization. Also known as shadow boxing. team form of work organization A system in which workers are organized into work groups and perform a broader-than-normal set of tasks. In some teams workers perform material handling, inspection and repair duties, and budget and planning tasks. teamwork production systems Organization of the workplace around selfmanaged teams in which teams of workers decide how the work will be done without direct supervision by a manager. technological context Technological factors in the environment that influence the negotiations process and negotiations outcomes. Important factors include the extent of new technology and the degree to which technology leads to labor displacement or requires high-skilled employees. threat effect An nonunion employer’s improvement in wages and other employment conditions in order to deter employees from unionizing. total bargaining power The total amount of power held by both labor and management in a particular situation. This is determined by the economic profit (or budget revenues in the public sector) available to both sides, which is affected by factors such as the extent of market competition facing the firm (or government agency) or the state of the economy and level of demand for the products produced by the firm (or government agency). total quality management A management strategy in which the whole organization is focused on enhancing quality throughout the production process, often through identifying and eliminating slack or waste in the process. union density The extent of union membership in a particular workforce. This is usually measured as the percentage of the relevant workforce that belongs to a union or is covered by a union contract. union federation A coalition of unions that usually provides advice and engages in political lobbying but does not become directly involved in collective bargaining. union negotiating committee The union officers, staff, and members who participate in negotiations. This committee usually prepares for negotiations by meeting a number of times before the start of negotiations to formulate the union’s list of demands and form expectations about what the union can win. union networks Groups of unions at a shared multinational employer that come together to create a transnational union structure with the goal of sharing information, coordinating activity, and bargaining with an employer on a transnational level.

Glossary

335

voluntary recognition An employer’s voluntarily agreement that a union may provide representation for employees without a representation election. wage administration The implementation of wages and wage adjustments on a daily basis. wage-employment trade-off The extent to which a wage increase leads to declines in employment. This trade-off is determined by the elasticity of demand for labor. whipsawing Union whipsawing occurs when a union negotiates a bargain at one plant or company and then puts pressure on the next plant or company to equal or surpass the contract terms negotiated at the first site. Employer whipsawing occurs when management wins concessions in one plant or company and then tries to use this as a pattern for concessions in other plants or companies by threatening noncompliant unions with plant closings. wildcat strike A strike by a union that is not officially sanctioned by the union leadership. work restructuring Rearranging the duties and the responsibilities of jobs or workers in an effort to improve the performance of an organization. Introducing work teams, decreasing the number of job classifications, and broadening workers’ duties are forms of work restructuring. work rules Language or understandings that guide how work is done and influence matters such as the pace and difficulty of work or the number and scope of job classifications. workplace level The lower tier of labor relations activity that involves workersupervisor relations, employee attitudes, and other shop-floor issues. works council A committee of employees that is given the right to discuss a variety of personnel matters and other powers through federal legislation. work-sharing Contractual provisions geared toward preserving jobs by cutting the workweek during output declines instead of laying off employees.

Index

Pages numbers followed by f and t indicate figures and tables. Ability to pay, in comparisons of labor settlements, 136 Absolute union wage effect, 222 Accord on Fire and Building Safety, in Bangladesh, 170, 171t, 237, 317 African National Congress (ANC), 34 Airlines, mediation and, 168 Al-Hamra Garments, in Bangladesh, 238–241 All-China Federation of Trade Unions (ACFTU), 45, 64, 123 Alliance for Bangladesh Worker Safety, of U.S. companies, 236 All India Trade Union Congress, 46 Apartheid, role of unions in ending, 33–35 Apparel Industry Partnership, in U.S., 291 Appeal procedures, conflict resolution and, 205 Apple Inc. See Foxconn Arbitration. See Compulsory arbitration Arbitration-mediation process, 184 Argentina, 202 Arnold, H. L., 198 Association of Mineworkers and Construction Union (ACFTU), 172 Association of Mineworkers and Construction Union (AMCU), in South Africa, 48–49, 130 Attitudinal structuring, 131–32

Audits, of compliance with codes of conduct, 277 Austerity measures, public sector unions and, 259–262 impact on economy and society, 261–62 impact on private sector unions, 261 impact on union rights, 260–61 protects and strikes over, 121, 261 Auto industry, scientific management in, 197–98 Bangladesh employment standards and, 316–17 labor law in, 74, 242–44 mediation in, 170, 171t see also Rana Plaza factory fire Bargaining power, 79–101 bargaining power thesis, 153 conceptual framework for environment, 80 defined, 81–82 economic and demographics contexts of, 88–97 economic context of, 82–88 importance of, 79–80 political power and, 88 sources of public sector’s, 256–58 technological context of, 97–99 337

