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 6    

Copyright ® 1999 International Labour Organization (ILO)

6. External flexibility and the
structure of employment

Working time arrangements have become increasingly diversified. New, more flexible patterns are emerging in a number of countries, often in conjunction with, or triggered by, shorter working weeks in order to maintain (or increase) operating hours of machines. High unemployment rates have provided incentives for reducing working time in an effort to preserve or create jobs. This chapter focuses on the impact of these developments on various aspects of external flexibility: the length of the working week, part-time and temporary employment, labour turnover, early retirement (another instrument that has been utilized to reduce unemployment and facilitate technological and organizational innovations), and finally the employment creation potential of shorter working weeks and careers. The gender dimension of flexible working systems is also discussed in conjunction with the gender composition of the sector. The impact on internal flexibility and the organization of work has been examined in Chapter 4. Both dimensions are closely related, as firms can compensate for a lack of external flexibility with more extensive internal flexibility, and vice versa.

6.1. The length of the working week

In the past decades, normal working time has decreased in a number of countries, mainly in Europe, where it is generally shorter than elsewhere. In 1993, the Council of the European Union (EU) adopted a Directive on working time; it was implemented in 1996 (see box 6.1). In North America, contractual working time remained stable at 40 hours a week. Progress has been much slower in Asia, except for Japan and Australia. In many Asian and Latin American countries legal working time is still 48 hours⁽¹⁾ (see table D.1, The industry in numbers).
 

To compensate for the shortening of the normal working week firms may increase overtime rather than reorganize their working time system. It is the classical adjustment mechanism. In spite of the premium rates that must be paid, overtime is still cheaper than hiring additional staff because of non-wage labour costs that are correlated with levels of employment, not working hours; they account for up to 30 per cent of payroll costs. Moreover, overtime offers the significant advantage of flexibility without losing skilled workers. In some cases, for example in India and the United Kingdom, overtime has become a common means of offsetting low basic wage rates. Employees therefore resist reductions in overtime because they depend on this "second salary". Japan also has a "long hours" culture, although the revised Labour Standard Law of 1987 instituted the 40-hour week in several steps that have been completed in 1997. European companies, on the other hand, are still in the process of finding socially acceptable mechanisms for creating such downward flexibility. Overtime has become systematic and endemic, resisting the downward trend in working time.⁽²⁾

Information on overtime in the machinery industry is patchy. International data reported in table 6.1 indicate generally higher levels of overtime work in countries other than those of North America and Europe, with the striking exception of the United Kingdom. Moreover, figures reported in table 6.2 do not show a general trend downward. Between 1985 and 1996, overtime remained at the same level in Australia, declined in Japan during the economic slump and resumed in 1995, kept declining in Germany, and in the United States and the United Kingdom actually increased over the period. In Germany, the long-term downward trend is the result of measures taken to increase working time flexibility.⁽³⁾ In the United States, higher overtime premiums have generally proven to be more of an incentive for workers to increase overtime than a deterrent for employers; the rise in non-wage labour costs reinforced this tendency. In the United Kingdom manual workers performed more overtime than non-manual workers, deriving a substantial portion of their earnings from overtime.⁽⁴⁾

Nevertheless, average hours actually worked in machinery industries (see table D.1, The industry in numbers) reveal a general downward trend over the last two decades, which parallels reductions in contractual working time. These figures include both overtime and part-time employment. Thus, increments in the latter may swamp the impact of overtime on actual working hours and result in an overall decline. This might explain in part the rather low figures for Japan, which has a larger proportion of part-time employment in the sector than European countries. Retrenchments in working hours were most pronounced in Poland, Hungary, Finland, Norway and Belgium. In all regions, non-electrical machinery registered the largest declines compared to electrical machinery, except for the Netherlands, Cyprus, Israel and Argentina.

In high-income OECD countries the working week lengthened in few cases, always in both subsectors. In Austria it increased while contractual hours were declining, but without exceeding normal hours. Conversely, in the United States, Ireland and New Zealand actual hours have increased and exceeded contractual working time, thus pointing to a more extensive use of overtime. Again, increments in working hours were greater in non-electrical machinery compared to the other set of industries, except for New Zealand. Moreover, some low-income countries registered an increment even though they were already working long hours. In Egypt, the working week reached an industry high of 60 hours (in electrical machinery), followed by Costa Rica, Singapore, the Philippines and Bolivia with about 50 hours. In countries other than high-income OECD nations, increases appear to have been more sizeable in electrical machinery.

