Article 1: “Future Issues For Industrial Relations” (Source: http://www.ilo.org) Continuing Relevance of Industrial Relations In a globalised environment with businesses, money and people moving with relative ease across borders, the relentless pursuit of competitive advantage at the expense of all else, the disruption of social relationships and stability, the rapid outdating of knowledge, skills and technology, with learning being a life-long pursuit, and increasing job insecurity, the only certain factor is change and its rapidity. Poverty worldwide is nowhere near reduction to minimal levels, and on the contrary, is increasing.
Many of the benefits of recent changes have benefitted a few, and in many countries income gaps are widening, rather than narrowing. It has been suggested by eminent writers that the world may well be heading towards over-production of goods, food shortages, and environmental degradation. Before we dispense with institutions or systems that have contributed to social stability, it is worthwhile assessing their continued relevance. Industrial relations is one such. IR is no doubt undergoing needed changes, but it is by no means irrelevant. Its major contribution was that it facilitated distributive justice and thereby contributed to social stability.
Western Europe is probably the best example of an IR system which was underpinned by its social market principles and, by concerning itself with distributive justice and equity, raised the living standards of the majority, thus providing decades of relative social stability. If, as many employers claim, the labour market in that region is too regulated in the context of the changed environment, this does not imply a total abandonment of the system, but only its reform. In fact when we speak of changes in IR in many countries, it does not always imply a radical change, but rather a change of emphasis.
For instance, the idea of negotiation on which collective bargaining is based, continues to be valid even if the trend is towards decentralized bargaining. Nor is there anything in HRM that contradicts the value of negotiation. HRM undoubtedly poses a challenge to IR as we have seen. But a democracy and pluralism are based on the recognition of different interest groups within a society, each acting as a check and balance in relation to the other to prevent a centralization of power.
A system that provides some external regulation of the behaviour of groups must therefore be necessary. Since HRM is enterprise-focused, there is a need for a system that can deal with issues that arise in the external labour market. At last for those who have no individual bargaining power – and they constitute the majority of the world's working population traditional IR institutions such as freedom of association, collective bargaining, minimum employment terms (e. g. age of employment, force labour, safety and health, holidays), social security and dispute settlement mechanisms continue to be relevant. Policies need
to be formulated on these matters and applied across society. The fact that some traditional IR features may need to be changed does not imply that they are irrelevant; the need for a greater enterprise focus does not imply the absence of a national focus as well. IR institutions continue to have the following relevance: • • •
• • •
Collective bargaining, even if it be at the enterprise level, can still help to reduce inequalities in negotiating power Freedom of association provides the foundation for the recognition that employees have rights. Industrial peace needs to be ensured both by addressing it at the enterprise level, any by providing in the event of their failure, safeguard mechanisms external to the enterprise such as conciliation, courts or tribunals.
Processes such as tripartism are needed to ensure that the relevant parties have the opportunity to influence labour policy and legislative outcomes. The boundaries of action within which parties may act need to be set. Social protection through minimum standards may often be required, whether they relate to children or women, safety and health or superannuation.
Current and Future Issues In these circumstances the issues that IR will be called upon to address, in particular in Asia, need to be identified. Employers are now compelled to view IR and HRM from a strategic perspective; in other words, not only from the traditional viewpoint of negotiating terms and conditions of employment and performing a personnel and welfare function.
IR and HRM are directly relevant to competitiveness, and how they are managed will impact on enterprise performance, e.g. its productivity and quality of goods and services, labour costs, quality of the workforce, motivation, prevention of disputes and not only their settlement, and aligning employee aspirations with enterprise objectives. Minimum Wages In countries that have a legal minimum wage three employer concerns are evident. The first is that minimum wage levels sometimes tend to be fixed on extraneous considerations (e.g. political), or on inadequate data needed to define the level of wages.
The second concern is that such instances have an adverse effect on competitiveness in the global market and on employment creation where the minimum wage is fixed above a certain level (much of the controversy relates to what that level is). Therefore many employers prefer to see the minimum wage, if there is to be one at all, as a 'safety net' measure to uplift those living below the poverty line. The third concern relates to increases in minimum wages not being matched by productivity gains that would help to offset increased labour costs.
