Impact 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

Part 5    

Copyright ® 1999 International Labour Organization (ILO)

5. Skills, training and education

When considering skill formation, it is important to recognize that we are not just referring to "training" in a narrow sense. Indeed, to understand today how skills are transmitted and acquired in the metal industries consideration must be given to on-the-job training (structured and unstructured), structured in-house off-the-job training and training provided by equipment suppliers as well as training provided by public training institutions and so-called private providers. When examining skill formation it is also important to remember that many individual workers themselves play a very active role in the process. They often undertake training in their own time and at their own expense.⁽¹⁾

5.1. Skill requirements⁽²⁾

A recent OECD study revealed that in every industry where employment has grown, white-collar high-skilled jobs have also increased significantly. At the same time, where employment has declined, white-collar high-skilled jobs have also continued to increase in most cases (the only exception being German low-technology industries). Conversely, blue-collar low-skilled jobs have declined in every country and every type of manufacturing industry, with the exception of Japanese high-technology industries, where there was remarkable job expansion in the 1980s.

The OECD report referred to studies suggesting that the development and use of advanced technologies were associated with the employment of highly skilled workers, although the direction of the causality was difficult to establish. Overall, however, the increase in the share of highly skilled white-collar workers within sectors seemed to be positively correlated to variables related to technological changes, such as R&D investment and growth in the number of patents. This was especially true in high-technology sectors such as electronics.

Changes in firm strategy, structure and behaviour are also associated with shifts in the demand for labour, with concomitant consequences for the management of human resources. There is a strong correlation between these changes and shifts from unskilled to skilled and from blue-collar to white-collar occupations, as well as a potential reduction in the number of occupational classifications. As shown in the previous chapter, these developments have made the tasks of production workers more diverse and frequently more complex. At the same time, supervisory and managerial jobs have also changed. The following three dimensions of qualifications are sought today:

• productive qualifications, which are the basic technical skills (welding, turning, typing, programme making, etc.) that an employee must possess to perform his/her tasks;
• normative qualifications, which refer to the personal characteristics of a worker. They can be further divided into adaptable qualifications (the ability to conform to the requirements of wage labour), motivational qualifications (the ability to take self-initiated action in one's own job and encourage oneself to exceed the minimum level of work performance), and socio-cultural qualifications (the ability to commit oneself to the goals of one's own work organization);
• innovative qualifications, which refer to an employee's ability to make improvements to the work process, and cope with exceptional and unstructured situations in everyday work.⁽³⁾

In flexible work systems, the significance of normative and innovative qualifications increases for all staff members.

The OECD report referred to several studies that examined the relationship between the introduction of new work practices and changes in skill requirements. A cross-sectoral analysis of structural changes in the United States identified the growing importance of foundation skills (verbal and quantitative), communication and teamwork skills (speaking, listening and organization), problem-solving and creativity skills, and motivational and self-development skills. In a more recent survey, employers in the United States indicated that, in making hiring decisions, they ranked attitudes and communication skills ahead of factors reflecting specific knowledge and job competencies. A consultation among European industrialists stressed the importance of well-rounded individuals with broad rather than deep knowledge, trained to learn how to learn and to be motivated always to learn more. These analyses are consistent with others that place increasing emphasis on a variety of qualifications, attributes and behavioural characteristics seen as prerequisites for jobs that depend increasingly on interpersonal communication and teamwork.⁽⁴⁾

5.2. Apprenticeship training

The basic skills and attitudinal characteristics described above are transferable and durable competencies. Therefore, schools and apprenticeship programmes have a responsibility to provide students and trainees with them.

