Varieties of capitalism and employment relations

Introduction:

Varieties of Capitalism (VOC) focusses on the effect of competitiveness on how an organisation interacts with the context in which it operates. According to Gould et al. (2015), it is possible that differences in cultures and international economies results in differences in employment relations patterns adopted in these cultures and economies, a view that supports the neo-institutionalist viewpoint of comparative employment relations. Thus, the conceptualisation of VOC results in individual firms being vital objects of analysis. The influence of VOC shows that national differences emerge when organisations resolve the coordination problems with their employees. This has resulted in hots countries being described as either liberal market economies (LMEs) or coordinated market economies (CMEs). The differences between LMEs and CMEs are influenced by institutional features and the distance between countries as well as their characteristics. From the LMEs and CMEs perspective, Frege and Godard (2014) identify five dimensions of coordination that affect the relationship between a firm and the country in which it operates: corporate governance, education and vocational training, industrial relations, employer-employee relations, and inter-firm relations. Of these five dimensions, this paper will focus on the effects of VOC on employer-employee relations. The paper will consider both LMEs and CMEs while analysing their strengths and limitations in relation to employment relations.

Liberal market economies and employment relations:

ALMEs have capital markets that are well-developed with outsider forms of governance (Fast 2016). In addition, LMEs use contractual agreements and the market solution to regulate their relations within value chains, with other firms across the industry and across industries (Feldmann 2017). As far as employment relations are concerned, LMEs have high levels of flexibility in terms of hiring employees, firing them as well as their remuneration (Feldmann 2017). On the other hand, Gould et al. (2015) assert that LMEs adopt unitarist industrial relations approach, direct voice, and low levels of unionisation. As a result, the authors argue that LME firms have a high probability of coordinating their activities through hierarchies and through the competitive market place. The VOC literature holds that the US is the purest form of LME but UK and Australia also fall under this category. When firms rooted in any of these countries extend their operations overseas, McDonnell et al. (2015) state that they adopt their home country’s approach to business thus mimic their home management practices in foreign countries. As such, the authors hold that it is the home country that define how an organisation approaches employment relations but not the broader LME argument. However, Piore (2016) holds that the hots country’s approach to employment relations also affect the management approach of a multinational corporation given that the firm has to hire employees from the host culture and to enhance their productivity must ensure their needs are met. LMEs are naturally open economies thus pressures outside the firm are more likely to affect employment relations in LME organisations. Such macro pressures include globalisation, digital revolution, and deindustrialisation, which strengthen government and employer attempts to individualise employment relationships while weakening the collective identity of the labour force (Ebenau 2015). As a result, employment practices within LME organisations and in their foreign subsidiaries are likely to be homogenous given they individualise employment relationships instead of following or aligning to the international best practices. In the same vein, Hoen (2014) writes that the employment relations adopted by LME firms vary from the international best practices but this variation may not be so apparent today compared to when the concept was devised given organisations are now used to these relationships. While comparative political economists recognise institutional convergence arising from globalisation, Devore (2015) notes that as convergence takes place within LME firms, similarities between them also grow thus globalisation will continue to negatively affect the role of trade unions and promote individualisation of LMEs. Kornelakis and Voskeritsian (2014) argue that although LME organisations principally coordinate their activities through hierarchies and tools that increase their level of competitiveness, there are non-market based relations between institutional and firms actors which are likely to create differences across LMEs. Analogously, Ebbinghaus (2015) states that adaptations of liberal market demographic systems are a great source of variation in LMEs and these have significant implications on employment relations. Similarly, Zartaloudis and Kornelakis (2017) argue that there are political situations within which LMEs managers and workers converge to some political platforms as institutional allies, which results in more collaboration and increased employment protection. Therefore, LME firms are more likely to produce stronger employment protection as compared to CMEs, which makes them further differ from international best practices. The major challenge facing LMEs is lack of homogeneity in business systems and models of employment relations adopted by various countries. Although the US, Australia and the UK are all LMEs, they have different business systems. For example, Australia has had a long history of

Coordinated market economies and employment relations:

CMEs are to have patient forms of capital and an insider approach to management as well as non-market devices for managing value chains (these are based on the regulatory association within the industry) while establishing horizontal connections across and within the economic sector (McDonnell et al. 2015). Employment relations in CMEs basically entail low labour flexibility, increased use of collective bargaining, higher employment security, and more consistency of wage outcome (Sack and Sarter 2018). In the same vein, Hertwig et al. (2019) write that CMEs have strong degree of collaboration between institutional actors at national, industry, and organisation level and as a result have a larger degree of unionisation in which employee have an indirect voice and organisations adopt the pluralistic approach to industrial relations. CME firms are highly reliant on non-market relationships, which makes collaboration with trade unions and other institutional actors fundamental. Germany and the Nordic countries are examples of CME countries. In Germany, for example, economic actions are embodied in a dual system of industrial relations, which is characterised by certain normative points of reference in different levels including at the workplace, at the company, and at the industry (Fleckenstein and Lee 2017). At the industry level, there are trade unions that bargain with employer associations to come up with collective terms and conditions of employment while at the workplace level, there are work councils that represent employees; these councils are formally independent of trade unions. However, over time the concept of outsourcing has emerged and employers prefers placing individual contracts, which has weakened the position of employees. Contracting has therefore been seen to be a setback in CMEs resulting in low wages and precarious work conditions. . The outstanding strength of CMEs is the autonomy granted to employees through the trade unions. According to Kluike (2015), CMEs have a wider stakeholder approach thus have a significant influence on regulation of the labour market particularly focusing on longer-term return of investment. With this approach, employees are assured of salaries and work conditions that is considered acceptable and decent, which is essentially important for the most disadvantaged groups in the labour market. As such, LMEs promote fairness in the labour market. However, minimum wages and standard working conditions in CMEs damage employment opportunities of lower-skilled workers as well as the competitiveness of low-skilled sectors as all organisations seek to acquire the most qualified workers. On the contrary, LMEs are willing to higher low-skilled workers and develop their competency through training as hiring and management of employees is individualistic. VOC literature establishes that the greatest limitation to CMEs is their stability as several factors are pushing CMEs towards liberalisation. According to Pernicka and Hefler (2015), pushing factors are likely to result in institutional erosion, fragmentation/ dualisation, or national systems remaining more or less stable. From the institutional erosion perspective, globalisation is expected to disrupt the existing institutional models such as collective bargaining across the world (Bosch 2018). Similarly, Fleckenstein and Lee (2017) assert that institutional erosion might occur through a hollowing-out whereby organisations remain formally intact but practically they are irrelevant. The dualisation perspective acknowledges diversity within national systems thus holds that liberalisation is not a unique trend in CMEs. Analogously, Hertwig et al. (2019) write that dualisation and liberalisation are interlinked but they develop differently across countries. It is also expected that national systems will remain more or less stable given the effects of institutional complementarities that somewhat shield economies from disruptive forces (Sack and Sarter 2018). Additionally, organisations are likely to opt for reforms that reinforce these economies while societies are likely to take countermeasures to balance the effects of free markets thus stabilising the existing business models. Throughout these disruptions, management relations are likely to evolve that will differ from the collective style characteristic of a CME. VOC literature also highlights the difficulty in harmonising and coordinating employment relations across different CME countries. Fernandez-Macias and Vacas-Soriano (2016) note that the major challenge in coordinating minimum wage in European countries is the diversity of the existing systems in that in some countries, minima are set through government regulation while in other countries they are set through collective bargaining. On the other hand, Sack and Sarter (2018) state that the degree of social partner involvement varies between countries: in some countries, minima are exclusively set by sectoral collective bargaining while in other cases the government intervenes resulting in hybrid models. In this sense, organisations adopting minima set purely by sectoral collective bargaining are less lenient while those adopting minima set through government intervention are more lenient while relating with their employees. Therefore, there is no standard way of employers relating with employees even in the so-called CMEs.

Conclusion

The aim of this paper was to explore how varieties of capitalism affects employment relations. The paper focuses on both liberal market economies and coordinated market economies. The paper establishes that in liberal market economies, employers hire and manage workers as individuals, which gives employees a direct voice in management. In these economies, firms have autonomy over employees in that they directly deal with workers in terms of hiring, firing, retaining, and remuneration. On the other hand, coordinated market economies are seen to adopt the collective approach whereby firms depend on trade unions in hiring, firing, and remunerating workers. In such firms, employees have indirect voice in that they are represented by unions and councils and as a result, they are more protected compared to employee in the liberal markets. The paper establishes that over time, there is convergence between LMEs and CMEs resulting in complementarity economies which share in the characteristics on both the liberal and coordinated market economies. Globalisation is the major force behind convergence in VOC. :

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