338

Index

Bargaining structures determinants of, 155–57 examples of, 156–59 formal and informal, 154 pattern bargaining, 159–160 types of units, 154 Bargaining subprocesses, 125–132 attitudinal structuring, 131–32 distributive bargaining, 126 integrative bargaining, 126–29, 128t intra-organizational bargaining, 129–131 Batt, Rosemary, 213 Begin, Menachim, 181 Behavioral factors, in strike outcome calculations, 152 Better Factories Cambodia (BFC), 59–60, 291–92, 293 Better Work program, in Cambodia, 60 Bhatt, Ela, 293 Bikrampuri, Shafi, 241 Black Consciousness Movement, in South Africa, 34 Blue flu strategy, 82 Bose, Subhash Chandra, 32 Boswell, Wendy, 214 Brasilata S/A Embalagens Metálicas, lean-HRM management and, 115–17 Braverman, Harry, 98 Brazil centralized bargaining in, 157–59 constitutive labor law in, 61, 63–67 economic development policies, 298, 303–4 employment standards and, 314 individual labor law and, 68–70, 72–73 informal employment pattern in, 108, 108t mediation in, 170 modular production in, 202 tripartite interactions of labor, government, and management, 41–43 unions’ effect on wages in, 222 unsafe working conditions in apparel factory, 232 workplace conflict resolution in, 206 work time of domestics in, 228 Brett, Jeanne, 160 Brown University, 291 Bumping, 229 Bureaucratic employment pattern, 108–9 high-end firms, 106t, 112–14 low-end firms, 106t, 109–12 public employees and, 249

Business strategies, globalization of, 266–277 Business upturns, and strike outcome calculations, 153 Call center service work, high-end bureaucratic employment practices and, 112–14 Cambodia employment standards and, 316–17 global standards and, 291–92, 294 labor law and, 59–60 Canada Charter of Rights and Freedoms, 61 constitutive labor law in, 62–63, 74 Carter, Jimmy, 181 Centralization, in labor relations, 133, 134–35 MNCs and, 268–273 Central Trade Union Organizations (CTUO), in India, 39 Chamberlain, Neil, 204 Child labor, 89, 95–97, 96t Good Weave International and, 8–10 China compulsory arbitration not provided for in, 183 constitutive labor law in, 64, 67, 74 economic development policies, 298, 302–3 employment in state-owned industries, 44t, 250 hukou registration system in, 90–92, 111 ILO Conventions 87 and 98 and, 56 individual labor law and, 71–72 informal employment pattern in, 108, 108t intra-organizational bargaining and, 130 mediation in, 166, 169–170, 175, 182 migrant workers in, 315 oversupply of college graduates in, 94 role of government in, 28–29 rural-to-urban migration and, 90–92 sectoral bargaining in, 156–57 strikes in, 121–23 tripartite interactions of labor, government, and management, 43, 44t, 45 workplace conflict resolution in, 206 Chowdhury, Shafiul Azam, 238, 239, 242 Civil law systems, 54 Codes of conduct monitoring compliance with, 276–79 of Nike, 273–76 Coercive comparisons, 135–37 Colgate-Palmolive Corporation, 269–273

Index Collective labor law, 53, 62–67 constitutive function of, 62–64 power-broker function of, 62, 64–67 Colvin, Alexander, 213 Command-and-control model, labor standards and, 313–14 Commission for Conciliation, Mediation and Arbitration (CCMA), in South Africa, 168–69, 207 Commodity, labor as more than, 10, 14 Common interests, of labor and management, 82–83 Common law systems, 54 Commons, John R., 13–14, 97, 98, 265–66 Communication, cultural norms and, 161 Communist Party, evolving role in China, 28–29 Communist union movement, in India, 32, 46 Comparative advantage, economic development policies and, 300 Comparisons, of labor settlements ability to pay factors, 136 internal comparisons, 136–37 local labor market and, 135–36 product market factors, 136 Competition, influences on total power, 81 Complex negotiations, mediation and, 181 Compulsory arbitration, 183–87 mediation-arbitration process and, 183–84 sources of public sector’s bargaining power and, 256 Confederation of Free Trade Unions, in India, 304 Confidentiality, mediation-arbitration and, 184 Conflict, inherent between employers and employees, 11 Conflict resolution, alternative techniques, 207–12 grievance mediation, 208–12 ombudsman, 207–8 Conflict resolution, and due process, 203–7, 299–300 procedural functions and constituencies, 204–5 procedure types, 205–7 Congress of South African Trade Unions (COSATU), 34, 48, 303 Congress Party, in India, 46 Constitutional law, 54, 60–61