The German vocational training system requires every pupil who does not go on to a higher level in the formal educational system to attend a technical school. The syllabus is largely technical but also includes languages, social studies and economics. Under this system the apprentice has a contract with a firm rather than a college. One-third of the instruction period is spent in an upper secondary vocational school and two-thirds in the firm.⁽⁵⁾

A major feature of Germany's dual vocational training system is that the advisory services and the supervision of training programmes, as well as the examinations themselves, are assigned not to the Government, but to quasi-public bodies, such as chambers of industry and commerce, which are closer to the real needs of industry. They hold examinations and issue certificates. They also keep detailed registers of apprenticeships and supervise, monitor and advise companies in their training programmes. Membership in these chambers is compulsory, which means that every firm in the country is obliged to pay them a levy, which in turn enables the chambers to offer a wide range of training services.⁽⁶⁾

In Australia, there has been a downward trend in the number of apprentices. The total number in the metal industry fell from 26,762 to 21,397 between 1988 and 1997, a drop of 22.5 per cent. As a proportion of metal manufacturing employment they fell from 5.6 to 4.9 per cent of the workforce. The same trend has occurred in the electrical industry, where the number of apprentices fell from 20,917 to 16,778.⁽⁷⁾

However, a unique system in Australia known as "group training arrangements" has been gaining an important role in apprenticeships since the early 1980s. Under this arrangement, apprentices or trainees are employed by one company (termed a "group training scheme") but continuously placed with other enterprises (termed "host employers") for the purposes of their on-the-job training. The advantage for employers is that they do not have to commit themselves to a three or four-year training contract. The advantage for apprentices is that more training positions are available. If well organized they also allow for more comprehensive skill development based on a progression of training experiences with different employers. Although the current generation of group training schemes dates back to the early 1980s, they have only experienced rapid growth in the last decade, details of which are provided in table 5.1 for the metal trades.

Table 5.1. Metal apprentices in group training arrangements
(Australia, 1983-97)

By 1997 over one metal apprentice in ten was employed under group training arrangements. In some local labour markets as many as 75 per cent of metal apprentices are based with the local group scheme. In one area a network of "skill centres" are used to minimize "downtime" between placements and ensure that off-the-job training fits in around work-based training so as to minimize disruption to employers and loss of pay to apprentices.
 

5.3. In-enterprise training

Australian employer, union and government representatives carried out an overseas study mission to examine labour-related issues in the German, Swedish and United Kingdom metal and engineering sectors in 1988. The mission concluded that the successful engineering sector of the future would be based on more highly skilled workers performing in an industry that devoted a high level of resources to training. The mission also maintained that training should be regarded not as a "once-off" exercise at the beginning of a worker's career, but rather as a lifelong process, and training expenditure should be seen as an investment and not a cost.⁽⁸⁾ Other countries such as the United States and Germany have carried out similar missions to Japan, and recently Japanese companies carried out study tours to Italy.

Levels of training expenditure in Australia vary dramatically from one metal manufacturing subsector to another. Although expenditure levels are higher in basic metals and transport equipment than in fabricated metals and machinery, electrical and electronic manufacturing, they have risen significantly in the MEE subsector. All of this increase has come from growing expenditure on formal in-house training. Outlays on formal external training have accounted for 1 per cent or less of payments in each of the survey periods cited by Buchanan (1990, 1993, 1996). Apart from the MEE industries, it would appear that the decline in the number of apprentices is not being offset by increased expenditure on other employees.

The nature of on-the-job training in Australia was further examined in a special survey of 208 metal and engineering firms in 1995. Overall, this found that nearly all (93.8 per cent) of the engineering workplaces surveyed provided either on-the-job or formal in-house training.

Of the firms providing such training just under two in five (38.5 per cent) only offered informal training on the job. Just under half (47.2 per cent) provided a combination of informal and formal training, and 14.9 per cent reported that they only gave formal, structured in-house training. Nearly half of all workplaces providing this form of training indicated that supervisory staff were responsible for conducting it. Around half of these workplaces produced their own special training material in-house and had formal procedures for assessing their staff. These last two facts indicate that for many workplaces on-the-job training is far more than an ad hoc exercise.

A recent study comparing the United States and Japan has underscored the different linked aspects of a commitment to training in firms from the automobile, electronics (including consumer electronics as well as semiconductors) and telecommunications industries.⁽⁹⁾ The three interdependent elements -- security, employee involvement and training (SET)-- are illustrated in figure 5.1. According to the study, employment security enhances employee involvement because employees are more willing to contribute to improvements in the work process when they do not fear that they or their co-workers will lose their jobs. Employment security contributes to training as both employer and employee have greater incentives to invest in training when they expect their relationship to endure. At the same time, training reinforces employment security because workers with greater skills will be more productive and adaptable to new conditions, and training strengthens employee involvement because better-trained workers have more ideas to offer. Employee involvement contributes to increased training by making the need for situated learning more evident and by increasing employees' interest in training. Finally, employee involvement also enhances employment security as higher productivity and quality make the company more competitive.

