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News in Brief
Grow old, be poor
New report says most world workers won't have old age pensions
Are the workers of the world on a doomed voyage to old age? A new ILO study 1 says some 90 per cent of the world's working-age population is not covered by pension schemes capable of providing adequate retirement income. The book, "Social Security Pensions: Development and Reform" blamed bad management of many of the schemes which do exist, saying it renders much of the worlds population exposed to the risk of poverty in old age.
Even where coverage is nearly universal and schemes are well managed, as in the advanced industrialized countries of the Organization of Economic Cooperation and Development (OECD) - mainly North America, Western Europe, Japan and Australia - major problems in financing pensions will arise in coming years as populations age and as countries seek to diversify the risk to individuals, the book says.
"OECD countries already spend an average 10 per cent of their Gross Domestic Product (GDP) on old-age retirement benefits, which exceeds their total spending on health care," said Colin Gillion, ILO Director of the Social Security Department, and an editor of the book. With that number rising, Mr. Gillion said OECD pension plans are "generally excellent, but expensive. The best way to deal with ageing populations is to increase the actual age of retirement and to increase the number of women in employment."
The ILO study found that the US pension system - and to a lesser extent, the system in the United Kingdom - carries more risk for its members than those of West European countries, because the US and UK systems rely more heavily on occupational- and privately-funded schemes rather than complete government financing.
The ILO study is also cautious about one of the most fashionable panaceas for helping these pension schemes meet future needs - investing funds in financial markets. According to Colin Gillion, "Investing in financial markets is an uncertain and volatile business. Under present pension plans people may save up to 30 per cent more than they need, which would reduce their spending during their working life; or they may save 30 per cent too little, which would severely cut their spending in retirement. Which way around cannot be foreseen at the beginning of a working life."
The ILO says that an option for the United States might be to increase the Social Security contribution from workers and employers: "Raising the contribution rate by one or two percentage points, or even better, by planning further increases in the actual age of retirement, would solve most of the deficit problems far into the future for Americans," Mr. Gillion says.
Legislating retirement: A tricky job
Many OECD countries have legislated increases in the age for early retirement in an attempt to encourage workers to delay leaving their jobs. A number of countries have reduced benefits by increasing the years used in the earnings averaging period, reducing the adjustment for cost-of-living increases for retirees, or requiring more years of work to qualify for certain benefits.
However, this sort of fine-tuning of eligibility and retirement age is a luxury most countries cannot afford. It is one which is politically difficult to achieve, and which can strain the basic social consensus underlying pension schemes.
"The lack of more complete pension coverage throughout the world will become a growing problem as lifetimes are extended and the importance of traditional extended family units, which once provided old age protection, diminishes," says Mr. Gillion.
Among the book's findings are:
• Pension schemes in countries of the former Soviet Union have become practically worthless with the collapse of national economies;
• In general, pension schemes in Africa are very weak and badly managed;
• Pension schemes in Asia have been weakened by the continent's financial turmoil of the late 1990s;
• Retirement schemes in Arab States of the Middle East are relatively young and face major problems in dealing with the high percentage of foreign workers who are not permitted to join the schemes;
• Many retirement schemes in Latin America and the Caribbean are performing poorly, with at least eight countries converting their schemes to different systems.
The report identifies five main causes for the failure of pension schemes in developing and reforming countries to provide wide coverage:
• In many developing countries, the majority of people work in the informal sector or in rural regions which provide few or no benefits or worker protection of any kind;
• Employees in small companies with 10 or less employees are often excluded from participation in social security pension schemes;
• Many existing pension schemes are badly managed, with the consequence that they have overly high administrative costs and do not deliver benefits when they should;
• Many schemes are unable to collect contributions from all the people who should pay into them, which leads them into financial deficit;
• Many schemes are based on weak and unregulated financial systems and may be open to corruption.
The ILO is working with middle-income and developing countries to develop pension schemes or to reform existing schemes. These countries include: China, Indonesia, Madagascar, Morocco, Panama, Philippines, South Africa, Thailand, Tunisia, Turkey, Ukraine, Uruguay, Vietnam, several Central European countries, and several Caribbean countries.
The search for a new balance
The ILO study makes specific recommendations on how countries can increase the percentage of protected workers and improve benefits for everyone.