Flexible/Performance Pay Many employers, and even some governments, wish to review traditional criteria to determine pay levels such as the cost of living and seniority. Pay system which are flexible (i.e. based on profitability and productivity) so as to be able to absorb business downturns and also reward performance, are receiving considerable attention. One major problem in this regard is how employees and their organizations can be persuaded to negotiate on pay reform.
The objectives of pay reform will not be achieved unless reforms are the result of consensual agreements and are a part of a larger human resource management strategy and change in human resource management systems. "We now pay workers not for output produced, nor even for labour input provided, but simply for time spend on the job.” Traditionally wages and pay have been determined through government regulation, minimum wage determination, negotiation with unions, decisions of arbitration and labour courts and the individual contract of employment.
The factors or criteria that have influenced pay and pay increases have included profit (but generally unrelated to individual or group performance). Job evaluation, seniority, cost of living, manpower shortage or surplus, negotiating strength of the parties and skills. Performance measures such as productivity or profit related to the performance of a group has been of less importance in determining pay increases.
Though skills have been reflected in pay differentials, pay systems have been seldom geared to the encouragement of skills acquisition and application. Industrialized countries have built their competitive advantage not around low wages, but around clusters of competitive industries in which high earnings and standards of living have been sustained through improved technology, productivity and quality.
Many Asian countries now recognize that high technology, productivity and low earnings cannot be combined and sustained over a long period of time. Many Asian employers are now seeking to sustain their competitiveness through pay increases which are more related to performance measures as a way of absorbing increased labour costs, while at the same time rewarding and motivating employees.
Japan, Singapore and the Republic of Korea, for example, have succeeded in moving to high value-added and technology-based or service activities partly because they had invested in skills development and accepted the fact that higher earnings (in Singapore partly through a flexible pay system) are an essential strategy for entry into the knowledge-based industries of the future. Increases in real earnings have been made possible because investment in education and skills contributed to productivity enhancement that, in turn, created the capacity to absorb higher earnings. In the 1980s Singapore made a deliberate shift to a high wage economy in order to encourage entry into high value-added activities.
Productivity increases are necessary to sustain higher earnings; at the same time there cannot be any long-term productivity growth without an increase in real wages. Traditional pay systems for non-executive staff have generally been characterized by standardization across and within sectors (e.g. government, particular industries) and within enterprises. So long as employers were competing mainly in domestic markets
which were protected from foreign competition – in some cases leading to monopolies the effects of standardization on considerations such as performance, recruitment and retention of good staff, etc. were less felt. Indeed, standardization, while being equitable from the point of view of employees, benefitted employers as well by reducing competition based on labour costs. With the gradual opening up of economies to world trade and foreign investment, local employers are now compelled to compete with enterprises with sophisticated technology, more productive ways of providing goods and services, and the advantage of being global players. In many instances these foreign enterprises are able to attract the best local talent on terms and conditions beyond the capacity of many local enterprises to pay.
With the acceleration of the process of globalization, accompanied by the movement of former centrally planned economies towards market economies, governments and private enterprises have had to compete in the global market by developing competitive advantages, which are affected by costs and quality. Productivity increase as the measure of performance at the national and enterprise levels, with quality as an intrinsic part of productivity, is becoming the goal of many developing countries as well – now pushed to the forefront by the forces of globalization and the collapse of economic systems which were alternatives to a market economy.
Economies which are seeking to progress from low cost manufacturing to highly skilled and technology-based production need pay systems that not merely recognize skill differentials (as standard pay systems do), but also provide an incentive to acquire skills and multi-skills facilitated by years of careful and correct investment in education and training. In the area of IR, collective bargaining outside the enterprise is seen by employers as achieving distributive justice in the sense of equality, with outcomes often being based on the bargaining strength of the parties. It is increasingly viewed as contributing little to productivity and performance.
The outcomes often leave employers with little or no capacity to make further payments on account of performance under a scheme. The movement towards decentralization of collective bargaining has been the result of the need to address efficiency and performance issues at the enterprise level. It is natural that with decentralization employers would seek ways to introduce performance criteria into wage increases.