339

Constitutive function of collective labor law, 62–64 of individual labor law, 68–71 Contract ratification, 142 Contract zone, of potential settlements, 150, 150f Convention 87, Freedom of Association and the Right to Organise, of ILO, 55–58 Convention 98, Right to Organise and Collective Bargaining, of ILO, 56–58 Coordinated market economies, 298 Core competency business model, 140 Coronation Brick and Tile plant strike, in South Africa, 34 Corporatism, in Brazil, 158 Cross-border union alliances, strategies and pressure campaigns, 285–87 Crothall, Geoffrey, 122–23 Cultural background attitudinal structuring, 131–32 culture defined, 160 as factor in negotiations, 160–62 mediation and, 174, 175 MNCs and diversity, 267–68 prototypes and stereotypes, 161 Cutcher-Gershenfeld, Joel, 220 Declaration of Philadelphia (1944), 55 Declaration on Fundamental Principles and Rights at Work, of ILO, 58, 281, 299 Deming, Edward, 200 Democratic values, economic development policies and, 299–300 Democratization, role of unions in, 31–37 Denmark, 311 Deskilling thesis, 98 Discrimination Brazilian protections from, 72–73 constitutive function of labor law and, 68–71 employment and caste in India, 70–71 employment and race in South Africa and, 70 individual labor law and, 72 Dispute resolution procedures, 165–189 complex and multiparty negotiations, 181 compulsory (interest) arbitration, 165, 183–87 disputes able to be settled by mediation, 171–72

340

Index

Dispute resolution procedures (continued) interest-based negotiations and mediation, 179–181 mediation’s key role, 165–170, 171t roles for neutrals, 186–87 settlements and meditations, 181–83 in South Africa, 47–48 tasks, techniques, and traits of mediators, 172–75 traditional bargaining and mediation, 175–79 Distributive bargaining, 126 integrated bargaining contrasted, 127–29, 128t District Capacity Project, in Massachusetts, 186 Doing Business report, of World Bank, 6–8 Dominican Republic, 314 Dominican Republic–Central America–United States Free Trade Agreement (CAFTA-DR), 312–13 Drive system of management, 195–96 Due process, 18, 22 conflict resolution and, 203–7, 299–300 pay and workplace outcomes, 225–26 Dunlop, John, 80, 98, 300 Economic and demographic environment, of bargaining power, 88–97 child labor, 89, 95–97, 96t educational attainment, 93–95 macroeconomic influences on relative bargaining power, 83–85, 83f macroeconomic influences on total and relative bargaining power, 87–88 microeconomic influences on total bargaining power, 82–83 population trends, 89 size and quality of labor force, 88–89 urbanization and migration trends, 89–93 wage-employment trade-off, 85–87 Economic development policies, 297–321 building institutional capacity and, 317–19 democratic values and, 299–300 globalization and, 297–99 global supply chain accountability and, 316–17 high-value economy promotion, 302–4 in low-cost to middle-income stages, 300– 302, 301t in middle-income to knowledge-based stages, 304–8

to promote knowledge-based economy, 310–16 work-family policies, 308–10 Economy of country, influence on total power, 81 Educational attainment decline in child labor and, 97 economic development policies and, 305–8 environment of bargaining power and, 93–95 gender gaps and, 95 Elasticity of demand, sources of public sector’s bargaining power and, 256–57 Emerging countries, use of term, xi Employee voice and engagement, workplace outcomes and, 227 Employers. See Management Employing Workers Indicator (EWI), of World Bank, 6–8 Employment outcomes, 217–246 effects of government policies on wages, 218–221, 218f effects of union policies on wages, 218–221, 218f effects of union policies on wages (empirical evidence), 222–24 patterns of employment and, 224–231 safety and health issues and, 231–244 Employment standards, knowledge-based economy and, 310–12 Employment systems, 105–20 bureaucratic employment pattern, 106t, 108–14 business strategy’s role in, 118 human resources management employment pattern, 106t, 115–17, 118 informal employment pattern, 106t, 107–8, 108t “Escape” strategy, of management, 220 Estévez, Ederico, 254 European Union, international labor law and, 55 Executive level input, to management’s negotiation process, 138 Exit-voice-loyalty-neglect model, of workplace behavior, 213–14 Exit-voice model, of workplace behavior, 212–13 Experience, successful mediation and, 174–75 External environment, and context of labor relations, 12f, 18