Thus, we find again a contrasted pattern, both by region and by sector. Non-electrical industries seem to have been subject to more sizeable long-term changes in working hours, but adjustment followed a dualistic pattern. Usually it translated into retrenchments, but in some cases hours of work were extended. Conversely, in countries other than those in the high-income OECD group, increments in working hours were greater in electrical machinery.

Table 6.1. Overtime work in the machinery industry, 1996

Table 6.2. Overtime work in the machinery industry, 1985-96

Shorter working weeks provided an impetus for reorganizing work at the plant level. In Germany, for instance, the initial cut of 1.5 hours in 1985 had little effect on work organization. For the most part, firms retained their existing working time system. They made little use of the new opportunities for flexibility offered by the collective agreements, so that staff shortages developed in some cases. A trend towards more innovative time management systems to address these problems became apparent only with the implementation of the second and third phases of cuts in 1988-89, down to 37-37.5 hours a week, and with the introduction of new regulations on working time differentiation from 1990 onward. It was primarily large plants that made the most extensive use of the new opportunities for time differentiation and variabilization. The strong economic upturn provided an additional incentive for restructuring work organization in order to maintain or increase operating hours of machines.⁽⁵⁾

Innovative firms were able to decouple working hours and operating hours. Some evidence for this pattern is apparent in aggregate data. In the OECD, the rate of capacity utilization in metal and machinery industries increased during the nineties, while working hours declined or remained at the same level, in the following countries: Denmark, Greece, Japan, Spain and Sweden (see table 6.3; and table D.1, The industry in numbers). In the EU, however, it generally declined between 1990 and 1994 as a result of the economic recession.

Table 6.3. Rate of capacity utilization in metal products, machinery
nd equipment (ISIC 38), 1990-97 (per cent) ¹

6.2. Part-time and temporary employment

Employment in part-time and temporary jobs has spread. In the EU, over the 1985-95 period, part-time employment increased from 12.5 to 16 per cent and temporary employment from 9.1 to 11.5 per cent. The need for flexibility appears to be the main cause for the growth in temporary employment, whereas the demand from women employees seems to play an important role in the introduction of part-time work.⁽⁶⁾ Employers, however, resort to part-time employment mainly for economic and organizational reasons. Productivity is usually higher and sick leave less frequent in part-time work. Part-timers are also often paid proportionately less than their full-time counterparts; they may fall below minimum thresholds for social security contributions, and benefits and career prospects are poor. Part-timers also frequently work unsocial hours.⁽⁷⁾ The Council Directive of December 1997 of the EU on part-time work therefore lays down the principle of non-discrimination and seeks to facilitate the development of part-time work on a voluntary basis (see box 6.2). The incidence of temporary employment has tended to develop along similar lines for men and women in the EU;⁽⁸⁾ the gender difference is nowhere near as marked as for part-time employment. Most of these jobs are to be found in low-skill occupations: 56 per cent for the part-time work and 63 per cent for temporary employment.⁽⁹⁾ As a result, the supply of skilled part-time jobs is lagging behind demand.
 

Two recent developments are indicative of profound changes.⁽¹⁰⁾ First, in the EU, the rate of growth of part-time employment accelerated in the nineties for both men and women (see figure 6.1). Moreover, the proportion of prime-age males (aged 24-54) in part-time employment, a group which traditionally is not associated with this form of employment, has increased in the OECD. In Canada and the United States, upward shifts during recession years have not been matched by corresponding declines during periods of recovery. In the EU, between 1991 and 1995, about 60 per cent of the growth in part-time employment among men occurred in this age group; the incidence of part-time employment in this cohort increased from 2 to 3 per cent over the period. Thus, there would appear to be a permanent shift in the composition of employment towards part-time jobs. Moreover, an increase in part-time employment seems to have a favourable effect on unemployment in general. In the EU, during recession years, most of the employment creation occurred on a part-time basis for both men and women. This remained true during the recovery year of 1995: for men, 71 per cent of new jobs were part time, and for women 85 per cent.

Second, in the EU, the growth rate of temporary employment was substantially higher than for part-time employment in the 1980s, but not in the 1990s (see figure 6.2). Moreover, the rate of increase of temporary work contracts was higher for men than women in the 1990s, but not in the 1980s. It was highest among service and production workers, although professional and clerical workers also display a high incidence of temporary employment. Overall, unlike for part-time employment, there appears to be no relationship between levels of unemployment and temporary work, although in Portugal, Denmark and the United Kingdom it is significantly pro-cyclical.