The increase in atypical forms of employment (e.g. homework) that cannot consistently or always be supervised has also influenced the search for alternative forms of pay. Traditionally increased earnings were secured and performance rewarded partly through promotions. With limitations on higher positions in the context of organizations becoming less hierarchical in the future, relating part of pay increases to performance would be a way of rewarding performance, other than through promotions. In these circumstances pay systems are increasingly forming a part of human resource management initiatives to achieve enterprise-level objectives and strategies, with more attention being paid to how they fit into the overall human resource management policies of enterprises.
These developments have several implications for pay systems. Employers (and some governments) see that pay increases need to be more than matched by productivity increases if competitiveness is to be achieved or maintained. The relationship between pay, productivity, skills and inflation were understood quite early in Asia by Japan as well as by the newly industrialised economies. Some other South-East Asian countries have also come to appreciate this relationship.
The pressure in the Asia-Pacific region for the recognition of performance criteria in pay determination has not come only from employers. In Singapore the government initiated the move to flexible pay. In Malaysia the government drew attention in 1988 to the desirability of introducing a flexible pay system. In Fiji the government has been exploring the feasibility of introducing performance pay into the public service, while encouraging employers to do likewise. The Minimum Wage Board in Papua New Guinea has, since the early 1990s, been required to relate minimum wages to performance criteria in place of indexation. In recent years the wage determination system in Australia has encouraged employers and unions to negotiate a part of wage increases in the context of productivity and productivity-related improvements.
The fundamental shift of industrial relations to the enterprise level and the individualization of the employment relationship in New Zealand have provided ample scope for performance-related pay. Therefore it is increasingly recognized that performance and skills criteria need to be injected into pay determination; that it cannot be achieved through centralized or macrolevel pay determination; and that changes have to be negotiated at the enterprise level. In these circumstances, a major concern for employers will be to negotiate pay systems which • • • • • • •
Achieve a strategic business objective; Are flexible in that their variable component could absorb downturns in business and reduce labour costs; Are oriented towards better performance in terms of productivity, quality, profit, etc.; Are capable of enhancing workers' earnings through improved performance; Are capable of reducing the incidence of redundancies in times of recession or poor enterprise performance through the flexible component of pay; Are able to reward good performance without increasing labour costs, and Are able to attract competent staff.
The types of schemes that fall within the description of performance pay are varied. Broadly speaking, they consist of schemes designed to share or distribute the financial results of enterprise performance with or to employees. In essence, performance pay is based on paying the worker for his or her value, rather than the value of the job. Such schemes fall into four broad categories: • •
Individual-based or based on individual performance, such as incentive schemes and sales commissions Profit-sharing which applies to all or most of the employees
Gain sharing measured by a pre-determined formula, applicable to all groups of employees. The performance measure may be profit or some other objective such as productivity Employees share ownership schemes.
Cross-Cultural Management Asia is a heterogeneous region, characterized by ethnic, cultural, linguistic and religious diversity. Due to substantial increases in investment in Asia by both Asian and Western investors, many employers and unions are dealing with workers and employers from backgrounds and cultures different to their own. Some of the resulting problems and issues (reflected, for instance, in the proliferation of disputes due to cross-cultural 'mismanagement') fall within cross-cultural management.
The problems arise due to differences in IR systems, attitudes to and of unions, work ethics, motivational systems and leadership styles, negotiating techniques, inappropriate communication, consultation and participation procedures and mechanisms, values (the basic beliefs that underpin the way we think, feel and respond), expectations of workers and interpersonal relationships. These cross-cultural management issues in turn pose the following problems: •
What particular IR and human resource management considerations at the regional, sub-regional and country level affect the development of sound relations at the enterprise level in a cross-cultural environment? What would be the most effective programmes for this purpose? How can investors in Asia familiarize themselves with the environmental and cultural considerations in the recipient country relevant to their managing people at work? How could information be collected, analyzed and disseminated?
Dispute Prevention Most countries (other than those in transition to a market economy) have long-standing dispute settlement procedures at the national level (e.g. conciliation, arbitration, industrial or labour courts). Essential as these are, they operate only when a dispute arises. Equally important are dispute prevention through communication, consultation and negotiation procedures and mechanisms operating at the enterprise level. These are not particularly common in many Asian enterprises.
