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machinery and electronic industries reportImpact of flexible labour market arrangements in the machinery electrical and electronic industries

Report for discussion at the Tripartite Meeting on the Impact of Flexible labour market Arrangements in theMachinery, Electrical and Electronic Industries

Geneva, 26-30 October 1998

International Labour Office   Geneva

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Copyright ® 1999 International Labour Organization (ILO)

Contents

Introduction

1. Flexible labour market arrangements: An overview

2. Global trends in the sector

3. Time for change: Negotiating working hours

4. Work organization

5. Skills, training and education

6. External flexibility and the structure of employment

7. Labour compensation

8. The impact of flexibility on competitiveness

9. Export processing zones: Another form of flexibility

10. Summary and points for discussion

Boxes

Figures

Tables

Introduction

At its 267th Session (November 1996), the Governing Body of the ILO decided that a Tripartite Meeting on the Impact of Flexible Labour Market Arrangements in the Machinery, Electrical and Electronic Industries would be included in the programme of sectoral meetings for 1998-99. At its 268th Session (March 1997), the Governing Body further decided that the governments of the following countries should be invited to be represented at the Meeting: Brazil, Bulgaria, Canada, China, Czech Republic, France, Germany, India, Indonesia, Israel, Italy, Japan, Republic of Korea, Malaysia, Mexico, Portugal, Singapore, Slovenia, Spain, Sweden, Switzerland, Thailand, United Kingdom, United States. A number of countries were included in a reserve list from which further invitees would be drawn in the event that a government on the first list did not accept the invitation. The Governing Body decided that 24 Employer and Worker participants in the Meeting would be appointed on the basis of nominations made by the respective groups of the Governing Body. They will not necessarily come from the above list of countries.

By the mid-1980s most aspects of working life had successfully been subjected to some form of regulation (in the form of minimum labour standards), limiting the maximum number of hours that could be worked or laying down stipulations regarding overtime pay, mandatory rest periods, paid holidays, restrictions on night work and shift work, etc. Nevertheless, within these highly regulated labour markets (often called "rigid" by some), a certain amount of flexibility has always existed with respect to working time, one familiar form of this being overtime, which is compensated at a higher rate than the normal working hours. In very traditional industrial relations systems it was usually assumed that there would be a certain amount of overtime "built into" any collective agreement (sometimes in exchange for a lower initial hourly rate). Other forms of flexibility in working time included short-time working when demand was low, or temporary lay-offs, for example in the automobile industry when factories were being retooled for the next year's models.

Recently, while many trade unions have been pressing for reduced working time, guarantees of employment security and measures to combat unemployment, some employers have been seeking to modify many of the hard-won social protection measures in an effort to make labour markets less rigid. For example, they are striving to match workers' desire for fewer hours worked against the acceptance of a more flexible approach on when and how to work, so as to increase the operating hours of machines without having to pay for overtime. It is against this background that the ILO has prepared this report. This is the first meeting on mechanical and electrical engineering under the reorganized system of sectoral meetings that was introduced in 1996. For purposes of this report the scope of the mechanical and electrical engineering sector corresponds to major groups 382 (non-electrical machinery) and 383 (electrical machinery) of the International Standard Industrial Classification of All Economic Activities (ISIC, Rev.2), 1968. Briefly, these include: the manufacture of general and specific-purpose machinery; domestic appliances; office or business machines; electrical machinery and apparatus; television, radio, video and communications equipment; and medical, precision and optical equipment, including watches and clocks (see box). They do not include the automotive sector (ISIC group 3843), where in fact many of the more innovative flexibility arrangements have originated), and which from now on will be covered by the ILO as part of the transport equipment manufacturing sector (ISIC major group 384).
 

The machinery, electrical and electronic industries at a glance1

ISIC Rev.3

Description

ISIC Rev.2

29

Manufacture of machinery

382

291

General-purpose machinery:

    Engines and turbines
    Pumps, compressors, taps and valves
    Bearings, gears, driving elements
    Ovens, furnaces
    Lifting and handling equipment (cranes, elevators)
    Other general-purpose machinery (packing, bottling, weighing, canning, air-conditioners, refrigerators, fire extinguishers, etc.)

292

Special-purpose machinery:

    Agriculture and forestry machinery and equipment
    Machine tools
    Machinery for metallurgy
    Machinery for mining, quarrying and construction
    Machinery for food, beverage and tobacco production
    Machinery for textile, apparel and leather production
    Weapons and ammunition
    Other

293

Domestic appliances

382

30

Manufacture of office, accounting and computing machinery

383

31

Manufacture of electrical machinery and apparatus

383

311

Electricity motors, generators, transformers

312

Electricity distribution and control apparatus

313

Insulated wire and cable

314

Accumulators, primary cells and batteries

315

Electric lamps and lighting equipment

319

Other (graphite products, ignition and starting equipment, electromagnetic clutches and brakes, traffic control equipment, headlights, windshield wipers, etc.)

