Lecture 4: Employment Relations in Germany PDF

Lecture 4: Employment relations in Germany Popular views about German employment rela ons are the following. Unions and employer associa ons in Germany are strong and comprehensively regulate working condi ons. Work councils and employee representa ves on supervisory boards limit managerial preroga ve. The coopera ve employment rela ons system leads to industrial peace. The VET system is well-linked to the broader employment rela ons system and provides the workforce with strong intermediate skills. Interna onally, Germany's VET (voca onal educa on and training) system is recognized as a successful model, largely because of the dual system, which leads to high-quality voca onal qualiﬁca ons and enables smooth educa on-to-work transi ons. The en re system of employment rela ons is stable and changes very li le. Are these views accurate? Employment relations institutions The study of employment rela ons focuses on: - Collec ve actors (organiza ons) – employers’ associa ons, unions, work councils, the state - Ins tu onalized processes – collec ve bargaining, strikes and lockouts, dispute resolu on processes, co- determina on and other employee par cipa on processes, voca onal educa on and training. - Labour law It also focuses on the historical development of these ins tu ons and actors and why they developed diﬀerently across countries. Do employment rela ons in Germany correspond to the VoC model? The 5 spheres in CMEs:  Corporate governance: o long-term bank dominated systems. o Cross-directorships (an individual is the director of more than one company) o Cross-shareholding (describes a situa on where one publicly traded company holds a signiﬁcant number of shares of another publicly traded company) o Management agency controlled through ‘network reputa onal monitoring’ (It means that the guidance and inﬂuence from experienced individuals within a network shape how managers or execu ves act, make decisions, and align their ac ons with the expecta ons and norms of the network to enhance their reputa on and eﬀec veness.  Employee rela ons: o Long term, formalized par cipa on of employees o Consensus decision-making with management  Industrial rela ons: o Trade unions and employers organized o Industry wide collec ve bargaining and pay determina on. o Employment rela vely secure.  Voca onal educa on and training: o Elaborate industry-based training schemes. o Labour force has high industry-speciﬁc and ﬁrm-speciﬁc skills. 19  Inter-ﬁrm rela ons: o Development of collabora ve networks o Coopera on among ﬁrms in diﬀusing technologies. The actors: Unions Before 1933, many unions were organized according to poli cal, ideological and religious aﬃlia ons as well as status (occupa onal and cra unions, blue- and white-collar unions). Blue collar workers perform manual labor, o en in non- oﬃce se ngs like construc on sites or produc on lines. White collar workers, in contrast, work in oﬃces and typically wear white, collared shirts. Between 1933-1945 Unions were abolished and replaced by the Na onal Socialist organiza on DAF. A er 1945 in West Germany, unions were re-established as industry unions without poli cal, ideological or religious aﬃlia ons, whereas in East Germany, communist unions were “transmission belts” of the communist party SED. In 1990 East German union were dissolved and East Germans joined West German unions. Two principles characterize the union structure in West Germany a er 1945: - Industrial unionism: Industrial unionism is a union organizing method through which all workers in the same industry are organized into the same union - Unitary unionism: Unitary unionism in Germany refers to a system where a single trade union, represen ng all employees regardless of profession or industry, operates within a company, fostering a coopera ve approach to labor rela ons rather than compe on among mul ple unions. One dominant peak federa on is the DGB (Deutsche Gewerkscha sbund) (other federa ons are CGB, DBB, and un l 2001 DAG). A series of mergers in the 1990s reduced the number of unions in the DGB to 8 “mul -industry” or “general” unions. There is a rise of professional associa ons, that means highly organized groups of professional workers conclude separate collec ve agreements. Consequently, there is a skewed distribu on of membership and declining membership. The actors: Works councils Works councils represent all employees of a company and are elected by all employees of a company for a period of 4 years. Depending on the size of the works council, one or more of its members may be released from work so that they can dedicate themselves exclusively to works council ac vi es. Works councilors and candidates have extra dismissal protec on. Most works councilors are union ac vists. The actors: Employer associations 20 Similar to unions, employer associa ons were disbanded in 1933. They were then re-established a er 1945 in West Germany. In 1990, west German employers’ associa ons expanded into East Germany. There are two strands of employer representa on: 1. General business and product market interests, lobbying: Trade associa ons with peak federa on BDI (Bundesverband der Deutschen Indutrie). 2. Social policy, employment rela ons, collec ve bargaining: Employer associa ons with peak federa on BDA (Bund Deutscher Arbeitgeberverbände) There is then a regional and sectoral diﬀeren a on. Furthermore, there is a declining organiza onal density that causes a loss of cohesion among employers. The actors: the State The State provides the legal framework for industrial rela ons and is the largest employer The Works Cons tu on Act regulates how an employer and a works council interact at the plant level. Co-Determina on Acts regulate how an employer and employee representa ves interact on the company-level supervisory board. The Act on Collec ve Agreements regulates collec ve bargaining. The cons tu on guarantees the right to freedom of associa on. Germany has over 4 million employees in the municipali es, in the 16 states and at the federal level. Consequently, employer associa ons are regionally based municipal employers’ associa ons, associa on of state employers and federal employers. There has been a reduc on of employment in the public sector (1991 = 6.5Mil / 2018 = 4.8Mil). The main cause is the priva za on (postal service, railway, public