INDUSTRIAL RELATION Dony Eko Prasetyo, S.IP.. Definition IR Industrial relations encompasses a set...

INDUSTRIAL RELATIONDony Eko Prasetyo, S.IP.

Definition IR

• Industrial relations encompasses a set of phenomena, both inside and outside the workplace, concern with determining and regulating employment relationship

What is Industrial Relations?

• The making and administering of the institutions and rules of work regulation

• Socio-industrial conflict (in all its forms) and its resolution

• Explicit and implicit bargaining between employees and employers

A particular set of phenomena associated with regulating the human activity of employment

Industrial Relations

• Much of Industrial Relations at lower level of study place considerable emphasis on factual approach.

- Author concentrated their efforts in describing situations as they saw it

- they produce guide book rather than theories and explanations. Eg. Describing union structure, laws etc.

• In studying IR it is easier to study and to discuss through ‘frame of reference’.

Frame of reference; each person perceive and interpret events by mean of conceptual structure of generalizations or contexts postulate about what is essential, assumptions as what is valuable, attitude about what is possible and ideas about what will work effectively.

It constitutes the frame of reference of that person.

THE NATURE OF IR

Pluralistic

Co-operation

Conflict

Authoritarian

Paternalism

Unitary

Humanresource

management

Systems

Evolution

Revolution

Marxist

Control ofthe labourprocess

Input Conversion Output

Conflict(differences)

Institutionsand

processes

Regulation(rules)

Approaches to organisations

Approaches to industrial relations

Social action

Wider approaches to industrial relations

Approaches to industrial relations

Labour market Comparative

Unitary: Human resource management

• Focus– Strategic & integrated managerial approach to the management of

people– HRM support for achieving business aims and objectives

• Mechanisms– Individualism (human relations, organisational psychology)– Integrating planning, monitoring and control of human resources (not

just employees)– Securing employee commitment or organisation’s aims & objectives

(performance based rewards, employee involvement)

Management or manipulation?


• Antara ciri-ciri HRM (Amstrong)– Pekerja perlu diurus, secekap dan seketat mungkin, seperti juga

sumber-sumber lain supaya dapat memaksima nilai tambah.– Perlu ada satu sistem, bantu-membantu dalam bentuk komunikasi -

contoh: team briefing, dll.– Penggunaan teknik penglibatan pekerja contoh: QCC– Memberi penekanan terus terhadap qualiti contoh: TQM– Flexible dalam penyusunan kerja - kos efektif dalam penggunaan

buruh.– Penekanan terhadap temawork.– Strategi latihan: Pekerja diberi latihan dalaman sendiri untuk

menyesuaikan dengan teknoligi yang digunakan, daripada mengambil pekerja yang telah ada skill. Ini meningkatkan pengantungan pekerja pada majikan dengan cara mengasingkan mereka mengikut pekerjaan.


Berbagai contoh yang dapat kita lihat bagaimana pihak pengurusan boleh menggunakan berbagai kaedah untuk mengekploitasikan dan menurunkan tahap keupayaan buruh. Antara nya;

• Buruh, buruh hanya mahir dalam sebahagian dari proses kerja tertentu contoh: hanya line tertentu.

• Flexible company, ada pekerja tetap - untuk jangkamasa panjang. Pekerja kontrak sementara - ikut keperluan syarikat. Dengan membahagi kan buruk kepada dua kategori berlakunya proses divide and rule.

• Responsible autonomy: Satu kaedah pengurusan saintifik, di mana pekerja diberi sedikit hak untuk mengawal kerja mereka sendiri, tetapi ianya dalam bidang yang pengurusan lihat dapat capai objektif organisasi dan dapat meningkat keberkesanan organisasi - majikan lebih untung.

• Personal Control : dimana orang yang diatas bertanggung jawab terhadap kerja dan aktibiti orang bawahan.