32

Manufacture of radio, television and communication equipment

383

33

Manufacture of medical, precision and optical instruments, watches and clocks

383

1 The information presented here is according to the International Standard Industrial Classification of All Economic Activities (ISIC), Rev.3 of 1990 (left-hand column). For reasons of availability, consistency, comparability and analysis over time, the statistical data in the tables throughout this report have been presented under ISIC Rev.2 of 1968. These data are for ISIC 382 (non-electrical machinery) and ISIC 383 (electrical machinery) which, by and large, correspond to the new ISIC classification, with minor differences. A conversion chart is presented in the statistical appendix to this report (Dessing and Mutter, The industry in numbers, op. cit.).

Although the 13th Session of the Metal Trades Committee (which covered what are now regarded as two sectors) already gave considerable attention to flexibility in 1994,(1) this report is devoted exclusively to the subject. The pivotal role of the metal trades sectors as a pattern-setter for the rest of the economy,(2) their size, union density and high exposure to world markets give a wider importance to their experience with flexibility measures.(3)

This research was initiated by Armand Pereira and coordinated by Paul Bailey of the Industrial Activities Branch, who prepared the report, together with Maryke Dessing. Inputs in terms of data collection and contributions to various chapters were provided by Auret van Heerden, Ryo Kawano, Asma Lateef, Christiane Luebbe and Olivier Mutter. Working papers were prepared by M. Echeverria (Chile), L.M. de Oliveira (Uruguay), Bob Forrant (United States), John Buchanan (Australia) and Stefan Lehndorf and Christiane Lindecke (Germany), as well as M. Dessing and O. Mutter (The industry in numbers).(4) For the sake of international comparability the report draws primarily on the ILO Yearbook of Labour Statistics, and computerized information from the United Nations Industrial Development Organization (UNIDO), the Organisation for Economic Co-operation and Development (OECD) and the Statistical Office of the European Communities (EUROSTAT), rather than national statistics. The International Metalworkers' Federation (IMF) and the Western European Metal Trades Employers' Organization (WEM) offered valuable assistance in terms of contacting their members for contributions.

1.  ILO: Recent developments in the metal trades, Report I, Metal Trades Committee, 13th Session, Geneva, 1994 (Geneva, 1993). See for example "A more flexible but increasingly segmented workforce" (p. 43) and "Functional flexibility, multi-skilling and work intensification" (p. 89).

2.  Franz Traxler and Bernhard Kittel: "The bargaining structure, its context, and performance: A case of global competition among national bargaining systems?", Paper prepared for the Conference on Economic Internationalization and Democracy, 14-15 Dec. 1997, University of Vienna, p. 11.

3.  In this context it is also interesting to note that today's preoccupation with flexibility is more focused on the content of the job and other benefits related to working hours and how work is centred around the adaptability and mobility of hours, as opposed to the discussion a decade ago on "concession bargaining", which was more concerned with wage restraint and the reduction of costs to preserve jobs. See ILO: World Labour Report 1997-98: Industrial relations, democracy and social stability (Geneva, 1997), pp. 114-115.

4.  M. Dessing and O. Mutter: The machinery, electrical and electronic industries in numbers, Sectoral Activities Programme Working Paper No. 121 (Geneva, ILO, 1998); hereinafter referred to as The industry in numbers.

1. Flexible labour market arrangements:
An overview

1.1. The general debate on flexibility

In an increasingly competitive economic environment, enterprises are seeking more flexible and innovative forms of organization and production to increase economic efficiency in response to technological change, consumer preferences (emphasizing customer service, quality and variety) and globalization. Successful adoption of new technologies and their impact depend on the institutional context and organizational changes at the firm level. The new work organization practices accompanying the introduction of information and communication technology (ICT) have often been described as "high-performance work practices".(1) This second-round diffusion of microelectronics and advanced manufacturing technology (AMT) in the 1990s, unlike the first round in the 1980s, is associated with the introduction of flexible enterprise models.

It has been argued that Japanese companies succeeded in achieving considerably higher productivity with the same technology because they ensured a better collaboration between men and machines. European firms, in spite of considerable investment in new technologies, had been unable to fully exploit this potential and significantly improve their competitive position because of inadequate work organization and skill shortages. With their fixation on technology, they had failed to make the necessary organizational changes, which require a more holistic approach to company structures.(2) Flexible work organization provides employers with a means of extending operating hours; applying high-wage labour more effectively in the face of competition from low-wage countries and thus raising its productivity, improving the quality of products and increasing the rate of innovation; but also of removing disincentives to hire staff and adjusting employment levels to variations in demand.

