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Topic 17: Comparative Labor Relations

I. Canada
Labor-management systems in the United States and Canada are similar in that
they share many of the same companies and unions (such as GM, Ford and the UAW).
Further, they both have labor laws that declare government support for unionization and
collective bargaining, and their economies are closely linked with free trade between
them (NAFTA). However, Canadian unions are growing while U.S. unions are not. This
is because the Canadian government is more protective of unions and unionization; the
American government since 1980 has not been as protective. Further, Canadian
employers tend to accept unions and the rights of workers to unionize, while American
management is less willing to deal with unions. In particular, union membership in
Canada has been stable at about 35 percent since 1980. Collective bargaining is tends to
be decentralized in Canada because Canada is spread very wide geographically and each
province has its own labor laws.

II. Mexico
Mexican unions are powerful and are tied with the state/government. Unions in
Mexico have traditionally been allies of the ruling party, and have been dominated by it.
Because of the backing of the all-powerful ruling party, union leaders have been corrupt.
The Salinas and Zedillo administration reforms have tried to stem such corruption by
introducing reforms. However, past Mexican presidents have backed powerful union
presidents. Unionism faces an optimistic future as free trade shifts manufacturing
industries to Mexico, and 25 percent of Mexican workers are unionized.

Western Europe
Western Europe’s labor relations have been characterized by political
involvement through labor parties, worker participation in company decision-making,
and relatively high levels of union membership.

III. Great Britain


Labor-management relations in Great Britain have had been volatile. However,
high unemployment has tempered union militancy. Margaret Thatcher’s conservative
government passed labor legislation that reigned in the power of labor unions. This was
done by making the union shop security clause and strikes to require union membership
unlawful. Further, Tatcher imposed major restrictions on strikes, slowdowns, and work
rules -- unions must have majority support for such things via secret ballot. The Thatcher
Revolution also included the introduction of several labor laws replacing the almost
exclusive use of common law in labor-management relations. The Employment Acts of
1980, 1982, and 1988, the Trade Union Act of 1984, and the Wages Act of 1986 were all
aimed at curbing union power and moderating the very adversarial relationship between
organized labor and management. Thatcher’s successor, John Major, continued the
revolution with the Trade Union and Labor-Relations Act of 1992 and the Trade Union
Reform Act of 1993. British unionization is currently at about 45 percent of the labor
force and is in decline.
IV. Germany
All matters affecting workers, such as daily working hours and breaks, the pay
system and holiday schedules, are mandated by German law for all employers employing
more than 5 employees. This occurs at higher levels of operating management through a
labor director, who shares equal power with other managers of the organization as
members of the management board, on all matters relating to personnel. The collective
bargaining system in Germany is highly centralized by industry. Collective bargaining
agreements in an industry are usually nation-wide. They cover wages, work weeks, and
work rules. Most fringe benefits are set by law. Employee representation occurs on three
levels within the company is mandated by German law. Co-determination provides a
parallel form of representation to employees in addition to the union representation
available to German workers. Co-determination in Germany allows worker participation
at three levels: on the shop floor, through a works council that shares equal power with
lower level management on staffing, and at the highest management level where workers
elect labor representatives to the organization’s Board of Supervisors. Often, the labor
representatives comprise 1/3 to ½ of the board membership. Representatives are elected
proportionately from the ranks of blue and white-collar employees. The supervisory
board has the responsibility to control managerial performance and appoint top managers.
The works council in a German company is a vehicle, at the shop floor level, for worker
participation in decision-making. The works council, which is on an equal footing with
shop floor or office managers, will administer all labor and personnel laws, rules,
regulations, and related matters, as well as the collective bargaining agreement. Any
dispute between the council and management over these issues is settled by arbitration or
the German labor court. Unions collectively bargain on an industrial basis. Many fringe
benefits are not important to the negotiation process because such benefits are mandated
by government legislation. Germany has had a lower strike frequency than other major
industrialized nations. This may be a product of the co-determination system.