The ILO says that all countries should adopt the goal of extending coverage to all members of the population. Other desirable goals include instituting schemes which protect not only against poverty in old age, but also against disability and benefits for the family in case the wage earner dies; adjustment of retirement income to take account of inflation and a general rise in living standards; development of additional voluntary provisions for retirement income.
The most crucial challenge is extending even minimal old-age retirement benefits to the hundreds of millions of workers in the informal sector. In Africa, upwards of 90 per cent of the workforce are engaged in informal, small-scale and often subsistence-level activities with little or no social protection. In Latin America, the informal sector is the only part of the labour market which is growing, accounting for 80 per cent of all new jobs created.
Among the ILO recommendations to extend coverage to this vast and growing sector are: modification of existing schemes to cover excluded groups; designing special schemes for excluded groups; introducing tax-based, universal or targeted anti-poverty schemes; and encouraging the development of special schemes based on self-help among people in the informal sector.
The ILO emphasizes the need to improve management and governance of existing pension funds by involving workers and employers in the process. It says that compliance in nearly all schemes needs improvement. Ensuring this remains the responsibility of governments.
The ILO also says that countries should take many ideas into consideration before raising the age of retirement. The ILO warns that by raising the retirement age, older workers will then need better disability and unemployment benefits.
The ILO recommends that countries avoid trying to develop a single perfect retirement system. "All countries need to develop pluralistic designs and flexible structures for their social security schemes," the book says.
Rise of pension schemes
At the beginning of the twentieth century, few workers possessed the security of an old-age pension. In developed countries, most people either died early or worked until they were in their late 60s, spent a brief retirement living with their children, then died in their early 70s. To be old generally meant to be poor. Becoming disabled signified that poverty began earlier.
For developing and middle-income countries, older people faced much worse prospects. Incomes were substantially closer to subsistence levels and the capacity of children to support their parents was less. Death came earlier, and the famous expression applied more: "Life was nasty, brutish and short."
At the beginning of the twenty-first century, the situation has dramatically changed. In developed countries, the incidence of poverty in old age is now comparable to levels in the remainder of the population. Life expectancy is longer and most workers can expect a significant period of retirement with a reasonable income.
Disability pensions and the possibility of early retirement have reduced the financial risks of incapacity to work. Almost all women are entitled to a survivor's pension, and a growing majority are entitled to a pension as workers in their own right.
Alongside these changes, an increasing number of developing countries are beginning to emulate the experience of the developed countries, in terms of the extension of coverage and in the improvement of benefits.
A large part of this profound improvement in social conditions can be attributed to the creation of social security pensions which must be counted as one of the great social developments of the last 100 years. Pensions accelerated in the second half of the twentieth century, after growing hesitantly in the first half. Pension outlays in the developed countries grew at twice the rate of gross domestic product (GDP), and more and more developing countries and middle-income countries attempted to provide benefits for retirees.
The task is only half complete, the book shows. Pension schemes throughout the world are in a state of upheaval. On the one hand, the developed countries are contemplating new architectures for the financing of pension outlays. This will require careful thought and the development of a new consensus. But on the other hand, the overwhelming majority of the world's population is still without some form of income security in old age or disability.
To extend the security available to workers in the developed countries of the world to workers in all other countries remains a paramount task for the early years of the century.
"It will require great effort, great imagination and an enlightened adaptation to the different circumstances of developing countries," the book says. "It means extending the coverage of pension schemes (and all other forms of social security), improving their governance, and ensuring that the design of the schemes is both economically efficient and compatible with internationally accepted human and social values."
1 Social Security Pensions: Development and reform, edited by Colin Gillion, John Turner, Clive Bailey and Denis Latulippe. International Labour Office, Geneva, 2000. ISBN 92-2-110859-7. Price: 120 Swiss francs. See also ILO press release ILO/00/14.
Pension Schemes by Region
The OECD Countries - OECD countries rely primarily on pay-as-you-go, defined-benefit schemes for providing social security retirement benefits. These schemes are frequently supplemented by voluntary funded schemes, mostly operated by the private sector. "This means that the schemes will all need more revenue of some kind - whether from higher taxes or higher participation rates or from the active generation," Mr. Gillion says. "The ILO believes the active generation can increase its participation by pushing up the actual age of retirement or increasing the participation rates of women. That is true whether the plan is public or private, partially or fully funded."
Asia and the Pacific - Funded pension schemes in the Asian region have been hard hit by financial turmoil, arising in part from excess government regulation of the national financial systems.
