After the Crisis: Employment Relations for Sustained Recovery and Growth

Strengthening labour relations and workplace innovations are prerequisites for sustained recovery and future growth. Enabling workers and unions to negotiate wage growth in line with enhanced productivity growth requires the dissemination of high-performance working practices that engage workers, a raising of minimum standards, and substantial changes to labour law.

The global economic crisis had its roots in the unsustainable build-up of debt in the US – a build-up that had three sources: a growing trade deficit, deregulation of financial markets, and stagnant or falling real wages for most workers. The trade deficit rose to almost 6% of GDP in 2006 and dramatically increased US cumulative indebtedness to the rest of the world, especially China and other export surplus countries. In financial markets, a huge increase in leverage, risky loans and mortgage-backed debt led to bubbles in the stock and housing markets. Stagnant wages, combined with easy access to mortgage and consumer loans, resulted in the rapid rise of household debt.

Much has been written about measures to restore greater balance to world trade and to regulate financial markets. Far less attention has been paid to measures to support income growth for workers, an issue that extends beyond the US. The low-wage share of employment has risen to unacceptably high levels in many countries. Exceptions are those countries where the minimum wage is high and employment regulations are enforced (e.g. France) or where union density remains high and there is a continuing commitment to modernisation and skill upgrading (e.g. Denmark). In many countries, the decline in union density, low or no national minimum wage standards, unequal treatment of part-time or casual (largely female) workers, unequal access to work-family supports, lax enforcement of labour laws and employment regulations, and the successful efforts of employers to escape the constraints of established labour market institutions all contribute to wage stagnation and a large underclass of people living in poverty despite being employed. These developments have been exacerbated by hedge funds and private equity firms that load companies with debt and then rely on the ‘discipline’ of high interest payments to pressure them to strip assets, reduce wages and benefits, and downsize employment in order to raise margins – either to increase share prices (hedge funds) or to sell operating business and distribute gains to investors (private equity).

Economic recovery and growth beyond the current period of substantial fiscal stimulus and large-scale deficit spending by governments will require an increase in household consumption. Sustained recovery and growth require that this be based on rising real earnings, and not on rising debt.

Transforming the US and other high-income economies to once again work for everyone requires significant workplace changes in order to create jobs that fully utilise workers’ knowledge and skills; to drive innovation, productivity, and profits; and to ensure that workers share equitably in the prosperity generated.

Adopt modern workplace policies: Achieving and sustaining high levels of performance requires practices that leverage employees’ knowledge and ability to create value and that are implemented in concert with new capital or technological investments. High-performance work practices (HPWP) (1) foster development of human capital, resulting in increased employee skills and improved customisation of services; (2) engage employees in problem solving and performance improvement; and (3) build organisational social capital to facilitate knowledge-sharing and the coordination of work. Research in settings ranging from public schools to airlines has demonstrated the advantages to firms – in terms of improved efficiency, quality and financial performance – of work practices that encourage the simultaneous development of human capital and social capital. Workers benefit from improvements in skills and social capital, and more than 70 percent prefer these work systems over either traditional union or non-union systems. Unions are important – the combination of formal and informal mechanisms for employee voice improves the productivity effects of HPWP. For workers, the combination of union representations with HPWP tends to be associated with higher wages, some of which are achieved through mutual gain-sharing or similar compensation practices.

Establish and improve minimum employment standards: Governments, including the US, should establish a national minimum wage at two-thirds the median wage, indexed to some combination of inflation and productivity growth, to eliminate the scourge of working poverty. No one who works full time should live in poverty. But workers need more than a living wage. Too many workers, men as well as women, are still forced to choose between supporting their families and caring for them. Countries with policies that support working families too often exclude casual employees or those on part-time or short-hour schedules from these benefits. Everyone in the labour force should be guaranteed a minimum number of employer-paid sick days and paid vacation days. Employees should have the right to greater control over their work schedules so they are not penalised for care-giving responsibilities. Employers should be encouraged to offer reduced hours in full-time jobs. Finally, employees need tax-financed family and medical leave insurance programmes, similar to unemployment insurance, that ensure job-protected and affordable family and medical leave for all workers.

Enforce labour and employment laws: Governments need to strengthen and modernise enforcement of the regulations governing employment relations both by strengthening traditional enforcement measures and by leveraging the expertise and resources of labour unions and community groups to monitor compliance. Growth of supply chains, subcontracting, and employment of immigrants combined with lax enforcement has degraded wages and working conditions of many workers.

Reform labour law: Fixing or strengthening labour law is necessary to building the labour management partnerships and high-performance work practices described above. Moreover, unions have historically been the strongest and most consistent institutions for achieving improvements in worker wages and for reducing income inequality within and across industries and occupations. The decline in union density in many countries makes it clear that labour laws need to be fixed to support workers’ fundamental rights. Restoring workers’ ability to organise and bargain collectively is the first step in getting wages and productivity moving in tandem again. The reform of labour law should encourage workplace innovation and transform labour-management relations in ways that contribute to economic recovery and shared prosperity. Most importantly it should restore or enhance workers’ rights to join a union and gain access to collective bargaining.

The transformations in labour policy and workplace practices needed to support economic recovery and sustainable growth are achievable. As argued above, what is required is a three-part strategy: (1) adoption of labour management and workplace innovations that create good jobs and the high productivity that will sustain them: (2) strengthening, updating and enforcement of labour and employment policies and minimum employment standards appropriate to today’s workforce; and (3) improvements in labour law that create a platform for labour to negotiate workplace practices that enhance productivity and wage growth in line with improvements in productivity.

This article is part of the book ‘After the crisis: towards a sustainable growth model‘, edited by Andrew Watt (ETUI) and Andreas Botsch (ETUI/ETUC) and published by the European Trade Union Institute (ETUI).

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