V. Sweden
In Sweden, collective bargaining is centralized. Sweden has experienced
declining living standards (relative to other European nations) and a declining global
competitiveness. Thus, the Swedish model of centralized bargaining with a concern for
macroeconomic issues like narrowing wage differentials does not appear to be working.
This has increased the frequency of fragmented bargaining. Sweden’s trade unions have
traditionally shown a major concern for macroeconomic issues as well as the welfare of
their members. Their strong support of government economic and social policy stood as
a cooperative model for the rest of the world. However, coordination of unions,
companies, and government has deteriorated under the pressure of growing global
competitiveness, which has caused changes in industry structures of the economy,
causing cracks in the Swedish system. Further, union rivalry has replaced union
solidarity.

VI. Eastern Europe


The newly democratized Eastern European nations have many problems, most
stemming from the restructuring of their economies from communist economies to

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capitalist market ones. The public sector has to be substantially privatized. Old state
enterprises were and remain very inefficient, and to make them efficient, many workers
have had to be laid off. Unemployment shoots up, and, at the same time as markets are
freed, prices shoot up. Austerity and economic reform are the major programs of the
governments, and the unions are asked to cooperate. As their members are losing jobs
and purchasing power is falling with inflation, the union leaders are pressured by the
rank-and-file to increase wages and job security. However, restructuring and becoming
internationally competitive require just the opposite.

VII. Poland
In July 1980, the Polish government announced steep price increases in basic
foodstuffs. Workers responded with protests, and strikers did not return to work after the
government repealed the price increases. Instead, the workers at the Lenin shipyard,
under the leadership of Lech Walesa, demanded the right to establish a free and
independent trade union. Thus, the trade union Solidarity was born. The Polish
government came under increasing pressure from the Soviet Union and elements of the
communist party to erode the power of solidarity. So, the Polish government imposed
martial law and imprisoned Solidarity leaders and repealed the union’s legal mandate.
Later, Solidarity and the Polish government held roundtable talks in 1989 and a labor
accord was reached. Solidarity was allowed to register as a trade union and a new
constitution was introduced which included the establishment of a democratically elected
Senate and a restructured parliament. Walesa won a landslide victory to be Poland’s first
democratically elected President. Thus, in 1989, Poland’s communist government
legalized the independent trade union Solidarity, which had been driven underground in
1981. This step was taken in response to both worker pressure in Poland and pressures
from Western nations. Solidarity was reinstated and legalized to gain Western economic
aid and trade and to stop worker demonstrations and strikes. Ultimately, the suppression
of labor-management relations turned out to be both socially unstable and economically
unproductive.

VIII. Russia
Unions in the former USSR were used to keep productivity high and maintain
industrial peace. Basically, unions were the pawns of the state. Unions also promoted
political indoctrination. Traditionally, they had several major functions. First, unions
were to maintain a high level of productivity among the work force. Second, they were
to insure industrial peace and without questioning the party’s requirements. Finally, they
were used to indoctrinate workers to the communist party. The collapse of the Soviet
Union promises a new era for Russian trade unionism. However, trade unions in the new
Russia, especially those affiliated with the “official” Federation of Independent Trade
Unions of Russia (FITUR), have little power in the newly privatized businesses. At the
enterprise level, unions are totally dependent on management. They were left in control
of social insurance funds allocated to the enterprise, and they administer these. But
management can withdraw all resources from the union if it so desires. This would leave
the union with no function and no money. The truly independent unions, which are in
coal mining and transportation, still have the government as the employer and do carry on
collective bargaining, sometimes teamed with enterprise management against the

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government. These strong unions are laying the groundwork for an effective,
independent labor movement in Russia.
We can conclude that labor-management relations in the USSR were peaceful,
with party having power over these relations. Again, unions were subservient to the
state. However, after the fall of communism, employers in Russia often unilaterally
make decisions on matters of employment. Furthermore, collective bargaining is not
widely being implemented in the newly privatized economy.