• Bureaucratic control: berasaskan polisi , peraturan dan undang-undang di tempat kerja

Pluralist: Input-output model

CONFLICT RECONCILIATION REGULATION

Function:Identify Differencesof interest

Types:1. Micro-level organisation tensions2. Macro-level society values & issues

Forms of expression:1. Hidden individual2. Overt constitutional3. Industrial pressure

Conducted through:1. Processes

2. Institutions

3. Levels

Rules:1. Substantive or procedural2. Internal or external to the organisation3. Varying degrees of formality

Input Conversion Output

Marxist: Control of the labour process

B.M B.B.G BARANG PASARAN

CAPITALSMesin,Alatan danBuruh

• B.M = Barang Mentah• B.B.G = Barang Boleh Guna

Marxist ( Control of labour process)

Proses Kawalan Buruh ( Control of labour process) • Thomson mendefinasikan proses buruh ‘labour process’

sebagai satu cara dimana bahan • mentah ditukar oleh buruh dengan menggunakan alat-alatan

atau mesin, pertama kepada • barang-barang untuk digunakan dan kemudian di bawah

sistem kapitalis ianya ditukar • kepada barangan yang boleh ditukar didalam pasaran.

• Thomson - Asas Theory ini ialah:• 1. “Social Relation” yang wujud antara

pekerja – dimana ianya akan menghasilkan keupayaan (kekuatan) dan kapasiti ini diambil oleh kapitalis sebagai satu jalan (cara) untuk mengeluarkan barangan yang bernilai, dan tidak secara langsung buruh juga dianggap sebagai barangan (komoditi).

4 unsur wujud daripada teori ini:– Perhubungan Buruh - modal satu bentuk ekploitasi -

keuntungan biasanya lebih pada modal.– Logik timbun - tambah (acumulation) iaitu pemodal akan

cuba tingkatkan proses pengeluaran dan turunkan kos pengeluaran.

– Tertingkat pengeluaran, bertambah faktor kawalan sama ada secara am/khusus.

– Pemodal akan menggunakan berbagai kaedah sistematik untuk mendapat kerjasama dan budi bicara pekerja untuk meningkat pengeluaran keuntungan lebih pada pemodal.

Marxist: Control of the labour process

• Focus– The way ‘capital’ controls ‘labour’

• Mechanisms of management control– Scientific management or deskilling– Segmentation of labour (core & periphery)– Bureaucratic control (policies, procedures & rules)– Responsible autonomy (self-control or adoption of

management values as integral part of job?)

• Employee response– Resistance (restrictive practices)– Collectivism (joint regulation)

Market

Disorder

Input(conflict)

Environments

Environments Environments

Industrial relations system

Power

Technology

PoliticalLegal

Other levels of theindustrial relations

‘system’Economicstructure

SocialCultural

Government and State Agencies

AttitudesValues

Interests

Roles

Organisationalhierarchy of

management

Organisationalhierarchy of

management

AttitudesValues

InterestsRoles

PowerChoicePower

Choice

Productive system

Control/order

Rule-making process

Internal rules

Industrial relations system (1)

Output(substantive rules)

PowerChoice

Roles

AttitudesValues

Interests

System of industrial relations

Introduction

• We need to consider some general points about the field of international industrial relations. First, it is important to realize that it is difficult to compare industrial relations systems and behavior across national boundaries; an industrial relations concept may change considerably when translated from one industrial relations context to another.

• Cross-national differences also emerge as to the objectives of the collective bargaining process and the enforceability of collective agreements.

Cont’d

• Schregle has observed:“A comparative study of industrial relations shows that industrial relations phenomena are a very faithful expression of the society in which they operate, of its characteristic features and of the power relationships between different interest groups. Industrial relations cannot be understood without an understanding of the way in which rules are established and implemented and decisions are made in the society concerned.”

Cont’d• Poole has identified several factors that may underlie these

historical differences:– the mode of technology and industrial organization at critical stages of

union development– methods of union regulation by government– ideological divisions within the trade union movement– the influence of religious organizations on trade union development– managerial strategies for labor relations in large corporations.

Cont’d• Union structures differ considerably among Western

countries. These include industrial unions, which represent all grades of employees in an industry; craft unions, which are based on skilled occupational groupings across industries; conglomerate unions, which represent members in more than one industry; and general unions, which are open to almost all employees in a given country.(cont.)