transport, hospitals and public u li es such as street cleaning and waste disposal). Therefore, was necessary to decentralize the collec ve bargaining and diﬀeren ate between working condi ons for civil servants and public employees. The process What do the employment rela ons actors? Employers and unions are viewed as “social partners” who engage in:  Collec ve bargaining: Bargain for a new agreement and monitor implementa on of agreement. There are mainly sectoral (industry-wide) and regional collec ve bargainings, which are characterized by a moderate level of centraliza on and coordina on. In the last 20 years the collec ve bargaining coverage as well as the industry – wide collec ve agreements have been declining. An agreement can be declared to be generally 21 binding for all companies and their employees within the agreement’s domain (Allgemeinverbindlichkeitserklärung). Tarifeinheitsgesetz: A law on the exclusive applicability of collec ve agreements was enforced on July 10, 2015. There can generally only be one agreement per enterprise. This limits the power of the professional associa ons, who have appealed to the cons tu onal court and have gained some concessions.  Industrial disputes: Industrial ac on during disputes over new and current agreements and dispute resolu on 1. Interest disputes: conﬂicts arise during collec ve bargaining about a new demand or claim. 2. Rights disputes: conﬂicts about the interpreta on of an exis ng agreement, disagreement over whether rights have been violated. When disputes cannot be resolved, unions and employers use pressure tac cs (“economic weapons”) to force the other party to agree: industrial ac on, including strikes and lockouts. 1. Strike: “a temporary stoppage of work by a group of employees in order to express a grievance or enforce a demand “. 2. Lockout: an employer-ini ated work stoppage during a bargaining impasse. Employers temporarily close the workplace, without paying their employees, to exert pressure to either enforce or resist a bargaining demand or to express a grievance against their employees. Most countries have some mechanisms for the resolu on of industrial disputes, provided either voluntarily or compulsorily by the state or the social partners themselves. Although deﬁni ons vary (and can be blurred), the main forms of dispute resolu on are: 1. Arbitra on: whereby a third party makes a binding decision on an issue on which the par es cannot agree 2. Media on: whereby a third party takes an ac ve role (more so than in concilia on), usually making recommenda ons for the resolu on of the dispute 3. Concilia on: whereby a third party merely a empts to bring the par es in dispute together and helps them reach a mutually acceptable solu on  Co-Determina on: Works councils and supervisory boards “A modern economy needs a climate in which conﬂicts are se led through dialogue and not by force. Co- determina on is a pre-requisite for this.” Objec ves of Co-Determina on: Equality of Capital and Work, democracy in the Economy, social Development and control of Economic Power. Works councils: It is important a spirit of mutual trust and coopera on between management and works council. Works councils and unions are interdependent and can nego ate Works Agreements. Their rights are to Inform, Listen, Consult, Veto, real co-determina on. The three sets of issues that are dealt by works councils are: Economic and ﬁnancial aﬀairs, Staﬀ ma ers and social issues. Works council rights (from weak to strong): 1. Right to informa on 2. Right to inspect documents 3. Right of supervision 4. Right to make recommenda ons and give advice 22 5. Right to be consulted and to object 6. Right to veto a decision 7. Right to ini ate and nego ate ma ers with genuine co-determina on between the employer and the WC Supervisory boards: Key decisions require formal board approval. Two er company boards with separate monitoring and management func ons a) The Management Board (Vorstand) sets strategy and runs the day-to-day business. b) The Supervisory Board (Aufsichtsrat) monitors decisions and gives some strategic input. Elected by shareholders and employees. Typically meets 4 mes per year. The employee representa on on supervisory board is 1/3 in small companies, ½ in large companies (but with ﬁnal vote of chairperson) and with full parity in coal and steel industry (historical relevance). Employee representa ves are usually involved in the appointment of the labour director (personnel director) to the management board.  Tri-par te coopera on: Governance of public ins tu ons and voca onal educa on and training: Labour courts, social security agencies, Health, accident, and pension insurance, Federal Employment Agency, Chambers of Trades and Cra s, Public broadcas ng corpora ons and Federal Ins tute for Voca onal Educa on and Training. 23 Vocational Education Training Around half of school leavers choose a general educa on pathway, and half choose voca onal educa on (including dual- system appren ceships). The system is described as dual because training is conducted in two places of learning: companies and voca onal schools. It normally lasts three years. Appren ceship training takes place based on a private-law voca onal training contract between a training enterprise and a young person. The appren ce is trained in an enterprise for three to four days a week and in the voca onal school for up to two days a week. Enterprises bear the costs of the in-company training and pay the trainee remunera on as regulated by a collec ve agreement which increases with every year of training, and averages about one-third of the star ng pay for a trained skilled worker. A er comple ng their training in the dual system, the majority of par cipants then take up employment as a skilled worker, o en but not necessarily in the company that trained them. Unions, employers and the state develop occupa onal proﬁles and training programs and monitor their implementa on. The VET system provides labour market with a supply of workers with intermediate skills. The VET system is linked to remunera on systems, career paths and work organiza on /produc on systems (social partners deal with this too) Recent changes to the VET were the moderniza on of occupa onal proﬁles, the crea on of new service occupa ons, the establishment of a closer link between VET and general educa on and the delinea on of