"Singapore and South Korea probably have the healthiest and most comprehensive pension schemes in Asia," Mr. Gillion says.
One striking feature of this region is the large number of countries with no mandatory pension schemes, a legacy of the time when most of these countries were former British colonies where provident funds existed. A provident fund - which normally pays out one lump sum upon retirement rather than a fixed monthly payment over a lifetime - does not fulfill the same function as a pension scheme because it does not provide a replacement income for the length of the retirement. Indonesia, Malaysia and Singapore provide benefits through provident funds.
Countries in the region less exposed to British influence have, for the most part, set up social insurance pension schemes to cover employees and sometimes the self-employed. These include countries as diverse as the Republic of Korea, the Philippines and Viet Nam. A few countries, such as Thailand until 1998, did not provide any statutory retirement benefits.
Pakistan, despite its strong British connections, opted for a social insurance pension scheme in the 1970s. India has recently established a social insurance pension scheme, though this did not happen until half a century after the end of British rule.
Africa - In general, and with few exceptions, the coverage and effectiveness in Africa of existing social protection schemes for retirement, invalidity and death are weak. This derives from a number of factors - some political and economic, and others that reflect failures in governance at all levels, from the design of pension schemes to their operation.
Pension schemes originally designed by colonial governments often took insufficient account of the socio-cultural context and thus proved limited and inappropriate coverage. Since independence, this tendency has been compounded by adverse economic and political circumstances in most African economies, as well as by mismanagement. Many African pension schemes have failed to provide effective social protection, even for the small minority of the population they cover.
Some African countries provide benefits through provident funds, but a trend has emerged of ending those funds and converting them to defined-benefit pay-as-you-go funds, as Tanzania recently did.
Latin America and the Caribbean - Most countries in the region provide benefits through defined pay-as-you-go schemes. However, because of the poor functioning of their defined-benefit social security schemes, an increasing number of countries - eight as of 1998 - have converted, at least partially, to funded pension schemes. These schemes involved fully-funded individual accounts which are managed by private sector pension fund managers. Sometimes the government also operates a pension fund management company which competes with private companies to attract workers as clients.
While it was thought that converting to a defined contribution scheme would reduce contribution evasion (because benefits would be tied more closely to contributions) evasion remains a problem in many Latin American and the Caribbean countries. Some Caribbean countries have begun converting their provident funds into defined-benefit pay-as-you-go schemes.
The Arab States and the Middle East - In much of this region, which contains both some of the world's wealthiest and poorest countries, most pension schemes are relatively young, with none more than 50 years old. All of the programs are traditional, defined-benefit social insurance programs, in most cases financed by contributions from both employers and employees, with the state covering any deficit.
Birth rates tend to be high in this region and population aging is not viewed as a problem. Some of the countries have workforces with a high percentage of foreign workers. The treatment of foreign workers is a social security issue in the region because some of the countries exclude them from pension coverage.
Central and Eastern Europe, and Central Asia - Countries in the region are still in the process of transforming their economies from command-based to market economies, or of coming to terms with the costs of the transition. The social protection schemes in most of these countries have features inherited from the systems of the former planned economies, which consisted of a visible or explicit component, and an invisible or implicit component. The visible meant provided pensions, short-term cash benefits and health care. The implicit component added security through specific socialist income redistribution mechanisms, such as guaranteed employment, the provision of low-cost housing and heavily subsidized basic goods and services, educational supplies, books, and cultural goods and services.
Many of these countries are rethinking their social security schemes, with some adopting defined-contribution schemes. It is too early to evaluate their performance, but schemes in countries such as Poland, the Czech Republic, Hungary and Slovakia are in decent shape. The countries which arose out of the Soviet Union, from Russia itself to the Central Asian nations, are in much worse shape, because their economies are so weak.
A story of "hardship and decline"
After the fall: In Ukraine, most workers are out of work, on leave or earning nothing
GENEVA - A new ILO study 2 of industrial enterprises in Ukraine says the first decade since the break-up of the Soviet Union has meant a shrinking economy and plunging living standards. Some workers work on paper, others are on unpaid leave. And some aren't paid at all.
"The conventional statistics on employment and unemployment are distorting and misleading", says Guy Standing, the Director of the ILO InFocus Programme on socio-economic security in the twenty-first century, who designed the survey. "Most of the nominally employed do not have jobs, and many of those in jobs are not being paid."