Trade union structure in leading western industrial societies

Cont’d• These differences in union structures have had a major

influence on the collective bargaining process in Western countries. Some changes in union structure are evident over time.

• The lack of familiarity of multinational managers with local industrial and political conditions has sometimes needlessly worsened a conflict that a local firm would have been likely to resolve.

• Increasingly, multinationals are recognizing this shortcoming and admitting that industrial relations policies must be flexible enough to adapt to local requirements.

• This is evidently an enduring approach, even in firms that follow a non-union labor relations strategy where possible.

Key issues in international industrial relations

• Industrial relations policies and practices of multinational firms– Because national differences in economic, political and legal systems

produce markedly different industrial relations systems across countries, multinationals generally delegate the management of industrial relations to their foreign subsidiaries. However, a policy of decentralization does not keep corporate headquarters from exercising some coordination over industrial relations strategy.

– Generally, corporate headquarters will become involved in or oversee labor agreements made by foreign subsidiaries because these agreements may affect the international plans of the firm and/or create precedents for negotiations in other countries.

– Multinational headquarters involvement in industrial relations is influenced by several factors, as detailed below.

Cont’d

– The degree of inter-subsidiary production integration.• High degree of integration was found to be the most important

factor leading to the centralization of the industrial relations function within the firms studied.

• Industrial relations throughout a system become of direct importance to corporate headquarters when transnational sourcing patterns have been developed, that is, when a subsidiary in one country relies on another foreign subsidiary as a source of components or as a user of its output.

• In this context, a coordinated industrial relations policy is one of the key factors in a successful global production strategy.

Cont’d

– Nationality of ownership of the subsidiary.• A number of studies have revealed that US firms tend to exercise greater

centralized control over labor relations than do British or other European firms.

• US firms tend to place greater emphasis on formal management controls and a close reporting system (particularly within the area of financial control) to ensure that planning targets are met.

• Foreign-owned multinationals in Britain prefer single-employer bargaining (rather than involving an employer association), and are more likely than British firms to assert managerial prerogative on matters of labor utilization.

• Further, Hamill found US-owned subsidiaries to be much more centralized in labor relations decision making than British-owned. Hamill attributed this difference in management procedures to the more integrated nature of US firms, the greater divergence between British and US labor relations systems than between British and other European systems, and the more ethnocentric managerial style of US firms.

Cont’d

– International human resource management approach.

• The various international human resource management approaches utilized by multinationals; these have implications for international industrial relations.

• An ethnocentric predisposition is more likely to be associated with various forms of industrial relations conflict.

• Conversely, it has been shown that more geocentric firms will bear more influence on host-country industrial relations systems, owing to their greater propensity to participate in local events.

Cont’d

– MNE prior experience in industrial relations.• European firms have tended to deal with industrial

unions at industry level (frequently via employer associations) rather than at firm level.

• The opposite is more typical for US firms. In the USA, employer associations have not played a key role in the industrial relations system, and firm-based industrial relations policies are the norm.

Cont’d– Subsidiary characteristics.

• Research has identified a number of subsidiary characteristics to be relevant to centralization of industrial relations.

• First, subsidiaries that are formed through acquisition of well-established indigenous firms tend to be given much more autonomy over industrial relations than are greenfield sites set up by a multinational firm.

• Second, according to Enderwick, greater intervention would be expected when the subsidiary is of key strategic importance to the firm and the subsidiary is young.

• Third, where the parent firm is a significant source of operating or investment funds for the subsidiary, that is, where the subsidiary is more dependent on headquarters for resources, there will tend to be increased corporate involvement in industrial relations and human resource management.

• Finally, poor subsidiary performance tends to be accompanied by increased corporate involvement in industrial relations. Where poor performance is due to industrial relations problems, multinationals tend to attempt to introduce parent-country industrial relations practices aimed at reducing industrial unrest or increasing productivity.