further training paths leading to middle management posi ons (prospects for career development). The VET system has nevertheless some problems like the compe on from ter ary educa on, companies’ increasing reluctance to provide training and the increasing income diﬀeren a on that undermines the VET a rac veness. Conclusions Employment rela ons in Germany generally ﬁt the CME classiﬁca on: of non-market coordina on prevails between ER actors: Unions inﬂuen al in economy and society (despite falling density), employers organized into associa ons, moderately centralized collec ve bargaining, coordina on across sectors and regions, formalized employee voice in enterprise decision-making (works councils, employee representa ves on supervisory boards) and rela ons between unions/works councils and employers/associa ons tend to be consensual. But not en rely: Increasingly market-based rela ons in many areas of the German economy; the German industrial rela ons system’s reputa on of being remarkably stable is no longer tenable; erosion of the German model; Increased varia on in employment rela ons prac ces; more ﬂexibility and decentraliza on, but not deregula on. 24 Lecture 5: Employment Relations in the USA Institutional classification Do employment rela ons in the US correspond to the LME model? - Corporate governance: outsider shareholder dominated, performance represented by current earnings ad share prices, management agency controlled by shareholder exit. - Employee rela ons: short term, market rela ons between employee and employer, top management has unilateral control of the ﬁrm. - Industrial rela ons: employer organiza ons and unions rela vely weak, decentralized wage se ng, insecure employment (hire and ﬁre / ﬂuid labour markets). - Voca onal training/educa on: voca onal educa on oﬀered on the market; labour force has high general skills. - Inter ﬁrm rela ons: market rela ons, compe on, set of formal contrac ng and subcontrac ng rela onships Historical development In the early / mid of the 19th century there were cra unions of skilled workers (e.g. shoemakers, printers, carpenters, tailors, plumbers, iron molders, machinists). In 1886 was formed the Peak federa on American Federa on of Labor (AFL). There was “Business unionism”, which is the focus on immediate improvement in basic employment condi ons with an acceptance of capitalism. They seek to win a greater share of proﬁts for labour through collec ve bargaining. There are work rules and cra control (job du es, work alloca on procedures, job standards). There was a rapid economic development in the late 19th century and in the early 20th century there was the rise of big business and Scien ﬁc management / Taylorism / Fordism. This period is characterized by great inequality, stagnant wages and dangerous working condi ons. Subsequently we have a short phase of revolu onary unions (Industrial Workers of World WWI) with the goal to form One Big Union embracing all workers, skilled and unskilled and to engage in class struggle with capitalists (greatest ac vity 1905-1925). Moreover, there were major strikes in industrial sector late in the 19th / early 20th century with a lot of conﬂict and violence (Homestead Steel Strike, Pullman Strike, Colorado coal Strike) where the state force was used. At the same me, employers were strongly resis ng to the union ac on: - company unions: Commi ees of elected employee representa ves and managers but they were not independent organiza ons of workers, and they did not have the power to strike or to put forward their views forcefully in a conﬂict. - yellow – dog contracts: Contracts that were pre y much forced upon every new employee that prohibited them from taking part in any union or they would be ﬁred. - private mili a with spies and strike breakers (Pinkerton) The 1930s was the period of the Great Depression, of the “New Deal” Se lements and of the Wagner Act. The expansion of the US economy came to a halt in late 1920s: the Great Depression was started (stock market crash in 1929, by 1933, the GDP had fallen by 29% and unemployment had risen to 25%). The President F.D. Roosevelt was elected in 1932 with a mandate for major social and economic reform and with the New Deal se lement a series of compromises were found: minimum wages, over me premiums, unemployment insurance, social security and the Wagner Act (equality amongst workers and employers). 25 The Na onal Labor Rela ons Act (NLRA) 1935 (Wagner Act) set a bunch of important rights from which employees could beneﬁt: - Right to organize - Right to collec ve bargaining - Right to engage in industrial ac on - Union recogni on - Exclusive jurisdic on (Once a union is recognized and elected, it is the only representa ve of that group of workers and no other union can represent that same group in the company (unique to North America)) - Required employers to bargain in good faith (made unfair labour prac ces illegal) - Na onal Labour Rela ons Board (NLRB) – conducts union elec ons (rules on unfair labour prac ces) Between 1935 and 1946 there was a massive growth of unioniza on in the industrial sector and collec ve bargaining: industrial unions of unskilled and semi – skilled factory workers (e.g. auto: United Automobile Workers, steel: United Mine Workers, rubber industries: United Steel Workers). Their peak federa on was the Congress of Industrial Organiza ons (CIO). There were many conﬂicts and successes for unions. In the years 194 – 46 there was the so-called Great Strike Wave (4600 strikes, 4.9 million workers, 120 million working days lost in 12 months). The post-war Legisla on is characterized by two amendments to the NLRA: - Tra Harley Act (1947) 1) Restric ons on union ac ons. (e.g. banned secondary boyco s) 2) Enhanced rights of individuals (e.g. not to join a union, decer ﬁca on procedure) 3) Rights of employers (e.g. right to express their views on unioniza on) 4) Revised dispute resolu on procedures (Federal Concilia on and Media on Service; a provision for a presiden al injunc on ordering a return to work if a strike threatened na onal well-being was set down). - Landrum-Griﬃn Act (1959) 1) Concern over union corrup on 2) Rules on internal union democracy and ﬁnancial transparency The Postwar Pa ern of Industrial Rela ons is characterized by a con nue growth of unions, concentrated in blue collar industrial sector. The AFL (represents cra unions) and the CIO (represents unskilled/semiskilled industrial workers) merged in 1955. There were further developments of collec ve bargaining system. For example, in the 1948 General Motors and the United Auto Workers agreement set pa ern for post-war bargaining in the union sector: - COLA (Cost of Living Adjustment, wage increase with inﬂa on) clauses; grievance procedures; fringe beneﬁts - Union shop and dues check oﬀ (everyone got to pay the union) - pa ern bargaining; industry wide agreements - signiﬁcant union wage gap ‘Business unionism’ established in the US rather than poli cal unionism. There was a general prosperity and constantly improving standards of living accompanied by industrial peace. 