Index Facilitator, for interest-based bargaining, 149 Factors of production elasticity of supply of, 86 public sector unions and, 257 Fair Labor Association (FLA), 109–12, 195, 291 Featherbedding, 231 Federal Mediation and Conciliation Service (FMCS), of U.S., 167–68, 175, 181–82 Federation of South African Trade Unions (FOSATU), 34 Fisher, Roger, 146 Ford, Hendry, 197–98 Formal appeal procedures, conflict resolution and, 205 Formal bargaining structure, defined, 154 Foxconn, 109–12, 121, 195, 274 France, employment standards and, 311 Freedom of association conflict resolution and, 299–300 ILO code and, 5, 55–56 labor laws and, 58, 61–62, 73–74 Freeman, Richard, 212, 221, 222–23 Functional level of labor relations, generally, 12f, 13, 20–21 Galindo, Richard, 254 Gandhi, Mahatma, 32 Garment industry pressure campaigns, 288–89 Gender gaps, in education, 95 Germany constitutive labor law in, 63, 65 employment standards and, 311 knowledge-based economy and, 307–8 Getting to Yes (Fisher and Ury), 146 Globalization, 265–296, 317–19 global standards negotiation, 291–93 global supply chain management, 273–79 international trade agreements, 279–282 labor’s response to, 282–89 multinational corporations and expanding markets, 265–273 NGOs’ role, 289–291, 290t Global supply chains accountability in, 316–17 MNCs and labor practice policies, 273–79 Nike and, 267 Global union federations (GUFs), 287 Good Weave International, 8–10

341

Governments effects of labor policy on working conditions, 220–21 effects of policies on wages, 218–221, 218f public policy objectives of labor laws, 73–75 role in labor relations, 4, 12f, 17, 27–31 tripartite interactions with labor and management, 38–41 Greece, austerity measures in, 259–262 impact on economy an society, 261–62 impact on private sector unions, 261 impact on public sector union rights, 260–61 protects and strikes over, 121, 261 Grievances grievance arbitration, 183 grievance rate, 211 mediation and, 208–9 reasons to file, 209–10 resolution of, performance evaluation, 211–12 Guatemala, 312–13 Haig Girls’ School, Singapore, 306 Harbison, Frederick, 98 Health. See Safety and health issues Hicks, John R., 150 Hicks model of strikes, 150–52, 150f Hierarchy versus egalitarianism, cultural issues and, 161 High-end firms bureaucratic employment pattern in, 106t, 112–14 work organization and, 226, 227 Holidays and vacations, individual labor law and, 72 Honda, 122–23, 160, 200 Hong Kong, 298 Hours of work, individual labor law and, 71–72 Hukou registration system, in China, 90–92, 111 Human resources management (HRM) employment pattern, 106t, 115, 118 Colgate-Palmolive and, 269–273 lean-oriented firms and, 115–17 long-term management adjustments and, 220 participatory pattern and, 117 wage administration and, 225 work organization and, 226, 227

342

Index

Hyundai Heavy Industries Company, 36 Hyundai Motor Car Company, 36 Impasse resolution. See Dispute resolution procedures Income security, 230 Incorporation, in Latin America, 27, 29–31 Independent contractors, individual labor law and employment status, 68–70 Independent Mediation Service of South Africa (IMSSA), 166–67 India call center work and, 113–14 economic development policies, 304 employment in India and, 70–71 informal employment pattern in, 108, 108t legal system in, 55 NGOs in, 292–93 public sector unions and privatization in, 250–52 role of unions in, 31–33 tripartite interactions of labor, government, and management, 38–41, 45–46 Indian National Congress Party, 39 Indian National Trade Union Congress, 32, 46 Individualism versus collectivism, cultural issues and, 161 Individual labor law, 53, 67–73 power-broker function of, 68, 71–73 Industrial Disputes Act (1947), in India, 45 Industrialization, technology’s influence and, 98 Industrial relations, employment analyzed through, 3–4 Inelasticity of demand for labor, 85–86 for products, 86 Informal bargaining structure, defined, 154 Informal employment pattern, 106t, 107–8, 108t Informal sector, 20 employment standards and, 314–15 in India, 46 individual labor law and employment status, 68–70 role in emerging countries, 15–16 unions and, 37 Institutional perspective, on labor relations, 13–14 Integrated conflict management systems, 208–9