Cont’d

– Subsidiary characteristics (cont.).• Third, where the parent firm is a significant source of operating or

investment funds for the subsidiary, that is, where the subsidiary is more dependent on headquarters for resources, there will tend to be increased corporate involvement in industrial relations and human resource management.

• Finally, poor subsidiary performance tends to be accompanied by increased corporate involvement in industrial relations. Where poor performance is due to industrial relations problems, multinationals tend to attempt to introduce parent-country industrial relations practices aimed at reducing industrial unrest or increasing productivity.

Cont’d– Characteristics of the home product market.

• An important factor is the extent of the home product market.• If domestic sales are large relative to overseas operations (as is the

case with many US firms), it is more likely that overseas operations will be regarded by the parent firm as an extension of domestic operations.

• This is not the case for many European firms, whose international operations represent the major part of their business.

• Lack of a large home market is a strong incentive to adapt to host-country institutions and norms.

• Since the implementation of the Single European Market in 1993, there has been growth in large European-scale companies (formed via acquisition or joint ventures) that centralize management organization and strategic decision-making.

• However, processes of operational decentralization with regard to industrial relations are also evident.

Cont’d

– Management attitudes towards unions.• An additional important factor is that of management attitudes or

ideology concerning unions.• Knowledge of management attitudes concerning unions may

provide a more complete explanation of multinational industrial relations behavior than could be obtained by relying solely on a rational economic model.

• Thus, management attitudes should also be considered in any explanation of managerial behavior along with such factors as market forces and strategic choices.

• Denmark has the highest level of union membership, the USA has the second lowest and France has the lowest in the Western world.

Key issues in international industrial relations (cont.)

• Industrial relations policies and practices of multinational firms (cont.)– Although there are several problems inherent in data collection for a

crossnational comparison of union-density rates, several theories have been suggested to explain the variations among countries. Such theories consider economic factors such as wages, prices and unemployment levels, social factors such as public support for unions and political factors. In addition, studies indicate that the strategies utilized by labor, management and governments are particularly important.


• Industrial relations policies and practices of multinational firms (cont.)– Another key issue in international industrial relations is industrial

disputes. Hamill examined strike-proneness of multinational subsidiaries and indigenous firms in Britain across three industries. Strike proneness was measured via three variables – strike frequency, strike size and strike duration. There was no difference across the two groups of firms with regard to strike frequency, but multinational subsidiaries did experience larger and longer strikes than local firms. Hamill suggests that this difference indicates that foreign-owned firms may be under less financial pressure to settle a strike quickly than local firms – possibly because they can switch production out of the country.


• Industrial relations policies and practices of multinational firms (cont.)– Overall, it is evident that international industrial relations are influenced

by a broad range of factors. Commenting on the overall results of his research, Hamill concluded that:“General statements cannot be applied to the organization of the labor relations function within MNEs. Rather, different MNEs adopt different labor relations strategies in relation to the environmental factors peculiar to each firm. In other words, it is the type of multinational under consideration which is important rather than multinationality itself.”

Trade unions and international industrial relations

• Trade unions may limit the strategic choices of multinationals in three ways: (1) by influencing wage levels to the extent that cost structures may become uncompetitive; (2) by constraining the ability of multinationals to vary employment levels at will; and (3) by hindering or preventing global integration of the operations of multinationals.– Influencing wage levels.

• Although the importance of labor costs relative to other costs is decreasing, labor costs still play an important part in determining cost competitiveness in most industries.

• Multinationals that fail to manage their wage levels successfully will suffer labor cost disadvantages that may narrow their strategic options.

Cont’d

– Constraining the ability of multinationals to vary employment levels at will.

• For many multinationals operating in Western Europe, Japan and Australia, the inability to vary employment levels at will may be a more serious problem than wage levels.

• Many countries now have legislation that limits considerably the ability of firms to carry out plant closure, redundancy or layoff programs unless it can be shown that structural conditions make these employment losses unavoidable.

• Frequently, the process of showing the need for these programs is long and drawnout.