IX. Japan
Japan has had harmonious labor-management relations along “vertical” lines
where the company is a paternal entity and it takes care of its loyal employees. About 25
percent of the Japanese workforce is unionized. Most Japanese unions are organized
along company lines. Thus, they are neither industrial nor craft unions, but rather
enterprise unions. This type of organizational structure stems from the relatively close
relationship between the worker and the firm, a vertical relationship that makes the
enterprise union a forum for employee participation as well as a negotiating body. As
noted in the text, the company is a quasi employee-managed firm. In fact, because of the
limited power of the enterprise union and its multi-functional role, collective bargaining
has been carried out in a coordinated, industry-wide fashion. Debate continues about the
extent to which enterprise unions are truly independent from management influence.
Workers view their best interest as being served when the company does well. Therefore,
collective bargaining is decentralized. Many pay negotiations occur in the spring as part
of an annual spring offensive (Shunto). Special consideration is given to wage
settlements reached in negotiations at key firms. The wages of workers in Japan and the
seniority system are linked. Wage differentials tend to be small, even between managers
and blue-collar workers (all commonly called associates). And, wages are tied closely to
seniority. However, annual bonuses for workers commonly exceeded a quarter of a
year’s pay. Japanese workers also receive many allowances related to housing and daily
living requirements, medical care, and even transportation costs. However, the aging of
Japan’s labor force and the growth of job changing coupled with Japan’s severe
economic recession of the early 1990s is forcing changes in the seniority system concept.
The labor relations system in Japan relies heavily on informal consultation between labor
and management to settle disputes. Grievances are typically settled through consultation
at the shop level.
The seniority system is important, often promising lifetime employment. If a
large firm faces extreme financial difficulties, it might shift some of its work force to
other firms in its trading group. The trading groups are linked together through either
common owners or close business connections. Otherwise, firms promise to try to avoid
layoffs. Seasonal bonuses, housing allowances, and high hourly pay are often given.
These practices are shaped heavily by norms and customs. In Japan’s current long
economic downturn, lifetime employment, high wages, and the seniority system are
under attack. More contract workers who can be laid off are being used.

X. China
In China, the government supervises union activity forcing management to
identify itself as part of the workforce. Labor unions in China are instruments of the state

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as in the former Soviet Union. Unions keep worker productivity high and preserve
industrial peace. In 1989, pro-democracy movements were seen in China and Eastern
Europe. The East Bloc movements led in some countries by trade unionists resulted in
the overthrow of repressive Communist governments. In China, the student-led
movement failed in large part due to the lack of support of the labor movement. This is
due to the lack of working class awareness and solidarity in China as most workers are
peasants with rural backgrounds have actually seen some increase in their living
standards over the 45 years of communist rule and public ownership of the productive
capacity of the country. This is now changing as China moves to a market economy.
China’s communist government provided workers with cradle-to-grave welfare and
lifetime employment in public enterprises. Trade unions were the arms of the
government and the government controlled all economic activity. The unions functioned
as political organizations to indoctrinate workers and managers and keep up their effort
and productivity. The Chinese workers are not militant; rather, they feel socialist public
ownership has brought them a better way of life. In general, the workers are unaware of
economic issues. After the 1989 crackdown, unions were totally brought under the
control of the state, and union goals continue to be to increase productivity and defuse
conflicts. The Chinese government has singled out foreign-funded firms as abusers of
labor.