Temporary employment seems to have become the normal mode of entry into the labour market, as evidenced by the very high incidence of such work contracts among young people (three times higher than for the total working population), which is positively correlated to the rate of youth unemployment. Generally, given the relative size of the temporary job pool, a disproportionate number of unemployed find work via this route. Thus, in the EU in 1995, the main growth in temporary employment was accounted for by prime-age men and women. On average about half of previously unemployed persons moved into temporary as opposed to permanent jobs, largely because these were the only jobs they could find, thereby continuing the trend of the preceding three years.

This expansion of temporary employment might reflect in part a weaker labour market position, but it also manifests a more general shift towards flexible working systems. These developments are also echoed in metal manufacturing. As a case in point, French satellite establishments of car assembly plants, which are used as centres for organizational innovation, rely heavily and quasi-permanently upon short-term and temporary employees. They represent about 10 to 30 per cent of the permanent staff; in one establishment the proportion reached 55 per cent at times. Even when economic prospects are poor these establishments maintain some temporary staff. The law is sufficiently flexible to keep the same temporary employee several years, each time citing different grounds. They are called upon to meet variations in demand, in particular when production is stepped up to market a new model. In addition, temporary and employment training contracts are used for screening new recruits. This process may take up to two years. Temporary staff are nonetheless given the same training as permanent employees.⁽¹¹⁾

Statistics for metal manufacturing indicate that part-time work is relatively rare in the sector (see figure 6.3 and table 6.4), in part because it employs relatively fewer women. The unweighted average of part-time employment in the sector in the EU (of 12 Members) was 4.2 per cent in 1992, the second lowest incidence of part-time employment for the nine sectors here. Between 1983 and 1992, part-time employment shares also generally increased least in that sector, second to building and civil engineering. In Denmark, this proportion has actually fallen, but nonetheless remained high compared to other countries in the region. Part of this upward trend is due to plant-level agreements, which tend to promote this type of employment, sometimes within the framework of a social plan in the form of phased retirement schemes, work-sharing or short-time working (see below). Finally, there is also some evidence of intersectoral shifts. Between 1983 and 1992, the share of part-time employment increased much more rapidly in the sector than in the economy on average in Spain, but much more slowly in the Netherlands.

Table 6.4. Part-time employment by industry, 1983-96

Table 6.5. Temporary employment by industry, 1983-92

The incidence of temporary employment in metal manufacturing is also relatively low (see figure 6.3 and table 6.5), but still higher than that of part-time employment, in contrast to the pattern observed in the economy as a whole. In the EU (of 12 Members), in 1992, on average 6.7 per cent of employees in the sector had a contract of limited duration. This rate was the fourth lowest of the nine sectors. Temporary employment was most widespread in metal manufacturing in Spain (25.3 per cent of employees) and Portugal (15.9 per cent): in the latter country, this was the highest rate after building and civil engineering -- much higher than the unweighted average for all sectors. The rate of increase between 1983 and 1992 was also the fourth lowest in metal manufacturing for the EU as a whole. The share of temporary employment in the sector declined in Denmark, Germany and Greece. The growth rate was highest for Spain and Portugal; more recently it declined in Portugal in general but remained high in Spain. The liberalization of regulations on temporary contracts and the stricter regulation of permanent contracts have been the dominant factors in Spain. In this country, temporary employment is also a very poor stepping stone to permanent employment.⁽¹²⁾ Again, intersectoral shifts are apparent. Between 1983 and 1992, the growth rate of temporary employment was lower in this sector than in the economy on average in France, Germany and Spain, while it was much higher in Portugal.

In Japan, as in the EU, part-time employment is most widespread among women; in 1995, in the machinery industry, women accounted for 90.5 per cent of part-time workers. They are also more prone to holding contracts of limited duration: in 1996, they accounted for 80 per cent of temporary employees in machinery and precision instruments, and 56 per cent in electrical machinery. Temporary employment is less prevalent in the sector than part-time employment, unlike the pattern observed in the EU; the share of part-time employment in the sector is about twice as high in Japan as in the EU on average. In the 1990s, part-time employment increased in Japan. Thus, in 1995 in general machinery, 7.6 per cent of employees worked part time and in 1996, the proportion of temporary employees was 7.0 per cent in electrical machinery and 3.3 per cent in general machinery and precision instruments (see table 6.6).