Integrative bargaining, 126–29, 128t distributive bargaining contrasted, 127–29, 128t “Interest” arbitration, 183 Interest-based bargaining (mutual-gains bargaining), 125 as alternative to traditional bargaining, 146–49 example of preparation for, 147–48 mediation and, 173, 179–181 mediators and, 165–66 Interest-Based Bargaining Institute, in Massachusetts, 186 Interests, common and conflicting, in study of labor relations, 11–12 International (quasi-governmental) agencies, role as participant in labor relations, 5–8 International agencies, role in labor relations, 12f, 17 International Confederation of Free Trade Unions (ICFTU), 7, 284 International Federation of Airline Pilots Associations (IFALPA), 284–85 International framework agreements (IFAs), 287, 289 International free trade agreements, 279–281 controversy and, 282 International labor law, 53, 55–60 International Labour Organization (ILO) Better Factories program, in Cambodia, 291–92, 293 Brazil work time and, 228 compliance monitoring by, 58–60 Convention 188 and India, 40 Conventions 87 and 98 of, 55–58 core labor standards of, 5–6, 40, 75 Declaration on Fundamental Principles and Rights at Work, 58, 281, 299 guiding principles of, 55 report on child labor, 2013, 95–97 World of Work Report, 311 International models of mediation, 168–170, 171t International Monetary Fund (IMF), role as participant in labor relations, 5–6, 17 International trade secretariats, 284 International Trade Union Confederation (ITUC), 7 Intra-organizational bargaining, 129–131, 137 Islam, Mohammed Emdadul, 239

Index Japan economic development policies, 302 legal system in, 54 work organization and, 226–27 Job preservation, workplace outcomes and, 231 Job security, workplace outcomes and, 230 Joint union-management grievance committee, conflict resolution and, 205 Jordan, 280–81 Judicial decision-making process, 183–86 Kagad Kach Patra Kashtakari Panchayat (KKPKP), in India, 293 Kaizen, 227 Keefe, Jeffrey, 213 Kerr, Clark, 98, 152–53 Knight, Phil, 274 Knowledge-based economy labor relations strategies and, 310–16 in Singapore, 304–8, 310 Kochan, Thomas, 169–170 Konvitz, Milton, 74 KORAIL, 255 Korea call center work and, 114 economic development policies, 298, 301, 302 industry-wide bargaining in, 159 privatization of railroad in, 255–56 role of unions in, 31, 35–37 shift in employment patterns in, 118 unions’ effect on wages in, 223 work-family policies in, 308–9 Korean Confederation of Trade Unions (KCTU), 36, 255 Kuhn, James, 204 Labor, inelastic demand for, 85–86 Labor and Employment Relations Association, in U.S., 319 Labor costs, economic development through rages of, 300–306, 301t Labor force, size and quality’s effect on bargaining power, 88–89 Labor Project for Working Families, in U.S., 309–10 Labor relations analysis, generally evaluation of labor relations, 14–15 industrial relations and, 3–4 informal sector’s role and, 15–16 institutional perspective on, 13–14

343

labor and conflict assumptions, 10–12 participants, 4–10 three-tiered approach to, 12–13, 12f Labor relations staff, 133–34, 138–39 skills needed in future, 134–35 Labor unions, 38 bargaining power and effects of strike on, 84–85 constitutive labor law and recognition of, 62–64 due process related to pay and, 226 effects of policies on wages, 218–221, 218f effects of policies on wages (empirical evidence), 222–24 formation of, 42, 53 governments and, 27–28, 31–37 incorporation and, 30 leaders’ role in negotiation strategy, 142–43 negotiation committees of, 141–42 negotiation targets and, 135–37 participative labor relations programs and, 202–3 responses to MNCs’ power advantages, 282–89 role as participant in labor relations, 4 safety and, 232–33 steps in negotiation process, 143–46 tripartite interactions with management and government, 38–41 Lagan Jute Machinery Company Limited (LJMC), India, 251 Latin America, incorporation in, 27, 29–31 Laundry list, of union demands, 144, 146 Law and legal systems, 53–77 collective labor law, 53, 62–67 constitutional law, 54, 60–61 enforcement and, 73 individual labor law, 53, 67–73 international labor law, 53, 55–60 public policy objectives of, 73–75 sources and origins of, 53–55 Lean-oriented firms, human resources management employment pattern, 115–17 Lean production, 200–201 Legal regulation, public sector and, 258–59 enforcement of employment laws, 312–14 Liberal market economies, 298 Life expectancy, environment of bargaining power and, 89 Lifelong learning, 307–8