High unemployment has led to stronger appeals for increased flexibility in recent years. Reduction of the standard work week is seen by many unions, at least those in Europe, as a way to increase the number of jobs. Shorter working weeks have led to more fundamental changes in the organization of work in order to maintain high rates of capacity utilization and thereby remain competitive. Early and staggered retirement schemes aim to redistribute the existing volume of work and to have a positive net effect on employment levels.

The diversification of employment relationships and working time practices (flexible scheduling, career breaks, sabbaticals, parental leave, part-time employment, teleworking) is also a response to broader societal developments and to changed preferences of individual workers. Higher living and educational standards have led to attitudinal changes concerning the relationship between work, leisure and parental responsibilities. The massive entry into the labour market of women with children played an important part. Parents must respond to pressures emanating from schools, day care facilities and public services. At the same time, in most high-income countries, the number of households without children has risen, reducing the need to fit working hours into tight family schedules.

Many types of arrangements are encompassed by the term "flexibility". The typology presented in box 1.1 will be used in this report, although it is difficult in practice to draw the line between these various forms of flexibility, which are closely interrelated.
 

Box 1.1.
Various forms of flexibility

Functional flexibility, which is closely related to internal flexibility, refers to flexible organization of the workplace with shifting job designs and boundaries. It requires the willingness to adopt new working practices, a collaborative approach to work, and the free movement of people between tasks, underpinned by flexible skills (multiskilling and wide-skilling). Autonomous, self-managed multifunctional teamwork, based on high-quality labour inputs, exemplifies this kind of flexibility. It is essential to respond to technological change or to fast-changing product demand.

Skills flexibility is indispensable for functional flexibility. It requires a strong basic education system, and a commitment on the part of employers and employees to the acquisition of new and transferable skills. It helps maintain high employability and reduces frictional unemployment associated with skills mismatch.

Numerical flexibility, which largely overlaps with external flexibility, refers to adjustments in the number of persons employed, downsizing and outsourcing where necessary. This type of flexibility is constrained by rights to redundancy benefits and protection against unfair treatment and, in some countries, by requirements to consult, negotiate or gain legal approval to restructure. Excessive restrictions on this type of flexibility caused by creating high "costs of exit" can lead to labour market distortions, such as the extensive use of fixed-term temporary contracts, or encourage firms to minimize labour and grow in a highly capital-intensive fashion. Conversely, excessive numerical flexibility might undermine workers' motivation and willingness to participate, which are so important for modern firms, and result in inadequate training because of high labour turnover rates. It may also increase stress and exacerbate other problems related to employment (and income) instability.

Flexible working patterns consist in varying the hours of work (for example through part-time work, shift work and annualized hours) or the type of employment contract (for example fixed-term or seasonal contracts). This form of flexibility is important to enable employers to adapt to peaks and troughs in demand, especially in services. In manufacturing it permits intensive operation of plant to maximize returns on capital investment. It may fit employees' lifestyle choices, such as reconciling work with parental responsibilities, but it may also create problems of time management in coordinating work with other activities and responsibilities.

Wage flexibility is used to adjust wages to changing economic conditions, and to company and individual performance.

Geographical mobility facilitates labour market adjustments, especially to alleviate regional skills shortages and unemployment. Measures that enhance mobility between regions include: language skills, transferable pension rights, mutual recognition of qualifications and flexible housing markets.

Source: Adapted from CBI: Human Resources Brief, Nov. 1997.

The new labour arrangements now being sought are characterized by greater functional and numerical flexibility. They may combine elements of internal flexibility -- adjustments with the firm and the existing contract structure -- and external flexibility -- recourse to the markets, changing the nature and type of contracts. Complex organization and simple jobs have tended to be replaced with simplified organization and more complex jobs.(3) The new arrangements have some or all of the following features:

Flexibility, which encompasses several dimensions, should not however be equated with the opposite of rigidity. Firms can change the mix of functional flexibility (shifting job designs and tasks) and numerical flexibility (changing the quantity of labour input) to adjust labour use; but they can also shift the locus of adjustment, relying to a greater or lesser extent on external markets. For instance, (internal) variations in working hours can substitute for (external) hiring and firing, and outsourcing of certain activities may be used instead of occupational restructuring within firms to acquire specialized competencies. Excessive numerical flexibility, however, might undermine workers' commitment and participation, which new work organizations seek to foster, and result in an inadequate skill base because of high labour turnover rates. The choice of a specific mix will therefore depend on factors such as market conditions (availability of competencies and skills), the state of training facilities and the educational system, labour market regulations and internal firm-level barriers to adjustment, such as workers' adaptability or management's skills and outlook.