• Plant closure or redundancy legislation in many countries also frequently specifies that firms must compensate redundant employees through specified formulae such as 2 weeks’ pay for each year of service. In many countries, payments for involuntary terminations are substantial, especially in comparison with those in the USA.

Cont’d

– Constraining the ability of multinationals to vary employment levels at will (cont.).

• Trade unions may influence this process in two ways: by lobbying their own national governments to introduce redundancy legislation, and by encouraging regulation of multinationals by international organizations such as the Organization for Economic Cooperation and Development (OECD).

• Multinational managers who do not take these restrictions into account in their strategic planning may well find their options severely limited. In fact, recent evidence shows that multinationals are beginning to consider the ability to dismiss employees to be one of the priorities when making investment location decisions.

Cont’d

– Hindering or preventing global integration of the operations of multinationals.

• Many multinationals make a conscious decision not to integrate and rationalize their operations to the most efficient degree, because to do so could cause industrial and political problems.

• General Motors as an example of this ‘sub-optimization of integration’. GM was alleged in the early 1980s to have undertaken substantial investments in Germany at the demand of the German metalworkers’ union (one of the largest industrial unions in the Western world) in order to foster good industrial relations in Germany. One observer of the world auto industry suggested that car manufacturers were sub-optimizing their manufacturing networks partly to placate trade unions and partly to provide redundancy in sources to prevent localized social strife from paralysing their network.

Cont’d

– Hindering or preventing global integration of the operations of multinationals (cont.).

• This suboptimization led to unit manufacturing costs in Europe that were 15 per cent higher, on average, than an economically optimal network would have achieved:“Union influence thus not only delays the rationalization and integration of MNEs’ manufacturing networks and increases the cost of such adjustments (not so much in the visible severance payments and ‘golden handshake’ provisions as through the economic losses incurred in the meantime), but also, at least in such industries as automobiles, permanently reduces the efficiency of the integrated MNC network. Therefore, treating labor relations as incidental and relegating them to the specialists in the various countries is inappropriate. In the same way as government policies need to be integrated into strategic choices, so do labor relations.”

The response of trade unions to multinationals

• Trade union leaders have long seen the growth of multinationals as a threat to the bargaining power of labor because of the considerable power and influence of large multinational firms.

• While it is recognized that multinationals are ‘neither uniformly anti-union nor omnipotent and monolithic bureaucracies’, their potential for lobbying power and flexibility across national borders creates difficulties for employees and trade unions endeavouring to develop countervailing power.

• There are several ways in which multinationals have an impact upon trade union and employee interests. Kennedy has identified the following seven characteristics of MNEs as the source of trade union concern about multinationals:

The response of trade unions to multinationals (cont.)

– Formidable financial resources.– Alternative sources of supply.– The ability to move production facilities to other countries.– A remote locus of authority (i.e. the corporate head office management

of a multinational firm).– Production facilities in many industries.– Superior knowledge and expertise in industrial relations.– The capacity to stage an ‘investment strike,’ whereby the multinational

refuses to invest any additional funds in a plant, thus ensuring that the plant will become obsolete and economically non-competitive.


• Another issue reported by trade unions is their claim that they have difficulty accessing decision-makers located outside the host country and obtaining financial information.

• The response of labor unions to multinationals has been threefold: to form international trade secretariats (ITSs), to lobby for restrictive national legislation and to try to achieve regulation of multinationals by international organizations.– Alternative trade secretariats (ITSs).

• There are 15 ITSs, which function as loose confederations to provide worldwide links for the national unions in a particular trade or industry (e.g. metals, transport and chemicals).

• The secretariats have mainly operated to facilitate the exchange of information.


– International trade secretariats (ITSs) (cont.).• One of the fastest growing of the ITSs is the European Regional Organization of

the International Federation of Commercial, Clerical, Professional and Technical Employees (generally known by its initials, Euro-FIET) which is focused on the service sector.

• The long-term goal of each ITS is to achieve transnational bargaining with each of the multinationals in its industry.