344

Index

Local labor market, in comparisons of labor settlements, 135–36 Lonmin, in South Africa, 48, 49 Low-end firms bureaucratic employment pattern in, 106t, 109–12, 220 work organization and, 226 Lula da Silva, Luiz Inácio, 42 Macroeconomic influences, on relative bargaining power, 87–88 Management, 83–84 bargaining objectives of, 132–33 corporate restructuring and governance, 140 role of, 4, 27–28, 37–38 short-and long-term adjustments to wage increases, 219–221 steps in negotiation preparation, 137–141 steps in negotiation process, 144–46 strike leverage of, 83f structures for collective negotiations, 133–35 tripartite interactions with labor and government, 38–41 Management appeals board, conflict resolution and, 205 Mandela, Nelson, 33 Marikana mines strike, in South Africa, 48–49 Market liberalization, 31 Market power, 82 Marshall, Alfred, 85 Marshall’s conditions, of wage-employment trade-off, 85–87 public sector unions and, 257–58 Marx, Karl, 13–14, 97–98 Massachusetts Education Partnership, 185–86 McKersie, Robert, 125, 220 Mediation grievances and, 208–9 mediation-arbitration process, 183–84 mediator proposals and, 178 “Mediation, arbitration, and two trials” dispute resolution in China, 45, 206 Medoff, James, 212 Mexico constitutive labor law in, 61, 65 NAFTA and, 280 privatization of petroleum industry in, 253–55 protection contracts in, 38 unions’ effect on wages in, 222

Microeconomic influences on relative bargaining power, 83–84, 83f on total bargaining power, 82–83 Microelectric technology, 98–99 Migrant workers, 15–16, 226, 315–16 Migration trends, environment of bargaining power and, 89–93 Militancy, and strike outcome calculations, 153 Minimum Wages Act (1940), in India, 39 Miscalculations, strikes and, 151–53 Modern Food Industries Limited (MFIL), India, 251–52 Modular productions, 201–2 Multilateral bargaining, public sector unions and, 258 Multinational corporations (MNCs), 19 business strategies of, 266–67 diversity and, 267–68 intra-organizational bargaining and, 130 responses to expanded, globalized markets, 265–66 Multiparty negotiations, mediation and, 181 Multiple-interest perspective, on study of labor relations, 11 Myers, Charles, 98 Napoleonic Code, 54 National Academy of Arbitrators, in U.S., 319 National African Congress of Trade Unions, 47 Nationalization, 28. See also Incorporation, in Latin America National Labor Committee, 281 National Labor Relations Act (NLRA), of U.S., 66, 167–68 National Party, in South Africa, 33 National Union of Metalworkers of South Africa (NUMSA), 124 National Union of Mineworkers (NUM), in South Africa, 48–49, 129–130, 172 Negotiation process and structures, 121–164 bargaining structures, 154–160 cultural issues in, 160–62 interest-based negotiations and, 146–49 management’s objectives and, 132–33 management’s preparation and steps, 137–141 management’s structures for, 133–35 skills and abilities needed for, 162 strategy’s role and, 153–54

Index strikes, and role in negotiations, 121–25, 149–150 strikes, behavioral sources of, 152–163 strikes, Hicks model of, 150–52, 150f subprocesses of negotiations, 125–132, 128t traditional negotiation’s cycle, 143–46 union leaders’ role, 142–43 union negotiating committee’s role, 141–42 unions’ targets and, 135–37 Neo-classical economists, government regulation and, 220–21 Neutrality, role in labor relations, 186–87 New Paradigm Institute, in Korea, 309 New York State, mediation and, 168 New York Times, 277–79 New Zealand, constitutive labor law in, 65 Nieto, Enrique Pena, 253–54 Nike Inc., 267, 273–76, 291 N. L. R. B. v. Mackay Radio & Telegraph Co., 66 Nongovernmental organizations (NGOs), 12f, 28 due process related to pay and, 226 globalization and role of, 289–291, 290t role as participant in labor relations, 8–10, 17 safety and, 233 unions-like activities of, 292–93 North American Free Trade Agreement (NAFTA), 55, 280 Nova, Scott, 236 Occupational Safety and Health Administration, of U.S., 314 Off-shoring, call center work and, 114 Off-the-record discussions, in negotiation, 145 Olson-Buchanan, Julie, 214 Ombudsman, conflict resolution and, 207–8 Open door policy, conflict resolution and, 205 Outcomes. See Employment outcomes Outsourcing of human resources, 140–41 of manufacturing, 140 reasons for prevalence of, 231 as result of wage increases, 220 Park Gyeun-He, 255 Participative labor relations programs, 194–203 drive system of management, 195–96 lean production and quality-focused involvement, 200–201