The survey covered a representative national sample of 690 firms employing 583,679 workers. It was carried out in 1999, and a comparable survey is now under way. The following are among the main findings:
• Ukrainian industrial firms are operating at less than 44% capacity, compared with 66% in 1995 - an unprecedented decline which has made the level much lower than in any industrialized economy;
• Over 38% of firms reported that they could produce the same level of output with fewer workers, even though they have cut employment considerably over the past decade;
• On average, firms reporting that they could cut employment without reducing output estimated that they could cut one in every four jobs;
• Over 18% of all workers were on unpaid "administrative leave"; i.e., laid off - counted as employed but in reality unemployed; a large proportion had been on unpaid leave for at least three months;
• Over 20% of workers were on short-time, most not receiving any income; even those not classified as working short time were working short work-weeks - 32 hours on average, compared with a national standard work-week of 40 hours;
• About 12% of all women nominally employed in Ukrainian factories were on long-term "maternity leave", even though the fertility rate is extremely low; consistent with the view that such leave was a way of laying-off women workers, the extent of maternity leave was higher in firms whch were in greatest economic difficulty and in which employment had fallen most;
• Taking account of all forms of visible surplus labour, about one-third of all workers are laid off at any time; these are counted as employed, but make a mockery of the official rate of registered unemployment, which has remained below 5%;
• In 1999, over 80% of all factories reported that they had great difficulty in paying their wages;
• Four out of five factories have not been paying the contractual wages to their workers, and on average in those factories, wage arrears have lasted for over 20 weeks;
• Wage inequality has increased since the early 1990s, within enterprises, between enterprises in the same sector, and between sectors; in addition, while there has been a widespread erosion of benefits paid by enterprises to their workers, there has been a strong tendency for firms paying relatively high wages to provide workers with more benefits than in low-paying firms - accentuating inequalities; in effect, the cutback in benefits has been concentrated in firms with low wages;
• In most factories, a small minority of workers were receiving wages well below the average, and well below what is required for survival; this category has come into existence partly as a result of the tax-based incomes policy which international financial agencies encouraged the country to adopt earlier in the decade;
• There has been a steady erosion in the provision of enterprise benefits and social services; enterprise benefits have long been a mainstay of social protection and have augmented low money wages, so their loss represents a severe blow;
• Although women have retained nearly 50% of industrial employment, more managements than in the mid-1990s admit to discriminating against women in recruitment and in the provision of training; nevertheless, contrary to common claims about the impact of the "transition" in eastern Europe, there is no sign that women are being marginalized, except with respect to the peculiarly high level of "maternity leave".
"The results of the survey should be seen in the context of the economic and social dislocation in the country. For over a decade, the economy has shrunk, and living standards have plunged", Mr. Standing says.
Currently, average per capita income is about US$25 per month. Ukraine, which became an independent nation in 1991, had a population in the early 1990s which approached 52 million. The population has shrunk to less than 50 million, very largely because of the rise in the mortality rate. Average male life expectancy at birth has fallen by about three years to 62 years, while the female equivalent is 73, representing a much smaller decline.
Says Standing, "The high adult mortality rate is the most revealing statistic of the depth of the decline in living standards, and is stark evidence that this large, strategically placed country is facing a social, economic, political and demographic crisis demanding far more attention than it has received."
2 For the full report, see G. Standing and L. Zsoldos, Worker Insecurities in Ukrainian Industry: The 1999 ULFS (Geneva, ILO, Socio-Economic Security Report, April 2000). The survey is the sixth round of the Ukrainian Labour Flexibility Survey, designed by the ILO and carried out by the Ukrainian State Committee of Statistics. See also ILO Press Release ILO/00/13.
A global coalition for decent work
ILO Director-General addresses May first workers' jubilee in presence of Pope John Paul II
ROME - Speaking in the presence of Pope John Paul II on May 1, the ILO Director-General, Juan Somavia urged representatives of workers, employers and entrepreneurs attending a "Workers' Jubilee" here, to unite in the pursuit of "a global coalition for decent work".
In an address to an estimated 200,000 participants marking the first of May, Mr. Somavia called for a re-examination of the "rules and policies that govern our global economy" in order to give it "the ethical backbone it lacks" and to ensure that it "benefits the many, not just the few".
Below is the full text of the statement "Work for All: Path of Solidarity and Justice", by Mr. Somavia at the Jubilee of Workers - May 1st, 2000:
"Holy Father,
Thank you for convening this event.