• Each ITS has followed a similar program to achieve the goal of transnational bargaining. The elements of this program are (1) research and information, (2) calling company conferences, (3) establishing company councils, (4) company-wide union–management discussions and (5) coordinated bargaining. Overall, the ITSs have met with limited success, the reasons for which Northrup attributes to (1) the generally good wages and working conditions offered by multinationals, (2) strong resistance from multinational firm management, (3) conflicts within the labor movement and (4) differing laws and customs in the industrial relations field.


– Lobbying for restrictive national legislation.• On a political level, trade unions have for many years lobbied for restrictive

national legislation in the USA and Europe. The motivation for trade unions to pursue restrictive national legislation is based on a desire to prevent the export of jobs via multinational investment policies.


– Regulation of multinationals by international organizations.• Attempts by trade unions to exert influence over multinationals via international

organizations have met with some success. Through trade union federations such as the European Trade Union Confederation (ETUC) and the International Confederation of Free Trade Unions (ICFTU), the labor movement has been able to lobby the International Labor Organization (ILO), the United Nations Conference on Trade and Development (UNCTAD), the Organization for Economic Cooperation and Development (OECD) and the European Union (EU).

• The ILO has identified a number of workplace-related principles that should be respected by all nations: freedom of association, the right to organize and collectively bargain, abolition of forced labor and non-discrimination in employment.


– Regulation of multinationals by international organizations (cont.).• In 1977 the ILO adopted a code of conduct for multinationals (Tripartite

Declaration of Principles Concerning MNEs and Social Policy). The ILO code of conduct, which was originally proposed in 1975, was influential in the drafting of the OECD guidelines for multinationals, which were approved in 1976. These voluntary guidelines cover disclosure of information, competition, financing, taxation, employment and industrial relations and science and technology.

• There is also some controversy in the literature as to the effectiveness of the OECD guidelines in regulating multinational behavior.

• This lack of agreement centers on assessments of the various challenges to the guidelines.

• The best known of these challenges is the Badger case.


– Regulation of multinationals by international organizations (cont.).• A recent development with the OECD guidelines (which are addressed by 36

OECD and non-OECD governments) has been the follow-up procedures. The system of National Contact Points promotes observance of the guidelines by MNEs operating in or from the governments’ territories.

• Recognizing the limitations of voluntary codes of conduct, European trade unions have also lobbied the Commission of the European Union to regulate the activities of multinationals.

• Unlike the OECD, the Commission of the EU can translate guidelines into law, and has developed a number of proposals concerning disclosure of information to make multinationals more ‘transparent.’

Regional integration: the European Union (EU)

• Regional integration such as the development of the EU has brought significant implications for industrial relations. In the Treaty of Rome (1957), some consideration was given to social policy issues related to the creation of the European Community. In the EU, the terms ‘social policy’ or ‘social dimension’ are used to cover a number of issues including in particular labor law and working conditions, aspects of employment and vocational training, social security and pensions.(cont.)

Regional integration: the European Union (EU) (cont.)

• There have been a number of significant developments in EU social policy over the past four decades. The Social Charter of the Council of Europe came into effect in 1965. In 1987, the major objective of the implementation of the Single European Act was to establish the Single European Market (SEM) on 31 December 1992, in order to enhance the free movement of goods, money and people within the SEM. The social dimension aims to achieve a large labor market by eliminating the barriers that restrict the freedom of movement and the right of domicile within the SEM. The European Community Charter of the Fundamental Social Rights of Workers (often referred to simply as the Social Charter) was introduced in 1989, and has guided the development of social policy in the 1990s.(cont.)


• Multinationals are often accused of doing research and development in developed countries and operating out of low cost countries. A recent press release by the EU listing the top 100 Best Workplaces in the EU in 2003 provides some evidence that this pattern may be changing to some extent in Europe (see Table 9-3). Of these 100, the top ten companies were from all over Europe. The global software giant Microsoft was listed as one of the top 10 best workplaces in multiple countries (Belgium, France, Germany and Ireland).(cont.)