Restructuring appears to be occurring in many industries and services, and seems to be most advanced in manufacturing sectors where international competition is strongest and in tradable services, in particular business services. The new work organization has probably been adopted by about a quarter of enterprises in the OECD countries, in particular large ones engaged in capital goods assembly and automobile manufacture. Assembly industries, notably in the automobile sector, typify these changes, which are associated to a certain extent with "downsizing" strategies.(5) However, it is argued that the scope for further adoption is constrained by narrow specialization, inadequate resources, especially for small and medium-sized enterprises, skill shortages, conservatism and lack of strategic orientation on the part of management; obstacles to the adoption of new forms of production and organization are largely seen as internal to firms.

The impact of these new work practices on different aspects of firms' performance, and on the workforce, depends on various factors, including the nature of the firm's activity, conditions in product and factor markets, and the broader institutional and macroeconomic context. National and regional differences can therefore be discerned. The impact of these new work practices also varies considerably from one sector to another. For instance, in services, flexible work arrangements have long been standard practice in order to match working time with variations in customer volume. Here, these arrangements are mainly associated with an extension of operating hours, which are mostly determined by social factors (consumers' demands) rather than economic ones. In labour-intensive service industries, flexible labour arrangements are frequently associated with a worsening of existing standards. In many places, they are introduced above all to reduce labour costs, for instance by replacing full-time workers with part-time workers; in some countries, the latter may earn lower wages and often have fewer fringe benefits. By contrast, in advanced manufacturing, as in the machinery industry, the new working practices and the extension of operating hours offer scope for increasing returns and can thus finance attractive compromises for employees. This sector also tends to have higher union density and a smaller share of women workers than many service industries.(6)

These sectoral differences could therefore lead to widening disparities in working conditions within economies. Moreover, there is a concern that increasingly individualized labour arrangements and forms of remuneration complicate not only personnel planning, but also standard setting and the work of regulating agencies and unions. Increased individualization might weaken solidarity. The associated trend toward decentralized bargaining over working time has altered traditional bargaining patterns;(7) this raises important issues concerning not only the interplay between central and decentralized levels in the bargaining process, but also the workers' position vis-à-vis employers at all levels. For instance, internal flexibility in particular requires less strict and definitive regulation, but more social dialogue and negotiated solutions. Thus, the question remains to what extent new working practices are used not only as tools for raising economic efficiency and profitability but also as means of improving working and living conditions.

1.2. National approaches to
flexibility and adaptability

Institutional, economic and societal differences result in distinct national or regional approaches to flexibility and adaptability. Patterns observed within the OECD countries, for which the most detailed information is available, are briefly presented here to illustrate regional specificities, the interplay with broader structural factors and the trade-off between various aspects of flexibility. However, the account does not claim to be comprehensive. The experience of less industrialized countries is discussed in Chapter 9, in particular with regard to export processing zones.

A comprehensive OECD study identified three approaches in its member States;(8) table 1.1 summarizes key features. The first, market-driven approach, is exemplified by North America, Australia, New Zealand and the United Kingdom. Influenced by relatively liberal market structures, firms have sought to maximize shareholder value and satisfy other short-term financial objectives. Take-over and divestment strategies played an important role in adding and shedding assets in the pursuit of flexibility. Workforce adaptability has been achieved mainly through well-developed external markets, hiring workers with the requisite skills and dismissing those whose qualifications had become obsolete. Vocational training within the enterprise is thus less well developed since firms are less likely to reap the benefits from long-term training and career development. They depend more heavily on externally provided training. This approach relies more heavily on numerical and external flexibility. Part-time and temporary employment are used more extensively, job tenure is relatively short (three to four years for Canada, the United Kingdom and the United States), and wage dispersion has increased -- most notably in the United Kingdom and the United States. Unemployment is relatively low but low-paid employment is more widespread than in countries that have adopted the other two approaches to flexibility.