26 In the 1960s – 1980s there was a stabiliza on and a decline. The legisla on provided collec ve bargaining rights to public sector employees from the 1960s – various federal and state legisla on. This led to growth in unioniza on in the public sector from 10% in 1960 to nearly 40% today but a decline in unioniza on in manufacturing. The Reagan era of the 1980s had adverse consequences for unions with the return of a more adversarial IR (Industrial Rela ons) climate. In August 1981, about 13 000 air traﬃc controllers belonging to the Professional Air Traﬃc Controllers Organiza on (PATCO) went on strike illegally (strikes were banned for government unions). During a press conference President Reagan stated: "They are in viola on of the law and if they do not report for work within 48 hours, they have forfeited their jobs and will be terminated. “He then ﬁred the 11,345 striking air traﬃc controllers who ignored the order. A er 1980s employment rela ons have become even more decentralized. A wide varia on in employment prac ces has emerged. In LMEs, markets are the main coordina on mechanism. Therefore, employers have more choice in their employment rela ons prac ces than in CMEs, where there is more coordina on among employment rela ons actors. Health care and re rement beneﬁts have become a major cost item for employers and led to great tensions in collec ve bargaining. Increasing global compe on (ini ally Japanese) has also led to cost pressures on companies and spurred resistance to unions by management. Employers and Unions Employers’ organiza ons are rela vely unimportant, as there have never been na onal employers’ confedera ons engaging in a full range of industrial rela ons ac vi es. Some employers’ organiza ons have focused on union avoidance measures including an -union li ga on, lobbying and publicity campaigns. In contrast to the rela ve weakness of employers’ associa ons, management consultants and law ﬁrms that represent employers play an ac ve role in employment rela ons. On the other hand, na onal unions are powerful and control strike funds and local unions perform day-to-day work, conduct bargaining and strikes, administer agreements and are involved in social ac vi es. The falling membership was 10% in 2023 but there are large diﬀerences across industries and states. Highly unionized occupa ons in the public sector are teacher, police and ﬁre ﬁghters and highly unionized occupa ons in the private sector are transporta on and u li es, communica ons, warehousing, educa onal services, mo on picture and sound recording industries. The falling membership is par cularly low in ﬁnance, professional and technical services, food and drinking services and in the insurance sector. The American Federa on of Labor-Congress of Industrial Organiza ons (AFL-CIO) is the main peak federa on (i.e. a meta- organiza on). In 2005 there was a breakaway of some major na onal unions, resul ng in a new union federa on called Change to Win. At that point, the 7 CTW unions represented 6 million workers, and the remaining AFL-CIO unions (about 50) represented 9 million workers. A key goal of the forma on of CTW was to increase the focus on organizing. While the unions that joined CTW were more ac ve organizers, they did not succeed in further increasing their organizing rate a er the forma on of CTW. By 2015 most of the CTW unions had re-joined the AFL-CIO. There is a drama c decline in levels of unioniza on in the US in which structural factors play a large role. The focus on what unions can do about it led to the development of the “organizing model” that is in contrast with the tradi onal “service model” unionism (members pay fees in return for service; they are not ac vely involved; bureaucra c leadership- helps explain the collapse of unions). The organizing model sees members as ac vists: the focus is on tac cs and campaigns. Is needed to organize part me and service workers and tries to draw lesson from other social movements, e.g. Jus ce for Janitors campaign (The Jus ce for Janitors campaign ﬁghts for fair pay, healthcare, and respect for essen al janitors across the country.). Poten ally implies signiﬁcant changes in organiza on structure, governance and alloca on of resources within unions. 27 Collective bargaining Employees who support union sign an authoriza on card (card check). NLRB determines the appropriate bargaining unit and conducts a secret ballot elec on, then cer ﬁes the union as the exclusive bargaining agent. Then employers and unions must bargain in good faith. Several problems arise with this process: for several years there was debate about a proposed major legisla ve reform designed to remove barriers to union organizing (Employee Free Choice Act), but it was not passed. Professor Elaine Bernard from Harvard Law School explains: The union non-union gap The labor movement’s decline post-WWII due to poli cal and social shi s has weakened its capacity to organize eﬀec vely, impac ng workers’ rights and beneﬁts over me. Many workers discover union membership by chance, indica ng a need for increased awareness and proac ve engagement strategies to bolster union par cipa on. Recent organizing eﬀorts are crucial to address rising unemployment and member reten on. The need for an independent news source to address these economic issues is emphasized. The U.S. has the highest wage premium for unionized workers, at 30%. The 30% wage premium for unionized workers in the U.S. underscores the economic beneﬁts of union membership, but it also creates a divide with non-unionized workers, making unioniza on more appealing. Union density is low, with only 12% of the workforce unionized. Despite