Chapter

14
International and
Comparative Industrial
Relations

McGraw-Hill/Irwin
An Introduction to Collective Bargaining & Industrial
Relations, 4e
Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved.

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International and Comparative Industrial

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

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Industrial Relations in Germany

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

- Two key parts to codetermination:

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

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

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

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Union Representation and Structure

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

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Collective Bargaining in Germany

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

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Strike Rates in Germany

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

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14 10

Vocational and Apprenticeship Training

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

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Industrial Relations in Japan

14 11

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

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The Lifetime Employment Principle

14 12

Japanese firms, particularly large ones, tend to hire new

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

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14 13

Pay Determination in Japan

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

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The Role of Consultation in Japanese

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

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Industrial Relations in Multinational

Firms

14 15

A multinational firm engages in economic activity in more than

one country
- Multinational firms expanded greatly in the past 50 years

Problems Created by Multinationals for Management and

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

The Pressure of Diversity

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

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The Degree of Industrial Relations

Centralization

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The extensive diversity in culture, law, and institutions poses

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

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14 17

The Power Advantage Provided to Management

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

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

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Examples of Multinational Unionism

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

- These are autonomous agencies that cover particular

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

The global expansion of trade is leading unions to communicate more

extensively with unions in other countries

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The Expansion of Intentional Trade

Through Trade Pacts

14 20

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

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The International Labor Rights Movement

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

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The European Union

- Formerly referred to as the European Economic Community

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

Allow free movement of workers, products, and investments

across national borders
Labor relations are to be harmonized
A single currency in most states

Pre-Integration Structure of Industrial Relations

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

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EU Regulation of the Social Dimension

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The social dimension includes the regulations, directives, and

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

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Labors Concerns about Integration

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- Unions are concerned that harmonization of labor

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

- At the same time, raising the standards of low wage

countries could help unions
Even the U.K. unions want integration, to meet German
standards of representation

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Management Concerns over European

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

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Industrial Relations in Developing

Countries

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- Workers in countries that lack democratic governments also lack

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

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14 27

Industrial Relations and Political Change

in Korea

Trade unions in Korea have not attained the status of Solidarity

- The post WWII history of Korea is marked by authoritarian rule
and labor union protests
- Collective bargaining has taken hold in some large firms such as
Hyundai, but weaker in small firms
- Korea had union protests in 1990 and again in 1997, when the
government tried to increase labor flexibility
Even though Koreas economy was growing more than twice as
fast as the U.S., managements felt compelled to increase
productivity
The election of political prisoner Kim Dae-jung eased labor
concerns
Thus, political democratization is intimately linked to industrial
relations changes and economic events in Korea

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Comparative Economic and Industrial

Relations Performance

14 28

There are long standing debates as to whether any economic

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

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Summary

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- There are substantial differences in industrial relations in

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