A more positive movement from personnel management to strategic human resource management is called for. Industrial Relations/Human Resource Management Training Not many developing countries in the region have facilities for training in labour law and IR – negotiation, wage determination, dispute prevention and settlement, the several aspects of the contract of employment, and other related subjects such as safety and health. More facilities are probably available in human resource management. Since IR has assumed a particularly important role in the context of globalization, structural
adjustment and in the transition to a market economy, employers in each country would need to identify what aspects of IR and HRM should be accorded priority, how training in them could be delivered, and what concrete role is expected from an employers' organization.
Balancing Efficiency With Equity and Labour Market Flexibility During this century IR and the law in industrialized countries have paid considerable attention to the means through which the unequal bargaining position between employees and management can be rectified. The imbalance in their respective positions has been corrected primarily through the freedom of association and collective bargaining. Thereafter the focus in some countries has been more on the relationship between management and labour and their organization rather than on their relationships with the state.
This has been due to the fact that the State has adopted a less interventionist role than in developing countries, based on the premise that regulation of the labour market should, to a large extent, be left to the employers, workers and their organizations. However, in some Western European countries, Australia and most Asian countries attention has focused on relationships with the State because of the role governments have played in regulating the labour market (through laws and also through labour courts or tribunals), or in directing economic development and industrialization. Traditional IR view labour problems as arising due to employers wishing to use resources productively and to generate profit, while employees wish to maximise their return on labour.
The State intervenes for a variety of reasons. The setting in which IR developed was conditioned by the national environment – political, economic, social and legal. But today the conditioning environment increasingly includes the international and regional context. Globalization has created pressures on IR for efficiency in the employment relationship, reflected for instance on the emphasis on flexibility (types of contracts, working time, pay, etc.) and productivity.
These developments and the pressures for labour market deregulation and flexibility raise the issue of efficiency versus equity. However, the main issue for IR in this regard is not efficiency and equity as antithetic concepts, but how to achieve a balance between the two. This is because while an IR system should facilitate competitiveness, it should also promote equity by ensuring a fair return on labour and a fair sharing of the gains from economic activity, reasonable and safe working conditions, and an environment in which employees can communicate and discuss their concerns and be represented in order to protect and further their interests.
According to one writer, the practices which make up equity are mainly "employee participation in employment decisions including bargaining; due process in resolving perceived injustice; security of expectations through job rights, work rules and compensation structures; and job design of a sort that is responsive to technology and organization, as well as job-holder needs.”
Efficiency cannot be achieved through an IR system that is devoid of equity, particularly now when competitiveness depends so much on people, who will withhold efficiency in an environment that is inequitable and demotivating. Such withholding is often reflected in absenteeism, indiscipline, low productivity and quality, a lack of customer concern and high turnover. As such, it is efficiency and inequity that are antithetic, and it is sometimes overlooked that equity is
"not an extraneous constant imposed upon the market by political institutions but rather a vital lubricant of the market process." Further, political instability is sometimes the result of large sections of the population not being beneficiaries of economic development. This may occur when, for instance, large disparities and will continue to grow and there is no significant improvement in the conditions of those living below the poverty line. It has been aptly stated that: "It is one of the least advertised, and for the very affluent the least attractive, of economic truths that a reasonably equitable distribution of income throughout the society is highly functional."
The issue of efficiency and equity arises in the debates pertaining to labour market regulation and flexibility Employers in particular see labour market rigidities resulting from over-regulation of the labour market, especially from outside the enterprise such as from the plethora of labour laws in some of the South Asian countries, the orders of labour courts, and union activity outside the enterprise, all of which, according to employers, circumscribe their capacity to effect needed changes to adapt to the globalised environment.
Labour market regulation is "the creation and enforcement of rules which are designed to control the actions of individuals and groups who are a party to the production of goods and services." In his classic work of three decades ago, Allan Flanders viewed IR as "a study of the institutions of job regulation." through sources both internal and external to the enterprise. According to Flanders, while external sources of regulation seek to protect employees from the adverse effects of a completely unregulated market and to minimize conflicts between unions and employers, internal forms of regulation arise from employer initiatives to control employee work behaviour.
The debates about labour market regulation reflect three positions: one which favours a completely unregulated labour market; one which espouses a decentralized IR system so that external regulation is reduced, and arguments which advocate external regulation as being necessary to address a range of issues which need to be resolved for reasons of both equity and efficiency. In respect of the third argument, it has been pointed out that: "The production of goods and services requires the coordination of activities that transform resources into an activity or product. To achieve these it is necessary to have procedures or rules that will ensure efficiency.