Figure 5.1. SET theory: Interdependence between employment security,
employee involvement (EI) and training

The authors contrast this primarily Japanese system with the system -- more prevalent in American companies -- which they call JAM: job classification, adversarial relations, and minimal training. In this system security is usually determined by seniority, employee involvement (EI) is impeded by adversarial relations and firms make minimal investment in training for employees who are going to leave anyway. Employee involvement and training are more highly developed in SET firms. When employees stay with a firm for a long time and participate extensively in problem solving, EI and training are essential for both the transmission of existing know-how and the creation of new ideas. Moreover, on-the-job learning is also more extensive and systematic in SET companies, which have applied just-in-time (JIT) principles to the acquisition of knowledge and skills. The integration of training into the work process makes training more effective and decreases its cost in terms of reduced production.

Structured on-the-job training (OJT) constitutes the main vehicle for skill formation in Japanese companies. In some cases, Japanese companies prepare a document called a training road map, which describes the sequence of on-the-job and off-the-job training for different categories of employees. While the practice of EI and training is more advanced in Japan, a number of United States firms have implemented cross-training, skill-based pay, short-term job rotation and mentoring in company courses. But unlike Japanese career ladders, the American approach does not require employees to stay with the same company for decades.

Generally speaking, the introduction of new work practices such as JIT, TQM/TQC, etc., cannot be fully implemented without providing employees with training and information on such practices. Various studies cited in the OECD report illustrated a positive correlation between work practices and occupational training.⁽¹⁰⁾ A study of Swedish enterprises indicated that firms which are moving towards more flexible forms of work organization are two-thirds more likely than others to develop plans for individual competence. French manufacturing enterprises also show a high correlation between changes in tasks and the provision of training. In the United States, firms that introduce work teams, total quality management, peer review of employee performance, pay for knowledge, or employee involvement in decisions on acquisition of technology and equipment are more likely to provide job skill training than those that do not. Another study of training practices in United States firms found that the use of benchmarking practices to improve enterprise performance and organizational changes, such as the introduction of total quality management, were associated with a higher propensity to train, particularly in manufacturing, other factors being equal. According to a survey by Bureau of Labor Statistics of the United States, compared with all establishments, an establishment using any of the above workplace practices is, without exception, more likely to provide formal training (table 5.2).

Time-based manufacturing requires more multiskilling on the part of employees. To reach this goal, companies must provide their employees with homogeneous on-the-job training that enables them to master a wide range of tasks within the process. High internal substitutability of the workforce is offset by the relatively low substitutability of employees outside the organization.⁽¹¹⁾

Table 5.2. Training in firms introducing organizational changes (United States)

The experience of the firms described in boxes 5.3 and 5.4 also shows a strong correlation between the introduction of new working practices and the provision of training and information on such practices to employees.
 

Table 5.3. Comparison of human resources practices:
Japanese and domestic start-ups (United States)

5.4. Training by national and private
institutions

Although employer-provided training is the main means of improving skill levels of employees, it may be difficult for employers to offer sufficient training in some cases. In particular, smaller firms are less likely to provide formal training to their employees than larger ones. In the United States, for example, only 69 per cent of small establishments with fewer than 50 employees gave training in 1993, compared with nearly all medium-sized and large establishments with more than 50 employees.⁽¹²⁾

When firms are not able to provide sufficient training to their employees, national and private training institutes may be an alternative. In such cases, however, close discussion between firms and training institutes on the contents, method and evaluation of training is needed throughout the training period.