345

modular productions, 201–2 relationship with union representation, 202–3 scientific management, 197–99 teamwork production systems, 201 Participatory pattern, human resources management employment and, 117 Pattern bargaining, 159–160 Patterns of employment, and workplace outcomes due process related to pay, 225–26 employee voice and engagement, 227 job and income security, 230 job preservation, 231 safety and health issues and, 231–244 seniority, 229–230 wage administration, 224–25 working time, 227–28 work organization, 226–27 Pay. See Wages Peer review panel, conflict resolution and, 205 Petroleos Mexicanos, 253–54 Philippines, 113–14 Plants, input to negotiation process, 138 Poland, 73–74 Political power defined, 81 effect on bargaining power, 88 legal regulation of public sector unions and, 258–59 Population trends, environment of bargaining power and, 89 Positional bargaining, 125 Power-broker function of collective labor law, 62, 64–67 of individual labor law, 68, 71–73 Privatization debates about effectiveness and social impacts of, 252–56 in India, 250–52 Product demand, inelasticity of, 86 Production, bargaining power and effects of strike on, 83–84 Product market in comparisons of labor settlements, 136 unions and bargaining structure, 155 Professional negotiators, mediation and, 178 Profits, bargaining power and effects of strike on, 84 Public policy. See Governments

346

Index

Public sector unions, 249–264 austerity crises and their impacts, 259–262 extent and scope of public employment, 250–56 importance of, 249–250 intra-organizational conflict and, 131 mediation and, 168 norms of legal regulation of, 258–59 private sectors unions contrasted, 249–250 sources of bargaining power, 256–58 Purchasing and sourcing staffs, global workplace conditions and, 279 Quality circles (QCs), 200 Quality-focused management, 200, 220 Rahman, Mohammed Mujibur, 240 Railroads, mediation and, 168 Rana Plaza factory fire, 170, 233, 245, 274 compensation for victims’ families, 233–35 construction improvement fund, 235–37 lagging inspections of other factories after, 238–242 Rees, Dan, 235 Regional Labor Ministers’ Conference, in India, 39–40 Reinstated employees, 211 Relative bargaining power, 81–82 macroeconomic influences on, 87–88 microeconomic influences on, 83–84, 83f Relative union wage effect, 222 Research staff, input from to management’s negotiation process, 139 Right to strike, 74–75 constitutive labor law and, 66–67 Roh Tae-Woo, 36 Rosita Knitwear factory, 278 Rousseff, Dilma, 42 Sadat, Anwar, 181 Safety and health issues, 231–33 individual labor law and, 73 see also Rana Plaza factory fire Sales, bargaining power and effects of strike on, 84 Scientific management, 197–99 Sectoral labor agreements, 154 Self-Employed Women’s Association (SEWA), 292–93 Self-employment, 15–16 Seniority, workplace outcomes and, 229–230

Settlements, mediation and, 177, 181–82 Sexual harassment, individual labor law and, 72 Shell Oil boycott, 286–87 Shock effect, of wage increase, 219 Siegel, Abraham, 152–53 Singapore dispute resolution in, 187 economic development policies, 298, 301–2, 301t knowledge-based economy and, 304–8, 310 migrant workers in, 92–93 Singh, Manmohan, 38–39 Slichter, Sumner, 219 Slim, Carlos, 254 “Social dumping,” 282 Social partnerships, economic development and, 302 Social protection decline in child labor and, 97 role of unions in, 37 Social rights, in national constitutions, 61 Sociotechnical systems design, 201 Solidarity trade union, in Poland, 73–74 South Africa call center work and, 114 constitutive labor law in, 65, 66 decentralized bargaining in, 159 economic development policies, 303 employment standards and, 311 individual labor law and employment status, 70 informal employment pattern in, 108, 108t intra-organizational bargaining in, 129–130, 131 mediation in, 166–67, 168–69, 172 pattern bargaining in, 160 role of unions in, 33–35 strikes in, 122, 123–24 tripartite interactions of labor, government, and management, 47–49, 48t unions’ effect on wages in, 223 work organization in garment factories, 196 workplace conflict resolution in, 207 South African Congress of Trade Unions (SACTU), 34 Soviet Union, 199, 251 Specialization, in labor relations, 133 Stone, Katherine, 62 Strategic level of labor relations, generally, 12–13, 12f, 19–20