In reality, then, the debate is not about whether there should be rules but about the source of rules and what form they should take." If the objective is to balance efficiency with equity, rules in a labour market system would need to be formulated from both within and outside the enterprise, the issue being one of degree or the extent of regulation. The rules formulated from outside the enterprise may relate to basic human rights such as those enabling organizations of employees and employers to operate, rules against child and forced labour; rules to govern conflict,
strikes and other work disruptions; institutions and procedures to resolve disputes; tripartite mechanisms to facilitate consensus on national labour policy; minimum terms on matters such as safety and health, minimum age of employment, holidays, maximum working hours, social security, and minimum wages where appropriate; rules against discrimination in employment e.g. on grounds of gender.
The other source of rules is the enterprise where the particular needs of both management and employees are addressed. Some writers claim that there is little evidence to suggest that an environment without some external regulation results in more efficient practices within the firm, and” research indicates that the critical factors determining good economic performance are neither internal nor external to the workplace, but come from linking both forms of regulation.”
Since reliance on only internal modes of regulation may well lead to rules determined solely or largely by management, the challenge for years to come will be how to achieve the balance and link between external and internal modes of regulation. It is probably safe to predict that decentralization trends and moves to reduce external regulation are not transitory phenomena, but are likely to endure for many years in the foreseeable future. The fact that pressures for better corporate performance will increase, rather than decrease, is obvious.
Therefore IR cannot afford to be "static" if it is to endear itself especially managements, at a time when much of management is about change.(87) External labour market regulations that are seen as obstacles to needed change are likely to be modified. Where workers achieve higher educational levels, they may wish to have a greater influence and voice at the workplace level over the formulation of rules in accordance with which work is to be performed. In the competition for economic superiority, market share and foreign investment, governments of fast industrializing countries are hardly likely to regulate the labour market except for the purpose of promoting efficiency and balancing it with equity.
With increasing affluence, people in most societies are likely to want the fruits of development equitably shared across society. It is instructive to note that in Western Europe there has, up to now at any rate, been a deep seated commitment to balance economic achievements with social progress, so much so that education, health care, social security and quality of life have been opted for in preference to maximizing profits at their expense, thus ensuring a comfortable standard of living for most people.(88) It is left to be seen how the evolving global economy affects the ability of such countries to maintain this emphasis. Many employers and others see Western Europe over-regulated to the point of coming close to rendering industries uncompetitive.
Freedom of Association, Labour Rights and Changing Patterns of Work With the disappearance of major ideological differences with the end of the cold war, unions are likely to move towards a greater concentration on their core IR functions and issues. In some Asian countries freedom of association, including labour rights in special economic zones, has rise as an issue. The need for employees and their representatives to be involved in change and in transition, and the willingness of employers to involve them, is an emerging issue in many Asian countries.
Changing patterns of work (e.g. more homework, part-time work sub-contracting) have created concerns for unions in particular. Job security, social security and minimum conditions of work are some of them. Traditional IR systems based on the concept of a full-time employee working within an enterprise is increasingly inapplicable to the many categories of people working outside the enterprise. In some countries in terms of numbers they are likely in the future to exceed those working within an enterprise. IR in the public sector – especially in the public service – where negotiation rights, for instance, are less than in the private sector is also likely to be an issue in the future. Women
The increasing influx of women into workforces has raised issues relating to gender discrimination, better opportunities for them in relation to training and higher-income jobs and welfare facilities. Migration There is a large migration of labour from labour surplus to labour shortage countries in Asia. Among the issues that have arisen are their legal or illegal status (which may affect their rights), trade union rights and their access to the same level of pay and other conditions enjoyed by nationals. Social security for migrant workers is one of the major problems, as many receiving countries do not extend social security benefits to them.
Human Resource Management With increasing reliance by employers in Asia on HRM as a means of enhancing enterprise performance and competitiveness, important consequences will arise for IR and for unions. What part unions can and will play in HRM and whether IR and HRM will operate as parallel systems (if so what their respective roles will be), or become integrated (especially since the distinction between IR and HRM is becoming blurred), are some of the issues which will have to be addressed. Transition Economies In countries in transition to a market economy major challenges and issues have arisen. Principally because they are s