low density, the U.S. labor movement is considered successful due to its wage premium, reﬂec ng how eﬀec ve bargaining can yield signiﬁcant ﬁnancial beneﬁts for workers. Unionized workers o en have be er healthcare beneﬁts, highligh ng dispari es. The gap in healthcare access between unionized and non-unionized workers exempliﬁes systemic inequali es in the labor market, pressing the need for broader unioniza on to secure these beneﬁts for all. ← the union organizing process Employee voice There is a lack of mandated consulta ve or par cipatory structures at the workplace and works councils that is combined with managerial unilateralism. At-will employment is an employer's ability to dismiss an employee for any reason. There 28 is not the employee’s voice in corporate governance. Some use of union pension funds is used to pressure companies to change an -union prac ces. Industrial disputes Coopera ve industrial rela ons systems in CMEs lead us to expect lower levels of conﬂict there than in adversarial IR systems like the USA. But in LMEs, the decline in union density and legal constraints on strike ac vity leads us to expect low levels of conﬂict there. Industrial conﬂict has decreased in many industrialized countries. Historically conﬂict levels have been higher in LMEs than in CMEs. Today both groups of countries have similarly low levels of conﬂict. Vocational education and training Postwar pa erns of industrial rela ons included appren ceship systems established through collec ve bargaining, with the state playing a marginal role (in Germany organized in a tri-par te system (unions, employer associa ons and the state)). A decline in bargaining coverage precipitated the decline of appren ceship training. In the decentralized industrial rela ons system, union federa ons and employer organiza ons are not capable of dealing with voca onal training issues. Today appren ceships exist only for a very limited range of occupa ons (mainly in construc on). Companies provide their own training in conjunc on with community colleges and other training providers, but there are no generally recognized standards. Most voca onal training is school based, either in high schools or colleges. Employment relations outcomes There is an increasing inequality. US has the highest level of disposable income inequality among rich countries. The rich are richer than in other countries, and the poor are poorer than in other countries. Measured with the Gini coeﬃcient (it measures inequality on a scale from 0% to 100%, where higher values indicate higher inequality) and with the ra o of the 90th to the 10th percen les in the distribu on. There is an increasing vulnerability – employment insecurity, exposure to hazards (OH&S) and social risks (sickness, disability, pensions). LME – CME comparison Prevalence of marked based employment relations in Prevalence of non-market coordination between ER the US actors in Germany Extremely low unions density in private sector, anti- Unions influential in economy and society (despite unionism among employers falling density), broad role. Unions narrowly focused on collective bargaining / (business unionism) Employers not organized into employer association. Employers organized into associations Collective bargaining, where it exists, raises wages and Moderately centralized collective bargaining, working conditions above the rest of the market coordination across sectors and regions (union wage premium), takes place at enterprise level. 29 No formal employee voice in enterprises Formalized employee voice in enterprise decision making (works councils, employee representatives on supervisory boards). Relations between unions and employers tend to be Relations between unions (works councils and adversarial employers / employer associations tend to be consensual. Historically more coordination and consensus in the Increasingly marked based relations in many areas of US employment relations (in the postwar years) the German economy German MNEs have developed production systems and labour relations approaches that are tailored to the German institutional environment. But the US and Germany do not entirely correspond to the LME / CME classification Employment relations in both the USA and Germany do not entirely correspond to the VoC classification as LME and CME. We need to look more closely and consider changes over time and the differences across industries and companies. Lecture 6: Employment Relations in Japan Institutional classification Japan is classified as a coordinated market economy: it differs from other Asian business systems but has similarities with Germany and Sweden. As in some other Asian business systems, there was a strong role of the state in leading development, and large business groups (keiretsu) exist. Do institutions in Japan correspond to the VoC model (CMEs)? - Corporate governance: long term bank dominated insider systems; cross-directorships; cross-shareholding; management agency controlled through 'network reputational monitoring' - Employee relations: long term, formalized participation of employees; consensus decision-making with management - Industrial relations: trade unions and employers organised; industry wide collective bargaining and pay determination; employment relatively secure - Vocational education and training: elaborate industry-based training schemes; labour force has high industry- specific and firm-specific skills - Inter-firm relations: development of collaborative networks; cooperation among firms in diffusing technologies Historical development 30 Tokugawa shogunate, a feudal elite, closed the country in the 1630s. Western contacts were restricted to a small settlement of Dutch traders in Nagasaki. US Commodore Perry forced Japan to open up foreign trade in 1853/1854. With the Meiji Restoration of 1868 the imperial rule was restored. Under a modernizing elite, Japan went through a period of rapid industrialization. The state played an active role in driving development. The agents of expansion were Zaibatsu (large family-controlled conglomerates): these families held great influence over the economy and politics in Japan. After that period, during WWII, there was territorial expansion and militarism. Commodore Perry arrived with a naval squadron, shocking the Shogun. 