Index Strike leverage of management, 83–84, 83f relative bargaining power and, 82 sources of public sector’s bargaining power and, 256–57 of unions, 84–85 Strikes authorization for, 142 deadlines for, 145–46 legality of, 79 relative bargaining power and, 81–82 threats’ impact on negotiated settlements, 149–150 Substitution, elasticity of, 257 Supply effect, wages and, 224 Surface bargaining, 131 Sweatshop pressure campaigns, of unions, 284–85, 288–89 Sweden, 201, 311 Taiwan, 196, 298, 301 Taylor, Frederick, 197, 198 Taylorism. See Scientific management Teamwork production systems, 201 Technological change, bargaining power and, 86 Technological context, of bargaining power historical debate over influence of technology, 97–98 microelectric technology and, 98–99 Technology bargaining and, 127 work organization and, 226–27 Telemex, 254 Threat effect, of unionization, 223 Timing, mediation and, 177 Total bargaining power, 81 macroeconomic influences on, 87–88 microeconomic influences, 82–83 Total costs, bargaining power and labor’s share of, 86–87 Total quality management, 200 Toyota, 115, 200 Trade Union of Waste Pickers, in India, 293 Traditional bargaining, mediation and, 173–79 Tripartite interactions of labor, management, and government, 38–41, 317–19 in Brazil, 41–43 in China, 43, 44t, 45 in India, 45–46 role of governments, 27–31

347

role of management, 27–28, 37–38 role of unions, 27–28, 31–37 in South Africa, 47–49, 48t Tripartite Jobs Pact, in Korea, 318 Trust attitudinal structuring, 131–32 interest-based negotiations and, 148–49 successful mediation and, 174–75, 176 Unditex, 232 Unemployment rate, effect on bargaining power, 87–88 Unions. See Labor unions UNITE, 285–86 United States constitutive labor law in, 62–63, 65, 66 enforcement of laws and, 73 ILO Conventions 87 and 98 and, 56 individual labor law and, 72 legal system in, 54 mediation in, 167–68 strikes in, 122 United Steelworkers, 285–86, 287 United Students Against Sweatshops (USAS), 289, 290, 292 Unstructured employment relationships, 80 Urbanization, environment of bargaining power and, 89–93 Ury, William, 146 U.S.-Cambodia Textile Agreement, 59, 60 U.S.-Colombia Trade Promotion Agreement, 281 U.S-Jordan Free Trade Agreement, 280–81 Van Heerden, Auret, 279 Vargas, Getúlio, 158 Vocational training, in Germany, 307–8 Wages due process related to, 225–26 effects of union and government policies on, 218–221, 218f individual labor law and levels of, 71 management’s short-and long-term adjustments to increases, 219–221 wage-employment trade-off, 85–87 workplace outcomes and wage administration, 224–25 Walmart, 122, 130, 277–79 Walton, Richard, 125, 220 Webb, Sidney and Beatrice, 13–14

348

Index

Whipsawing, by unions, 155 Win-lose bargaining. See Distributive bargaining Worker Protection Indicator (WPI), 7 Worker Rights Consortium (WRC), 289, 290–91 Workers United, 285–86 Work-family policies, 308–10 Working time, workplace outcomes and, 227–28 Working to rule strategy, 82 Work organization, workplace outcomes and, 226–27 Workplace labor relations, 193–216 alternative conflict resolution techniques, 207–12 conflict resolution and due process, 203–7 model of functions of, 194, 194f organization and participative programs, 194–203 workplace attitudes and behaviors, 212–14

Workplace level of labor relations, generally, 12f, 13, 22 Work-sharing, job security and, 231 World Bank Doing Business report of, 6–8 Employing Workers Indicator of, 6–8 1990 development report, 221 role as participant in labor relations, 5–8, 17 World Federation of Trade Unions (WFTU), 284 World of Work Report, of ILO, 311 World Trade Organization (WTO), role as participant in labor relations, 5, 6 Zack, Arnold, 169–170 Zara factory, in Bangladesh, 232 Zeldenrust, Ineke, 234 Zero-sum bargaining. See Distributive bargaining