Thank you for being with us.
Thank you for inviting me to make this address.
On this first of May, let me propose that we honour the labour struggles of the past as well as those who in recent times have risked their lives and stood up to powerful forces unwilling to listen to the organized voice of workers.
I think of Lech Walesa of Poland, of Manuel Bustos of Chile and of Steve Biko together with the whole labour movement of South Africa. In our day, I think of Muchtar Pakpahan of Indonesia, fortunately a free man today, and a host of other courageous women and men.
Your Holiness,
Those of us gathered here today represent different dimensions of the world of work. Yet, beyond our various perspectives, we share a common responsibility to expand the frontiers of decent work for all in today's troubling global economy. We have to redress the enormous sense of insecurity that invades the home of so many families worldwide. It is a global struggle for human dignity.
I come to you from the International Labour Organization with a secular appeal to all people of faith: we need action now, right away, urgently. To begin with, for each of us to live our values, to integrate principles of justice, fairness, equality and compassion into our daily lives, from the intimacy of our homes to our interaction with the world. To consciously use our moral compass to take decisions, to influence decisions. To make our voices heard. To promote solidarity without frontiers.
Too many, far too many women and men are excluded from employment, from property,
from representation, from the effective defence of their rights;
Unstable global financial systems generate crises, with enormous social costs;
Jobs have become more precarious in offices, factories and farmlands;
Feelings of uncertainty are spreading, not only among the poor and dispossessed, but also
among the middle classes;
Working hard does not guarantee a life free from poverty.
The world is full of working poor - mainly in the South but also in the North.
What should be done?
Holy Father, you have said it very clearly. "Perhaps the time has come for new and deeper reflections on the nature of the economy and its purposes."
Following your wise guidance, I believe we should re-examine the rules and policies that govern our global economy.
We should develop the political will to recast those rules so that globalization benefits the many, not just the few. So we can expand to more people the advantages of open markets and open societies. So that the promise of the information society reaches the excluded and does not create new inequalities. So that globalization acquires a widespread social legitimacy that it lacks today.
That is why I call on us to exercise our personal and collective responsibility to make markets work for all. To make decent work a way out of poverty, and into personal dignity on the path to realizing life's richness.
I call on us all to unleash the creative potential for entrepreneurship. To invent new enterprises, new cooperatives, new initiatives that respond to unmet human needs. To maximize not just profit but social impact. To measure returns on investment beyond the bottom line. To care for people and nature at the same time.
I call for a global coalition for decent work.
As Jubilee 2000 has shown, we can successfully promote debt eradication for poor countries.
With the same kind of advocacy, we can promote core labour standards as a social "floor" to the global economy. Promote the right of all workers to organize and negotiate. Make equality between women and men a reality. With your help in ratifying and implementing the new ILO Convention, we can end the worst forms of child labour. Together, we must put a stop to forced labour.
With your support for microcredit, small enterprises, and macroeconomic policies geared to full employment, we can give every person more opportunities to work. We can promote both freedom of enterprise and freedom of association for the benefit of all.
With your love, hope and support, we can create societies of inclusion. A global community where everyone can participate in the banquet of life.
Are these dreams? Or can we all work together to achieve these ends? I believe we can. However strong our differences may seem to us, we must never lose hope that we can share common hopes. The hope for decent work around the world, for our families and the families of our children, can become a reality. The resources and the knowledge are available, but the will and policies are not. The social doctrine of the Church has helped many to find the right pathways.
We know that time and time again, the strength of the human spirit has shown that situations which seemed unchangeable, in fact, were not: the demise of slavery, colonialism, the Berlin Wall, apartheid, entrenched dictatorships, the creation of trade unions, the vote for women and other civilizational progress were made possible by the strength of ordinary people working together.
We can repeat those successes if we muster the moral conviction to sustain our commitment to practical action. Today, it means giving the global economy the ethical backbone it lacks.
Holy Father,
Those of us gathered here today are a sample of the "global family", as you called the whole of humanity in your last message for the celebration of the World Day of Peace. We are here to receive your guidance, your inspiration and your indefatigable energy."
Source: ILO/00/15.
"Presenting the all new
'Standortsicherungsvereinbarungen'..."
From online to assembly line: Globalization, e-commerce are changing the way we make, buy and scrap cars and other transport equipment
Globalization is forging a new industrial revolution in the US$1.7 trillion transport equipment manufacturing (TEM) sector, with major consequences for millions of workers. A new report 3 by the International Labour Office says car makers may soon be mostly parts makers, while many automobile companies may be opening showrooms in cyberspace. Meanwhile, labour unions are struggling to keep up.