5,000 samurai lined the shores, demanding Perry leave Edo Bay. Perry delivered an ultimatum for Japan to open trade or face force. After negotiations, a compromise treaty was signed, initiating U.S.-Japan relations. Perry gifted technologies like a telegraph and steam railroad, intriguing the Japanese. The Tokugawa rule ended in 1868, marking the start of modern Japan. This transition marked a significant shift in Japanese governance, moving away from feudalism to a more centralized state, paving the way for modernization. While the samurai class was disbanded, their values and ethics left a lasting impact on Japanese society, influencing its cultural identity. Japan’s opening to the West set the stage for its rise as a global power, reshaping its role in international affairs and trade. Japan was occupied by US-led Allied powers between 1945-1951: Zaibatsu families were purged and holding companies banned. Groups were broken into autonomous enterprises. Shares were sold to the public, but individuals mostly sold their shares and so banks accumulated large holdings. The freedom of association was recognized after WWII (Trade Union law of 1949). The labour movement was rebuilt very quickly (amazing explosion of unionization): the peak density level was 56% in 1949. Moreover, in this period emerged the modern keiretsu groups characterized by cross-shareholding among former groups and main bank relationship. Japanese companies tend to have highly structured and formal relationships between firms within groups known as keiretsu. The characteristics of keiretsu are: 1. Transactions are conducted through alliances of affiliated companies. This creates a form of organization that is in between a hierarchy and a market. 2. Inter-firm relationships are long-term and stable, based on mutual obligations. 3. These inter-firm relationships are expressed through cross-shareholdings and personal relationships as well as through financial and commercial transactions. 4. Bilateral relationships between firms are embedded within a broader family of related companies. 5. Inter-corporate relationships are imbued with symbolic significance which helps sustain links even where there are no formal contracts. During the 1950s/1960s (post war period) there was a dramatic economic growth: we call it “economic miracle”. The classic export-oriented industrialization pattern started with cheap labour - textiles and footwear, moved into the assembly of consumer electronics and faced with increased competition, moved into more capital-intensive manufacturing. R&D investments determined new product innovation which was combined with a significant growth of outward investment: by the 1970s, Japan was making significant inroads into US market in industries that the US had traditionally dominated. The state played an important role in this development process. The “developmental state” was characterized by close relationship between the Liberal Democratic Party government, MITI and Finance Ministry, and the business elite. 31 During the 1970s-1980s the Japanese model of cooperative employment relations was seen as contributing to strong economic performance. Many large Japanese firms invested in overseas subsidiaries thereby becoming multinational enterprises. In the 1991 the “bubble” economy bursted, causing low growth and mild deflation since then. Since the 1990s there were frequent changes of government after a long period of political stability under the conservative Liberal Democratic Party LDP. In the 1997 there was the Asian financial crisis and in 2008 the Global financial crisis, followed by the Tsunami and Fukushima catastrophe in 2011. Notion of Company as a community and lifetime employment Because of the notion that firms resemble communities, employees have a notion of membership. There is the idea that unions and management work together for the prosperity of the firm. Nevertheless, some criticism arose: this view epitomizes Japan’s corporate-centered society and its associated patriarchal order; conjures up images of oppressive wartime control; served a purpose during Japan’s catch-up phase of development but now perverts market principles; breeds corruption and impedes healthy social development. The Japanese model of employment relations is based on cooperative labour relations between employers and unions at the enterprise level. Its key features include ‘lifetime employment’, seniority with merit-based pay, internal promotions, on-the-job training and enterprise unionism. It was gradually shaped in the 1950s and 1960s, after a period of strife following the democratization of Japan under the Allied powers’ General Headquarters (1945-1951). This model is believed to have contributed to Japan’s solid economic performance in the 1970s and 1980s. Employees are not recruited for specific jobs or occupations, but as company employees. Companies mainly recruit new school leavers or graduates and changing employers mid-career involves a reduction of wages and diminished career options. Employees are expected to stay in the same company until their mandatory retirement age. Many workers in Japan do not have this long-term employment status (only 65% of employees are in “regular” employment, and not all of those work in large enterprises with superior remuneration and career opportunities). Lifetime employment generally applies to men, not women. Large firms have reduced their intake of new recruits and have increased recruitment of non-regular workers and outsourcing since the 1990s. In recent years, there has been a steady increase in atypical employment, covering part-time workers, fixed-term workers and temporary workers. Today, nearly 40% of employees are in non-standard employment. Non-regular workers typically do not have job security. Most firms are using non-regular workers to reduce labour costs and to adjust to changes in the business cycle. A serious issue with this practice is a large wage differential between regular employees and non-regular employees, pushing the latter into working poor. There is a lack of pathways from atypical to regular employment. Employers and unions Many violent labour disputes occurred immediately after WWII because of economic hardship and the shortage of material necessities. To restore managerial authority, Nikkeiren (the Japan Federation of Employers’ Associations) was founded in 1948. Nikkeiren merged with another large organization, Keidanren, in 