Table 6.6. Temporary and part-time employment in Japan, 1987-96
percentage share in total employment of each sector)

In contrast to the pattern usually observed for (less-skilled) temporary workers, the example of Silicon Valley, California, illustrates how these work arrangements, in a spirit of entrepreneurship, can hold bright career prospects for highly skilled people (see box 6.3). However, a case-study of three electronics plants of United States firms in Ireland highlights the disadvantages of relying too extensively upon temporary staff.⁽¹³⁾ One of the firms hired up to 70 per cent of production workers on a temporary basis, compared to less than 10 per cent for the other two firms. Cost savings were only marginal in the former, since labour costs represented 15-20 per cent of net sales. It was a crude way of coaxing overtime and, indirectly, of controlling the permanent staff. But it also posed serious problems: it required more extensive training and there were difficulties in maintaining the commitment of the core workforce.
 

6.3. Labour turnover

Flexible employment patterns and more extensive use of temporary staff raise the question of increases in labour turnover. An OECD study of job insecurity found that tenure with the same employer is relatively high in manufacturing in general -- the OECD unweighted average was 10.5 years in 1995 -- probably reflecting longer spells among men compared to women (8.4 years on average for the latter and 10.4 for the former) (see table S, The industry in numbers). Tenure for plant and machine operators and for assemblers is also fairly high compared to other occupations; it was highest in Luxembourg (13.3 years) and lowest in the Republic of Korea (4.6 years). Reliance on external flexibility varies across countries. When controlling for differences in the distribution of employment by age, gender and broad occupational categories, tenure is shortest in the United States, Australia and the United Kingdom, followed by Canada and Denmark. It is longest in Italy, followed by Belgium, Portugal and France.⁽¹⁴⁾ However, no general downward trend in tenure with the same employer could be observed. The only consistent development across countries is a low and declining tenure and retention rate among less-educated and less-skilled workers, which is consistent with a shift to flexible, high-performance and more skill-intensive working systems.

However, this must be set against fairly high short-term job instability among those who are trying to (re)establish an employment match. This type of instability is not captured by broad retention rates and average tenure of those already in employment. In 1995, separation rates prior to completion of the second year of employment, among those who had joined a firm within less than a year, range between 20 per cent in Luxembourg and 85 per cent in Spain, with an average of 43 per cent for OECD countries. Between 1985 and 1995, short-term turnover rose considerably in Spain, somewhat in Australia, Germany, the United Kingdom and the United States, remained stable in Finland and declined somewhat in Canada (see table 6.7). But these data are very sensitive to economic cycles and the number of observations are too few to correct for this effect.

Greater reliance on external flexibility has also been found to result in a closer alignment of unemployment and business cycles in many OECD countries in recent years.⁽¹⁵⁾ Furthermore, it can be expected to reduce the variability of labour productivity, as has been observed in the United Kingdom, for instance.⁽¹⁶⁾ A British study found that more flexible firms showed greater responsiveness to demand shocks in adjusting labour inputs (employment and hours), while manufacturing firms in general were more likely to increase hours or capacity utilization.⁽¹⁷⁾

6.4. Gender

Traditionally, the machinery industry employs relatively few women. Women's share in the labour force is generally lower in non-electrical machinery than in electrical and electronics industries (see tables 6.8 and 6.9). In non-electrical machinery, women's presence is highest in Malaysia (36 per cent), followed by Taiwan, China (34 per cent), and Puerto Rico (32 per cent). In most countries and areas, this proportion increased or remained stable, except in Austria, Hungary, Puerto Rico and the Czech Republic, where it declined. The increment was especially rapid in Thailand, Macau, Malaysia and Taiwan, China. Conversely, in the more "feminized" electrical machinery industries, retrenchments in women's involvement were much more frequent. Increases were most rapid in Macau, Turkey and New Zealand; in Macau the share of women employees reached an industry high of 74 per cent, followed by Malaysia (71 per cent) and New Zealand (57 per cent). Thus, the gender composition of subsectors in the machinery industry appears to be converging.

Table 6.7. Short-term employment tenure and turnover, 1980-95

One of the few studies which examined the gender dimension of working hour systems found that the trend towards greater flexibility in working time patterns reflected distinct gender differences.⁽¹⁸⁾ Women tended to provide for flexibility mainly through part-time and casual work, while men changed levels of overtime and shift patterns. There were also gender and sectoral differences in the way in which flexibility had been implemented. For women workers, it mainly meant more of the same, that is, the extension of part-time and casual work; for men, it was more likely to involve new contractual arrangements and working time patterns, such as the introduction of novel shift systems. Yet few cases were found of gender substitution to match working time requirements, for example recruiting women to undertake tasks that can best be done on a part-time basis or hiring men in traditionally women's jobs to work unsocial hours. Other systems were used instead.

Table 6.8. Women employees as a percentage of total employment
in the manufacture of machinery, except electrical
(ISIC 382, Rev.2), 1985-96