The 200-page report, prepared for a meeting on "The Social and Labour Impact of Globalization on the Transportation Equipment Manufacturing Industry", shows that globalization is radically altering the way cars, trucks, planes, trains and other equipment for moving people or goods are ordered, built, sold and scrapped by more than 7 million workers worldwide.
"While the nation-state remains the main point of reference for societies, it is becoming less relevant for economic matters," says Paul Bailey of the ILO Sectoral Activities Programme and main author of the report. "With improved, speedier transportation, freer trade, lower tariffs and new pricing structures, globalization has become the most profound development in transport equipment manufacturing since Henry Ford's assembly line."
The report says automotive companies may ultimately become marketing firms, grouping a transportation system around a recognized logo and providing the customer with credit, insurance and financing. A car billed as "Made in the USA", for example, may be the result of German design, Singaporean parts, Japanese electronics, Republic of Korean sub-assembly, British marketing and Irish data processing.
These changes are significant for governments, workers and employers because of the importance of the TEM sector, especially the automobile industry, which "is so paramount in many countries that it is often considered by governments to be a barometer of their economies." In the new globalization paradigm of vehicle manufacturing, shop floor employment in TEM is increasingly taking a back seat to outsourcing, marketing, information technology (IT) and leasing, as well as design, marketing, advertising and sales.
One major finding of the report is the rise in employment in the automobile parts (components) industry. All major employment increases in the sector have been among such suppliers the report says, noting that workers in the car parts industry in such countries as Canada and the United States already outnumber those in final automobile assembly by a factor of 2 to 1.
Such employment shifts are cause for concern among TEM unions, traditionally the powerhouses of organized labour in many countries. The report notes that suppliers are taking on less and less unionized labour, often resulting in lower wages than in the factories where final assembly is done.
Assemblers and suppliers
The automobile industry is the most significant segment of the TEM sector. Two-thirds of world automobile production is concentrated in just six countries: Japan (20 per cent), the United States (14 per cent), Germany (13 per cent), France (6.6 per cent), Spain (5.4 per cent) and the Republic of Korea (5 per cent). Another five - the United Kingdom (4.5 per cent), Canada (3.8 per cent), Italy (3.3 per cent), Belgium (2.6 per cent) and Brazil (2.8 per cent) - account for over 20 per cent. Of the developing countries only the ROK and Brazil have made it into the major producers. Mexico has potential and Asian countries such as Thailand, Malaysia, the Philippines and Indonesia are pinning their hopes on future projects. (Some projections predict that the number of cars in the world will more than double in the next 15 years, with most of the increase being produced and sold in Asia. This would bring enormous employment opportunities, but may pose severe infrastructure and pollution problems.)
With the exception of South Africa, few countries in Africa have been able to mount large-scale assembly (or manufacturing) activities, although many are trying, such as Botswana, which hopes for export opportunities with the disappearance of customs duties.
The ascendancy of the parts (components) industry and the fact that workers in the car parts industry in some countries already outnumber those in final automobile assembly, is largely due to outsourcing of work formerly done in the automobile factories.
The report cites countries such as Mexico where the so-called "maquiladora" (or in-bond) industry has seen an increase of 31.4 per cent or employment for 200,000 workers, in the auto parts industry since the start of the decade. In the United States, final assemblers shed some 50,000 jobs between 1987 and 1998, while parts suppliers generated almost 150,000 jobs, according to the US Bureau of Labour Statistics. While Canadian assemblers actually created some 3,000 new jobs between 1991 and 1996, independent parts producers generated about 30,000 new jobs according to the Canadian Auto Workers Union (CAW) and now employ about twice as many workers as the automobile manufacturers themselves.
"Understandably, trade unions are concerned that the increased use of suppliers will result in the outsourcing of previous union jobs, at lower wages, to outside suppliers," the report says. "They also fear that such companies, whether old or new, will not be unionized, or will be difficult to organize. A first look at the available data confirms this line."
The Internet is also changing the way people order cars, how companies sell them, how parts (suppliers) are coordinated and how production is organized and may also have an impact on organized labour, the report says. The concept of "Auto.com" has become a virtual reality in many countries, and some companies now have a WYSIWYG ("What You See is What You Get") Web site that allows customers to configure and order their own cars, potentially eliminating automobile dealers, sales personnel and other employees, the report says.