5.5. The role of trade unions in
providing training

As stated repeatedly, today's workers are obliged to keep pace with continuous changes in skills requirements brought about by technological advancement and organizational changes. Mahnkopf stressed the importance of occupational training for workers to keep secured employment. Employment opportunities, job security and career prospects therefore increasingly depend on whether the individual is prepared, and is given the opportunity, to go through repeated phases of further vocational training. Even though school and training certificates may be gaining importance as a precondition for entering into permanent and relatively skilled employment relationships, this initial training is losing its function as the sole qualification. In the future, further training measures organized at plant level, i.e. by firms, may decide the distribution of social status, incomes, social privileges and social recognition.⁽¹³⁾

Mahnkopf points out the possibility that employers may arbitrarily allocate training to certain categories of workers, especially highly skilled workers. Thus, private firms can determine, on the basis of profitability considerations, which groups of employees will receive additional qualifications and who must obtain them during or outside working hours by way of a voluntary commitment. As highly skilled workers adapt more easily to technological change than lower skilled workers, employers are inclined to provide the former with further in-plant training, which may lead to further polarization between highly skilled and low-skilled workers. For example, male employees, those who are young and those with a high level of formal education or a high professional status tend more often to take part in further training than females, older workers, those with a lower secondary or special school-leaving certificate or unskilled or semi-skilled workers. Further training measures would therefore be necessary above all for unskilled and semi-skilled workers.⁽¹⁴⁾

Trade unions fear that in the long term large numbers of skilled workers, particularly older workers, could fall victim to the changes brought on by rationalization. Accordingly, they are reluctant to allow management to use further training measures as plant-level incentive and reward systems in order to secure the loyalty of skilled workers and possibly to gain that of (highly skilled) white-collar workers. One way to avoid the polarization referred to above is regulation through collective bargaining. In contrast to national legislation on further training, collective agreements have the advantage that they can be more explicitly oriented to sector-specific and even firm-specific conditions.
 

In Germany, the IG Metall union and the metal industry's employers' organization for North Baden/North Württemberg and South Baden/Hohenzollern concluded a collective agreement on in-plant training (Lohn- und Gehaltsrahmentarifvertrag -- LGRTV ) on behalf of 940,000 employees in 1987 and 1988. With LGRTV , IG Metall obtained for the first time the inclusion of norms for improving skills and qualifications. This collective agreement stipulated that the employer was to ascertain at regular intervals the future skill requirements likely to result from technological and organizational changes and to consult the works council on the subject at least once a year. The works councils also had the right to identify and represent the interests of the workforce independently in this regard. This meant that, in principle at least, the works council was able to develop an alternative training plan which could then be negotiated with management. On the basis of information obtained through these mechanisms, the employer was to plan the nature, extent and execution of training measures in agreement with the works council. The costs of all training measures conducted under section 3 of the agreement were to be borne by the employer; they were to take place during working time; wages and salaries were to be paid as usual; and training was to be carried out subject to approval of the works council.⁽¹⁵⁾

In Alcoa Packaging Machinery (APM) of Englewood, Colorado, in the United States, the union and the company seek continually to improve the skills and hence the flexibility of the workforce. To accomplish this goal a Joint Apprenticeship Training Committee has been given the responsibility of setting apprenticeship and craftsperson standards and administrating the necessary training. Each employee is ranked according to his/her current knowledge in the relevant skill group, and is expected to take 144 hours of appropriate classroom studies over the next four years. The programme is 8,000 hours long, with credit given for experience in the skill group.

APM's tuition assistance programme pays 100 per cent for work-related education and 80 per cent for non-work-related courses. In addition, all employees have gone through a 20-hour course in the plant on basic business finance that covers an income statement, a balance sheet, computation of return on assets, economic value analysis and other fundamental business measures. Open-book management, whereby all of the company's financial information is shared, is seen as key to involving the workforce in monitoring and profitably managing their own areas, and thus improving the financial performance of the company.⁽¹⁶⁾

5.6. Foreign direct investment, technology
diffusion and training

Foreign direct investment (FDI) in East Asia by Japanese multinational enterprises (MNEs) in the electronics industry shows interesting correlations between technology diffusion and training.

A survey by Ostry and Harianto indicates that Japanese electronics MNEs have developed a Japan-centred regional production base with Japanese parent firms still controlling the core technologies.⁽¹⁷⁾ It also suggests that while in the past their affiliates in East Asia were largely involved in the production of consumer electronics using labour-intensive technologies, these affiliates are also producing increasingly sophisticated parts and components.