The second, more consensual approach, is found in Germany, and in varying degrees in Nordic countries and other continental European countries such as Belgium, France and the Netherlands. Capital markets are more restricted, and crossholdings of capital ownership in banks and corporations are common. This approach relies heavily on negotiations to reach consensus among a wide range of stakeholders and therefore permits a more deliberate, long-term approach to strategy and resource allocation. Works councils at the firm level extend traditions of consensual decision-making; consultations at the broad industry level have complemented consensus-based decisions at the firm level concerning skills development and firm strategy. Educational and training systems invest heavily in building a deep skill base and a high level of individual competence, thus facilitating worker adaptability. These elements help create a virtuous circle of skill formation, labour reallocation, productivity growth and employment security at the sectoral level. In the more protected European environment, this approach has depended more on functional and internal flexibility. Part-time and temporary employment are less frequent, job tenure is relatively long (about eight years for France, Germany and Japan) and wage dispersion has not changed significantly.

Japan illustrates the third approach, also consensual, but centred more at firm level. Restricted capital markets and concentration of capital ownership have also kept the focus of strategic decisions on technology and market shares, as for European countries, rather than being geared to short-term financial performance. The educational system provides a broad base of general competencies, complemented by highly developed training practices within firms to ensure labour adaptability. Firm-based vocational training and intra-firm mobility compensate for the fact that less emphasis is placed on occupational skills development compared to the practice in European countries. The same virtuous circle has been created as with the second approach. The third approach also relies more heavily on internal and functional flexibility and seems to have accentuated this trend. Japan is the only country showing signs of increasing tenure for all age groups, but it also uses part-time and temporary employment more extensively.

These regional patterns are losing their uniqueness but are not necessarily converging. Adjustment strategies are becoming more multidimensional. Those that relied heavily on external flexibility are now seeking to develop their internal capacity for change, including their human resources. Those that used relatively closed and consensus-based approaches are turning more to external markets to recruit technical skills. Finally, outsourcing, which is not necessarily linked to the new forms of organization, seems to have become more common in all countries, while the average firm size has generally decreased over the last two decades.

Table 1.1. National approaches to flexibility

Indicator

United States

Canada

United Kingdom

France

Germany

Italy

Japan

Main source of evidence

Downsizing

High

High

High

--

Low

--

Low

Average establishment size

Outsourcing

High level, increasing trend

High level, increasing trend

High level, increasing trend

High level, increasing trend

Low level, increasing trend

Low level, increasing trend

Low level, increasing trend

Incidence of employment in FIRB sector 1

Education/training

Demand-supply driven

--

Demand-supply driven

--

Consensus-driven

--

Consensus-driven

Detailed occupation and education employment data

Employment flexibility: part-time employment

High level, rapid rise in early 1980s and 1990s (slight decline in interim)

High level, rapid rise in early 1980s and 1990s (slight decline in interim)

High level, rapid rise in early 1980s and 1990s (stable in interim)

Low level, rapid rise in early 1980s and 1990s (stable in interim)

Low level, steady upward trend

Low level, no trend

High level, rapid rise late 1980s (otherwise stable)

Part-time employment as a proportion of total employment, 1980-94

Employment flexibility: temporary employment

Evidence of increasing agency work

--

Low level, no trend

Low level, increasing trend

Higher level, no trend

Low level, no trend

Higher level, no trend

Temporary employment as a proportion of total employment, 1983-91

Employment flexibility: tenure employment

Low level, decreasing for older workers

Low level, no trend

Low level, decreasing for older workers

High level, decreasing for all age groups

High level, no trend

--

High level, increasing for all age groups

Employee tenure

Employment flexibility: earnings dispersion

Large increase

Small increase

Large increase

No increase

Small decrease

No increase

Small increase

Change over the 1980s

1 FIRB: Finance, insurance, real estate and business sector, which is commonly thought to be strongly associated with the outsourcing of business services. Since 1979, this group had the fastest growth rate of employment in most OECD countries.

Source: OECD: Technology, productivity and jobs, Vol. 2, Analytical Report (Paris, 1996), p. 168.

1.  United States Department of Labor: High-performance work practices and firm performance (Washington, DC, US Government Printing Office, 1993); and idem: Integrating technology with workers in the new American workplace (Washington, DC, US Government Printing Office, 1994).

2.  G. Bosch: Flexibility and work organisation, Social Europe, Supplement 1/95 (Luxembourg, Office for Official Publications of the European Communities, 1995), p. 5.

3.  ibid.

4.  Adapted from OECD: Technology, productivity and job creation, Vol. 2, Analytical Report (Paris, 1996), p. 130.

5.  ibid., p. 133.

6.  G. Bosch: "Synthesis report", in OECD (ed.): Flexible working time: Collective bargaining and government intervention (Paris, 1995), pp. 20-22, 27.

7.  P. Tergeist: "Introduction", ibid., pp. 12-14.

8.  OECD: Technology, productivity and job creation, op. cit., pp. 129-175.

 

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