Other TEM industries
Other transport industries also face a significant impact from globalization. As a result of global competition, shipbuilding has suffered major declines in Europe and North America in recent years. As a result of reunification, Germany still maintains a prominent position in Europe. Poland and Romania have potential, but are still relatively small, and may have more of a role in supplying parts of vessels for assembly elsewhere. Asian states (Japan, the Republic of Korea and China) have become the big winners, while Viet Nam and India are developing capabilities.
The flip side of shipbuilding - ship breaking - is also seeing a significant impact from globalization. With the introduction of environmental and safety laws in China - once the major breaking nation - ship breaking is involved in a "race to the bottom" to find countries where occupational health and safety standards are not enforced for this highly dangerous work, the report says. Often, such work is done in Asian countries (India, Bangladesh) by migrants, in a total absence of any collective bargaining or industrial relations procedures.
With only two manufacturers of large civilian aircraft, the competition between them will increase. Makers of military aircraft have become fewer and fewer, but also follow the global trend of large-scale cross-border mergers and strategic alliances. The two major manufacturers of civilian planes and three builders of under-100 seat planes can trace their origins to over 30 companies. There remain only three manufacturers of aircraft engines, all of which saw job losses in recent years, and none of which manufacture a single part, with virtually all components being supplied through subcontracting.
The pressures of globalization and mergers have also been felt in the manufacture of locomotives, with four leading manufacturers emerging worldwide. One company, Adtranz, formed through the merger of AEG-Daimler Benz with ABB Henschel, can trace its origins back to 46 companies from 13 different countries, the report says. Adtranz restructured and shed 1,100 jobs in the last two years and plans to cut another 1,400 jobs in Germany in the next years, bringing its workforce in that country down to 6,000.
Social and labour issues
Organized labour and employers have reacted to the globalization of TEM in a number of ways. Major new forms of work organization, such as teamwork, flexible working arrangements, time accounts, the four-day week, etc., have been pioneered in the automobile industry and are often imitated in other sectors. However, many of these flexible arrangements are also introduced under the menace of global competition and the threat that work and jobs will have to go elsewhere unless established work patterns become less rigid.
For example, Japanese or German companies with long-standing union traditions at home may embark on so-called "greenfield" or new plant investments, in environments not conducive to unionization. Some examples are Mercedes in Tuscaloosa (Alabama), BMW in Spartanburg (South Carolina) or the Smart car in Alsace.
"Under such new production systems the traditional role of unions in controlling jobs is diluted almost to the point of disappearing," the report says. "Nevertheless, a study of Mercedes and BMW in the United States found that despite the absence of trade unions, low age of the workforce and lack of previous experience...management always had the spectre of the union in the back of their minds. For example, initially low wages are now reported to be approaching the levels paid to workers under collective agreements in other factories."
To combat these tendencies, unions have resorted to a number of tactics. One such has been to negotiate "neutrality letters" (or agreements), in which the employers agree not to hinder union-organizing campaigns. Another is the adoption of "employment pacts" (in Germany, referred to as "Standortsicherungsvereinbarungen" (production site guarantees) and multi-year collective agreements providing guarantees of employment and the continuation of production at local sites over a certain period of time.
What will the workforce in the transport equipment manufacturing industry look like in the twenty-first century? Based on available data, it is obvious that fewer and fewer workers will be directly employed for assembly operations. This does not mean that the vehicles will build themselves, although automation and the use of robots are on the increase, signifying "the end of the factory as we know it," the report says.
Increased attention will be paid to the design of the vehicle, implying more scientific, IT and engineering jobs. Employment in the industry as whole may remain stable or even increase as jobs which were previously done in-house are now done by suppliers, who may even install the component they produce.
Source: Press release ILO/00/16.
3 The social and labour impact of globalization in the manufacture of transport equipment, Report for discussion at the Tripartite Meeting on Social and Labour Impact of Globalization in the Manufactures of Transport Equipment , Geneva, International Labour Office, Geneva, 2000. ISBN 92-2-112032-5. Price: 27.50 Swiss francs. Available on the Internet at www.ilo.org.
Enterprise creation by the unemployed
The role of microfinance
BONN, Germany - Between 1 and 4 per cent of registered unemployed in industrialized countries decide to go into self-employment, according to a new ILO report 4 which adds that there is "a widespread sense in all countries that something needs to be done for self-employment".