FDI in East Asia by Japanese electronics MNEs has been accompanied by training programmes for their local employees. For example, OMRON, one of the major Japanese electronics firms, held a training programme for 300 of its local employees before its Indonesian plant went into operation in 1994. The firm had established a plant in Malaysia in 1973, and every time a new item was added to the production schedule, it brought Malaysian engineers to Japan for training.⁽¹⁸⁾

OMRON adopted a strategy called "sekai saitekichi seisan" or "production at optimal sites in a global context" in its business in Asia outside Japan. The idea here was to establish plants at places offering the most efficient production in the world, with a view to expansion of sourcing from their markets.

Ostry and Harianto also examined the host country perspective. According to their study, governments in East Asia are interested in the potential of the electronics industry for attracting FDI, generating employment and exports and building up domestic technological skills and capabilities. More and more governments in East Asia are considering the electronics industry as critical for their industrial development and attempt to promote it directly and indirectly as an integral part of their industrial policy. Beyond simple industrial targeting, they have used "functional targeting" of activities such as research and development, investment, technical training and education to complement their industry-specific promotional efforts. As the development of the electronics industry involves heavy research and is contingent upon the availability of skilled engineers and scientists, it has benefited from government subsidies in higher education and from overall incentives for research and development.

The diffusion of production technologies embedded in the organizing principles, together with disembodied know-how and informal mechanisms including training and education, can be singled out as the dominant contribution of Japanese MNEs to the host countries' industrial development. How far such a benefit can be materialized depends largely on the current stage of technological development of the host country, the availability of human capital and its mobility (intra-firm as well as across firms), and policy regimes that are trade- and FDI-friendly.⁽¹⁹⁾

1.  J. Buchanan: "The impact of flexible labour arrangements in the Australian metal and engineering sector with special reference to developments in the machinery, electrical and electronic industries", Sectoral Activities Programme Working Paper (ILO, Geneva, forthcoming).

2.  This section draws extensively on OECD: Technology, productivity and job creation, Vol. 2, Analytical Report (Paris, 1996), pp. 79-102, 129-195.

3.  T. Alasoini: "Transformation of work organization in time-based production management: The case of three Finnish electronics plants", in International Journal of Human Factors in Manufacturing, Vol. 3(4) (1993), p. 322.

4.  OECD, op. cit., p. 146.

5.  B. Mahnkopf: "The 'skill-oriented' strategies of German trade unions: Their impact on efficiency and equality objectives", in British Journal of Industrial Relations, Vol. 30(1) (London, 1992), pp. 61-81.

6.  ibid., pp. 67-68.

7.  Buchanan, op. cit.

8.  ibid.

9.  C. Brown, Y. Nakata, M. Reich and L. Ulman: Work and pay in the United States and Japan (New York and Oxford, Oxford University Press, 1997), pp. 3-19, 67-96.

10.  OECD, op. cit., p. 150.

11.  Alasoni, op. cit., p. 321.

12.  Frazis et al., op. cit., p. 5.

13.  Mahnkopf, op. cit.

14.  ibid., p. 69.

15.  ibid., pp. 71-72.

16.  B. Olsson: "Globalization and the US machinery industry: One workplace's response. Alcoa Packaging Machinery and District Lodge 86, International Association of Machinists and Aerospace Workers", Paper prepared for IMF-ILO Conference on Machinery, 28-30 Nov. 1997. The term "apprenticeship" should be understood to mean on-the-job training and not in the European sense of the word.

17.  S. Ostry and F. Harianto: "The changing pattern of Japanese foreign direct investment in the electronics industry in East Asia", in Transnational Corporations, Vol. 4(1) (UNCTAD, 1995), pp. 11-43.

18.  N. Tateisi: Good corporate citizenship: Community-minded management for the 21st century (Tokyo, Corporate Communication Center, OMRON Corporation, 1997), pp. 48-50.

19.  Ostry and Harianto, op. cit., pp. 39 and 41.

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