2002 to form Nihon Keidanren (Japan Business Organisation). Nihon Keidanren coordinates and publicizes employers’ opinions on labour problems, selects representatives to government commissions and ILO delegations, and provides services to member organisations. Each year at the time of Shunto (the Spring Labour Offensive), Nihon Keidanren assists employers in dealing with union demands during collective bargaining. Enterprise unionism is the basic form of labour unions. Enterprise unions consist solely of regular employees of a single company regardless of their occupational status, up to the lower levels of management. If you leave the firm, then you leave the union. The primary core of regular employees (in the public sector and large enterprises) constitutes only about one-third of all employees. The other two-thirds work for SMEs or on a temporary or part-time basis and are often not 32 union members (they are usually not allowed to join). As most part-time workers are women, union density among women is much lower than among men. Rengo is the largest confederation and has pursued cooperative labour- management relations. However, it has found it difficult to represent the interests of union members at grass-roots level. Most union activities occur at the enterprise level, and enterprise unions (>25,000) are financially independent. A small part of union fees is levied to industrial federations and to Rengo. The relationship between unions and management is based on trust and mutual benefit and employees support management initiatives to enhance the competitiveness of the firm. The advantage of enterprise unionism is that policies are adapted to each enterprise rather than the sector or an ideology. Critics of enterprise unionism suggest that by only focusing on core workers of large firms it discriminates against non-core workers who are often more vulnerable (and likely to be women). Collective bargaining Distinguishing features of collective bargaining in Japan are: 1. Collective bargaining takes place at the level of the enterprise only. Federations may coordinate the process of negotiations, but individual enterprises and enterprise unions have autonomy to make their own decisions. 2. These negotiations are conducted at the same time all around Japan, usually in spring. Therefore, this bargaining is called Shunto (the Spring Labour Offensive) 3. These negotiations focus on pay. They are conducted separately from negotiations on other issues, that take place throughout the year. Shunto - the spring wage offensive - is a united campaign by the labor unions. Beginning in 1955, Shunto has become a platform for wage rise demands throughout Japan. By establishing a schedule for strike action and unified demands in each industry, Shunto provided a framework that surpassed internal individual corporate negotiations, instead creating a bargaining method whereby wage increases could be secured throughout the entire industry. This overcame the weakness of dispersed enterprise negotiations. From the 1960s and the period of rapid economic growth, the driving force behind Shunto - the so-called pattern setter - was the labour-management negotiations in the steel industry. Until the end of the 1970s, Shunto was a national event, as its results influenced the economy in terms of demand and prices. In the post- bubble era, Shunto wage increases were small – the focus of pay bargaining shifted towards the enterprise level. Increasing differences in the profitability of enterprises, reflecting increased global competition, have been a major reason for this change. However, Shunto is still a significant collective bargaining institution. It includes information sharing and coordination within and between employers and union federations, as well as within enterprises. Attributes of jobholders, in particular their skills, abilities, qualifications and seniority, have traditionally been the main determinant of their pay grade (not job-based grading systems, in which the attributes of the job determine how the job is classified and remunerated). This has changed somewhat in recent years. The Seniority wage is a yearly automatic wage increases for each year of service. With Low management/worker pay gap we mean that pay differentials between managers and lower-rank staff are small and senior staff are promoted internally from the ranks, encouraging employee identification with the enterprise. The Bonuses are several months’ pay. Traditionally, those bonuses reflected industry performance. New development is that they are now frequently dependent on the outcomes of individual performance evaluations. Industrial disputes Collective agreements are almost always reached without strikes or lock-out. Industrial disputes have practically disappeared in recent years. Grievances are often settled informally, and formal procedures are rarely used. Disputes are usually settled directly between the parties concerned but sometimes a third party, the central and local labor relations commissions, is called upon for conciliation. Since the 1990s, individual disputes have been clearly on the rise. To deal with individual cases, a labour tribunal was created in 2006, together with new administrative services. 33 Employee voice Joint consultation mechanisms are widespread but voluntary, without a legal basis and were established by enterprise management and workers, especially in unionized companies. They are used for information sharing and pre-Shunto (Spring Offensive) wage discussions. Information may concern e.g. business policy, planned production and sales, business performance, change in organizational structure, introduction of new equipment etc. There is a blurred distinction between collective bargaining and joint consultation, since the same people (top managers and union officials) attend consultation and negotiation meetings. Skills In LMEs employers are reluctant to train workers because they cannot be sure that workers will stay in the firm long enough for them to recoup their investment. Vocational education is offered on the market and the labour force has general skills. On the other hand, in CMEs employers make substantial investments in their workers’ skills. Institutional arrangements ameliorate the collective action problems associated with private-sector training. There are elaborate industry-based training