The Four Little Dragons


Singapore, Hong Kong, South Korea, and Taiwan constitute the four little
dragons. Unionism is not on the rise numerically in these countries. However, these
workers are not as obedient, industrious, and willing to comply managerial authority as
workers in other East Asian countries. Also, there is a strong presence of U.S.
multinational firms. Singapore and Hong Kong have stable, peaceful labor-management
relations but South Korea and Taiwan have unsettled and changing labor relations.
Singapore and Hong Kong are smaller countries and this may explain the underlying
cause for stability and peace in the face of rapid development and change. Labor
relations in Taiwan and South Korea are rapidly changing and becoming more violent or
aggressive. Taiwan and South Korea are larger countries undergoing rapid economic and
political change, and both are experiencing a more militant labor movement very much
spoiling to share in the accelerating economic prosperity of their countries. As political
freedom progresses, the violence moderates.

XI. Singapore
Singapore has the second highest per capital GDP in Asia. In Singapore, labor
supply is declining while labor demand is rising. Generally, unions have cooperated with
management to promote industrial growth and to attract foreign investment.

XII. Hong Kong


Hong Kong reverted to China in mid 1997 after being a British colony. This
caused many people to leave Hong Kong. This also left a labor-shortage for the
remaining workforce, with a particular shortage of skilled and professional workers.
Labor-management disputes in Hong Kong are handled by the Labor Department.

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Strikes are uncommon. Some unions are loyal to China and some are more loyal to
Taiwan, with those supporting Taiwan in decline.

XIII. South Korea


Post-World War II Korea is marked by authoritarian rule by governments in
league with the military. Collective bargaining was not allowed to take hold because the
government dominated unions, outlawed strikes, and imposed wage settlements. In 1987,
there was an upsurge of protests and strikes. From this, President Roh Tae-Woo pledged
democratic elections. Protesting workers demanded higher wages, better working
conditions, and procedures that would allow for the emergence of unions that were
independent from the Korean government. Simultaneously, South Korea is making the
transition from an authoritarian regime to a democratic one. The average Korean worker
puts in long hours and is poorly paid relative to U.S. and Japanese workers. Their
enterprise-level unions may negotiate with management, but interference from nation
unions is not allowed. In 1987, there was a wave of labor unrest. Afterwards, a
minimum wage was enacted with an 8-hour workday. In the long run, the suppression of
industrial relations proved to be neither socially stable nor economically productive.

XIV. Taiwan
Taiwan is also making a transition to democracy. In Taiwan, strikes are
forbidden, so slowdowns are used. Unions are anxious to show independence from the
state and ruling parties and to fight for workers’ pay, benefits and legislation.

XV. Australia
Industrial tribunals have played an important central role in the highly legalistic
Australian labor relations system. They solved labor-management disputes of all kinds,
from the day-to-day problem of parties to contract impasses. In settling contract disputes,
the tribunals play a role in regulating wages and other terms and conditions of
employment, thus tending to standardize these in an area and even throughout the
country. Today, the tribunals have less to do with wage setting. They set a minimum
wage, but this wage only is used when an enterprise’s union and managers cannot come
to agreement in collective bargaining. They do, however, maintain their dispute
resolution role in Australia’s decentralizing industrial relations system.

XVI. General Comments


Centralized systems of collective bargaining seem to hold in smaller nations and
in ones with strong socialist tendencies. Decentralized systems tend to reflect a nation’s
free enterprise orientation and larger size. In a large economy like Germany, strong
socialistic leanings overpower size, leading to a centralized bargaining system. The same
is basically true in Great Britain, but this is changing to a more decentralized system.
The United States is a large nation with a strong free enterprise orientation, leading to a
highly decentralized system.
European Integration (1992) is designed to eliminate trade barriers across the 12
member states of the European Economic Community (EEC). This should result in free
trade movement of workers across national boarders. This has implications for the labor
movement. Many of the EEC nations are highly unionized, yet there is wide variation.

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For example, France has a unionization rate of 19 percent, whereas 80 percent of the
Denmark work force and 70 percent of the Belgium work forces are unionized. Other
differences exist. Living standards and hourly labor rates also differ markedly across the
countries. Germany’s hourly wage rate is $18.07, while in Greece, average wages are
$4.61 and in Portugal average wages are $2.73. In Germany, federal law mandates an
elaborate system of works councils and employee representation on corporate boards. In
Ireland, in contrast, there are no formal legal requirements for works councils or
employee representation on corporate boards. Unions are particularly worried that the
harmonization of labor standards will bring a lowering of labor standards.