• Disclosure of information and European Works Councils– The EU has introduced a range of Directives related to the social

dimension. Of the Directives concerned with multinationals, the most contentious has been the Vredeling Directive (associated with Henk Vredeling, a former Dutch member of the EU Commission). The Seventh (Vredeling) Directive’s requirement of disclosure of company information to unions faced strong opposition led by the then conservative British government and employer representatives. They argued that employee involvement in consultation and decision-making should be voluntary. The European Works Councils (EWC) Directive was approved on 22 September 1994 and implemented 2 years later.


• Disclosure of information and European Works Councils (cont.)– Obviously, all firms operating in the EU will need to become familiar

with EU Directives and keep abreast of changes. While harmonization of labor laws can be seen as the ultimate objective, Michon argues that the notion of a European social community does not mean a unification of all social conditions and benefits or, for that matter, of all social systems. However, the EU does aim to establish minimal standards for social conditions that will safeguard the fundamental rights of workers.

Pan-European pensions

• The EU Council of Ministers has approved the pension funds Directive that sets standards for the prudential supervision of pension plans in the EU. The Member States will need to implement the Directive by the middle of 2005. The Directive covers employer-sponsored, separately funded pension plans. The Directive provides pension funds with a coherent framework to operate within the internal market and allows European companies and citizens the opportunity to benefit from more efficient pan-European pension funds. Once implemented, the Directive will ensure a high level of protection for both members and beneficiaries of pension funds.(cont.)

Pan-European pensions (cont.)

• The greatest barrier to implementation of the pan-European pensions is the taxation differences among Member States. The consulting firm Mercer HR states in a report analysing the viability of pan-European pensions that ‘The Directive does not attempt to cover taxation issues which may need a separate and more prolonged process though the EU legislative institutions.’ Many Member countries’ tax laws do not recognize contributions to foreign pension plans. This creates unfavourable tax circumstances for employees working outside their home countries and contributing to pension plans in their host countries.(cont.)


• The issue of social ‘dumping’– One of the concerns related to the formation of the SEM was its impact

on jobs. There was alarm that those Member States that have relatively low social security costs would have a competitive edge and that firms would locate in those Member States that have lower labor costs. The counter-alarm was that states with low-cost labor would have to increase their labor costs, to the detriment of their competitiveness.

– There are two industrial relations issues here: the movement of work from one region to another, and its effect on employment levels; and the need for trade union solidarity to prevent workers in one region from accepting pay cuts to attract investment, at the expense of workers in another region.

– There is some, although not as much as was expected, evidence of ‘social dumping’ in the EU. It is likely that this issue will be a contentious one in Europe for some time and multinationals need to be aware of this debate when doing business in Europe.

(cont.)


• The impact of the digital economy– Processes of knowledge acquisition used by MNEs are an emerging issue

in the USA where local technology workers are increasingly being paid their normal salaries to train people from overseas eventually to do their jobs. These newly trained professionals then replace their trainers. This is in part an unintended consequence of the US non-immigrant visa programme – particularly the L-1 classification that allows companies to transfer workers from overseas offices to the USA for as long as 7 years. Importantly, this visa classification allows companies to pay these workers their home-country wage.

(cont.)


• The impact of the digital economy (cont.)– The effect of these developments on the structure of markets and

organizations and established patterns of economic behavior will be profound. The creation and loss of jobs, the content and quality of work, the location of work, the nature of the employment contract, the skills required and how often they can be obtained, the organization of work and the functioning and effectiveness of worker and employer organizations are all affected by the emerging era of digital globalization. While the networking economy has opened new opportunities for job creation, this does not necessarily mean an increase in knowledge or skill requirements. Unskilled jobs, de-skilling and skill polarization in the networking economy also exist.

(cont.)


• The impact of the digital economy (cont.)– Only 15 per cent of the world’s population (living mostly in industrialized

countries) has access to ICT.80 This leaves a majority of the world’s population technologically disconnected. As noted by the International Labor Organization, ‘The digital divide exists not only between societies but within societies.’ Internet usage is stratified and is much more common among younger rather than older people, men rather than women, urban rather than rural dwellers, and people with higher levels of education and income.

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