The report was prepared for an international conference 5 in Bonn held assess and compare the findings of research on enterprise creation by the unemployed from seven industrialized countries: Canada, France, Germany, Ireland, the Netherlands, the United Kingdom and the United States. Self-employment programmes' performance, business survival factors, quality of work in microenterprises and public/private partnerships were also on the Conference agenda.
Unemployed starters of businesses face special difficulties obtaining funding: less securities, a reduced income and little trust. In addition, the amounts required for start-up capital are simply too modest to be of interest to banks; in Germany, 60 per cent of all self-employed start with capital below US$26,000, in France, on average, with less than US$22,000, while micro-businesses in Canada start with less than Canadian $25,000. US banks claim that they cannot finance loans below US$25,000 because of transaction costs involved, lack of track record and collateral. Small, and in particular, start-up firms in the United Kingdom also confront generally higher interest rates for credits than larger firms.
In a survey of banks in Germany "only about 5 per cent of the credit applications from unemployed founders of businesses won approval. Among persons not unemployed the rate of approval was up to ten times higher." Only savings banks occasionally agree to finance business starters coming out of unemployment.
Self-employment programmes which aim to assist the unemployed in setting up their own enterprises have been part of active labour market policy since the end of the 1970s. Large government-funded programmes targeted at the unemployed, like the Bridging Allowance in Germany, SEA (Self-Employment Assistance Program) in Canada, ACCRE (Aide aux chômeurs créant ou reprenant une entreprise) in France, use income support, i.e., grants equivalent to a certain number of months of unemployment insurance benefits.
Private initiatives to stimulate self-employment, like community development banking and similar concepts, are increasingly attracting attention. The programs are generally funded by governments, but managed by private or mixed agents. Income-support schemes reach thousands of people, while many small programmes reach hardly 500 people. Some self-employment programmes are exclusively targeted at the unemployed, but not all.
Work quality and business success
Size, location, legal form and quality of financial management matter for survival and success of the enterprise, as do personal attributes. In Germany, 70.4 per cent of recipients of the Bridging Allowance are still in business after 3 years, compared to 64 per cent of "normal" business start-ups. In the United Kingdom, half of all businesses started under the Enterprise Allowance Scheme closed within 3 years, which still compares favourably with mean survival duration of 32 months for all individuals - employed and unemployed, assisted or not - entering self-employment. In other words, despite their handicaps, the self-employed coming out of unemployment succeed just as well as other self-employed. Moreover, a large proportion (30 to 40 per cent) of those who give up in the course of the first three years, return to regular wage employment. Participation in a programme is associated with a high degree of survival probability.
The self-employed work more hours than comparable employees in wage employment. In the Netherlands, 25 per cent work more than 60 hours a week, in Ireland 50 per cent work more than 40 hours and in Germany the self-employed spend on average 54 hours per week in their enterprise.
4 Micro-finance for Self-employment: Enterprise creation by the unemployed, An ILO Action Programme, Synthesis Report, ILO, Employment Sector, Social Finance Unit, Geneva 2000.
5 Enterprise Creation by the Unemployed - The Role of Micro-finance in Industrialized Countries, Bonn, Germany, 24-26 May 2000.
The Workers' Soccer World Cup
Bringing about ideals of solidarity among workers
The Workers' Soccer World Cup is a new event in Brazil and in Latin America, organized to pay homage to workers and to soccer.
Although it is purely social in character, the Workers' Soccer World Cup brings about ideals of solidarity among workers in a world which aspires to integration but remains divided by wealth and working condition gaps in different countries and regions.
In cooperation with SESI, SENAI, and other patron institutions, the International Labor Organization supports events through publicity among workers' and employers' organizations and the government, besides providing administrative support in participating countries and territories whenever necessary.
The Workers' Soccer World Cup being carried out in Sertãozinho is also a special homage to workers and employers of this region and especially to their local, state and national unions, which favoured the organization of this event.
ILO congratulates the City Authorities of Sertãozinho, UNESCO, AMIL, Comitê Olímpico Brasileiro (COB), Confederação Brasileira de Futebol (CBF), Karsten, Banco do Brasil, Confederação Esportiva Internacional do Trabalho (CSIT) and especially Serviço Social da Indústria - SESI, as well as the whole CNI (Confederação Nacional da Indústria) system for this important initiative.