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Problem Set 17: Comparative Labor Relations

1. The Canadian and American labor relations systems both operate in a legal-political
framework that is exemplified by America’s Wagner (National Labor Relations) Act.
a) What other factors do labor-management relations have in common in Canada
and the United States?
b) Why are Canadian Unions growing while American unions are shrinking?

2. German and Japan have had strong economic growth over the last 30 years, and they
now play very important roles in world trade. Their economic success has drawn
attention to their industrial relations practices as some analysts argue that these
industrial relations systems caused their high economic growth. Japan and Germany
warrant special attention because their industrial relations practices are different –
from each other and from the practices that exist in the United States. Compare and
contrast the major characteristics of the Japanese and German industrial relations
systems.

3. Compare and contrast labor relations in Singapore and Hong Kong with those in
South Korea and Taiwan.

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Answer Key 17: Comparative Labor Relations

Answers to question 1:
US and Canadian labor-management systems are similar in that they share many
of the same companies and unions (such as GM, Ford and the UAW), both have labor
laws that declare government support for unionization and collective bargaining and their
economies are closely linked with free trade between them (NAFTA).
Though labor relations in Canada and the U.S. share many similarities, they are
quite different. The differences explain why Canadian unions are thriving and American
ones are not. One major difference is the attitude of Canadian management – they accept
the right of unions to exist and represent the needs of their members through collective
bargaining. They do not, in general, practice union avoidance, as American management
often does. A second major difference is the role of the Canadian governments – they
protect union power and free bargaining, and in general, provide supportive legislative
environment for unions and the labor movement. Several provinces (Quebec, Ontario
and British Columbia) have banned permanent strike replacements, a favorite tactic of
American management.

Answer to question 2:
In comparing German with Japanese labor-management relations, the first thing to note is
the basic difference in the relationship between union workers and their employer. In
Germany there is a horizontal relationship based on competition while in Japan the
relationship is a vertical one between the paternalistic company and its loyal employees.
Stemming from this is the natural cooperation and joint problem solving that occurs at the
shop level in Japan, without laws mandating worker participation. However,
participation is often limited to the lowest level, which is the shop floor. Under
Germany’s system of co-determination, joint problem solving and decision-making
occurs at all levels of the organization and is mandated by law. Another difference
between the systems is the basis of union organizing. The Germans are industrial-based
while Japan is company (enterprise) based. Further, in Germany most fringe benefits are
mandated by law, whereas in Japan they are not. As a final point, a major similarity
exists between the two systems – a relatively close relationship between unions and the
government. This latter point is felt by many to be the key to the postwar miracle of
German and Japanese economic ascendancy. However, the severe recession of the early-
mid 1990s has put strains on both systems, causing change.

Answer to question 3:
Singapore and Hong Kong are lumped together because they are very small and have
relatively stable and peaceful relations. South Korea and Taiwan are lumped together
because they are larger and have relatively unstable and violent labor relations. All four
are rapidly expanding economies. Because of this, labor-management problems tend to
be both less complicated and more easily dealt with. The larger size of Korea and
Taiwan makes these problems more difficult. Widespread strikes and other labor
violence are the result, especially as long period of political suppression started coming to
an end. Another major difference between the two groups is the movement in Singapore
and Hong Kong from manufacturing-dominated economies to more of a service

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orientation, while South Korea and Taiwan are still heavily oriented toward
manufacturing. Further, labor scarcity is quite pronounced in Singapore and Hong Kong
as compared to South Korea and Taiwan, so workers have been better off in the former
than in the latter. However, living standards are increasing in all four areas, and unions
are growing. It might be noted that the dominant factor coloring everything in Hong
Kong is its reversion to China in mid-1997.

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