schemes and the labour force has industry-specific and firm-specific skills. Skill formation in Japan and Germany: Japan: segmentalist strategy Germany: solidaristic strategy Employers combine firm-based, company-specific Collective provision of a pool of skills from which training with personnel policies to shield all employers can draw. This is accomplished themselves from competition over skilled labour through vocational schools and coordinated and in the market. Such policies include seniority monitored apprenticeships in firm. There is a wages and internal career ladders (reduce corporatist oversight of the vocational training workers’ incentives to leave) system by employers’ associations, unions and the state. Moreover, nationally certified skills are portable, workers have an exit option. Focus on company specific - traning Focus on industry specific – training Why do Japan and Germany’s systems of skill formation differ? Due to differences in the relationship between the artisanal sector and industry in the early industrial period, and due to how this influenced the relations between industry and the emerging labour movement. The German state actively organized the artisanal sector and granted it monopoly rights to certify skills – the Japanese state did not regulate traditional apprenticeship training. As a consequence, German industrial firms sought to secure the right to certify skills, while Japanese industrial firms sought to control labour mobility (both were successful in doing these things). German “Handwerk” was organized, so tensions between the artisanate and industry were played out at the national-political level. Japanese skilled craftsmen (oyakata) were not organized and were absorbed into a system of direct employment at the emerging large firms, originally in charge of training workers within firms. In addition, private firms followed the lead of the public-sector firms who had established their own, firm-based vocational schools. Japanese companies made efforts to reduce the high levels of labour turnover: seniority-based wages, company welfare provisions, and loyalty indoctrination for skilled workers. Alliances between the emerging labour unions and industry against the artisanate reinforced the different trajectories: In Japan, union demands such as annual bonuses and a retirement bonus system for regular workers further institutionalized internal labour markets. Corporate governance 34 The Post-war system is a bank-dominated financial system with cross-shareholding. It is a lifetime employment systems and norms of the firm as those of communities (stakeholder orientation). There are large boards with few outside directors and statutory corporate auditors (Kansayaku) were not really independent. The state guides the system (retired officials on boards). In common with Germany, we can find bank finance, cross shareholding (Deutschland AG) and stakeholder interests' orientation. The corporate governance systems changed since the 1990s because of the weakening of main bank system, unwinding of cross-shareholdings and increase in foreign portfolio investment. Corporate governance reforms in 1990s and 2000s place more emphasis on shareholder rights: firms can choose between a US style board with nominating, compensation and audit committees and dominated by outside directors or they can maintain the existing system with inside directors and statutory auditors (most do this). There is much debate about the need for more independent directors. Many firms have increased the independence of the auditors and reduced the size of the BoD by removing most executive directors. Executives remain ambivalent about shareholders. Corporate governance reforms 2015: “A new governance code, which came into force this week, seeks to break open the cosy world of the Japanese boardroom by requiring firms to appoint at least two outside directors. Big deal, say the sceptics. Japan's corporate governance revolution has had many false dawns. However keen the politicians now are on a bit of Anglo- Saxon greed and menace, firms themselves retain a deeply insular culture. Only 274 of some 40,000 directorships are held by foreigners. …“- The Economist Ahmadjian & Okumura (2011) answered the question “Is there a convergence to the US model of corporate governance?”: it is unlikely that Japanese CG will converge to US practices, but the post-war system of CG is weakened considerably. Possibly an hybrid model will emerge: two CG sectors are to be found, one with foreign-owned firms and US-style CG, another with domestic-focused firms and post-war style CG. It is as well possible that a new model that combines the shareholder value (US) model with the “company as community” (Japanese) model. Contemporary challenges Contemporary Japanese employment relations are relatively stable, and relations between labour and management are generally cooperative (but the number of individual labour disputes is growing). Union membership is declining, and a range of social, economic and labour trends pose challenges to the future of unions. The growth of non-regular employment has been linked to increasing inequality and poverty and raises questions about how to protect the employment and working conditions of atypical workers who are not represented by trade unions. Like Germany, it’s an eroding model. Are employment relations in Japan and Germany (two CMEs) similar? Japan Germany Enterprise unions, declining density, some Multi-industry unions influential in economy and influential, others not society, despite falling density, broad role Employers organized into associations, but Employers organized into associations, conduct without collective bargaining mandate. collective bargaining 35 Decentralized collective bargaining at enterprise Moderately centralized collective bargaining, level, coordination in Shunto annual pay coordination across sectors and regions negotiations. Employee voice through enterprise unions Formalized employee voice in enterprise decision (collective bargaining and joint consultation). making (works councils, employee reps on supervisory boards) Relations between unions and employers tend to Relations between unions / works councils and be consensual, firm as community. employers / associations tend to be consensual, social partner. 36

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