Over the last 25 years the context within which employee relations takes place has changed significantly. Describe the main forces causeing these changes and access their principle concequences.

University Degree Business and Administrative studies

Diane Carr Assignment 1

BMO COMBINED STUDIES

EMPLOYEE RELATIONS

ASSIGNMENT 1

OVER THE LAST 25YEARS THE CONTEXT WITHIN WHICH EMPLOYEE RELATIONS TAKES PLACE HAS CHANGED SIGNIFICANTLY.

DESCRIBE THE MAIN FORCES CAUSEING THESE CHANGES AND ASSASS THEIR PRINCIPLE CONCEQUENCES.

BY DIANE CARR

20/10/04

An employment relation takes place whenever work is exchanged for payment. An employee is someone who works under a contract of employment. Employee relations are defined by Laurie J Mullins as being the relationship between the policies and practices of the organisation and its staff and the behaviour of work groups. This relationship between employees and employers will be affected by a variety of factors. These factors can be categorised as: economic and political factors, legal factors, influences of the European Union (EU) and Technology. All of which have had a significant effect on the way employee relations have changed over the past 25 years. All of the factors have main forces, which have contributed to these changes over the years, therefore adding to the changes in employee relations.

After the depression in the 1930’s and the sacrifices of the Second World War there was a strong will to build a better future for the majority of people in Britain. In a general consensus between political parties the government decided to intervene in the running of the economy to try and ensure full employment growth. The pre war economists believed that they could achieve full employment with out any action from the government. Keynes argued against this and stated that governments would have to intervene to manage the level of demand in the economy. They did this by budget deficit, for example, by spending more money than has been paid in taxes. This placed more demand into the economy and therefore created more jobs and more spending. Due to the low levels of unemployment during post war period the bargaining power of the trade unions was increased, with an increase in members. Management seemed incapable of effectively handling the situation. Trade unions were often blamed for the poor performance of the British economy compared to their main competitors. The unions, without state regulations, led to rising wages demands and wage drift and put pressure on costs and therefore prices. The price rise on U.K. goods made them more uncompetitive, therefore leading to inflation. (Blyton and Turnbull.1998) Government therefore resorted to income policies to try and moderate pay increases, however these policies did not last long. The policies tended to have a bigger impact on the private sectors workers, and were seen as a deliberate attempt to shift the power more towards the employers, causing industrial disputes. By 1960’ and 70’s the trade unions were judged to have far to much power and that this power was being used in a reckless way and resulting in British industry becoming uncompetitive, due to the distribution of products and the increase in costs. When Trade unions leaderships again promised wage restraint in exchange for an explosion of industrial conflict during the ‘share’ in economic policy making. However they failed on both accounts, when wage restraint during 1975 – 77 was broadly accepted by trade unions, but in 1978 the government imposed a 5% increase on the public sector. This was to play a major role in the ‘winter of discontent’ (1978-9), (Blyton and Turnbull. 1998). The situation was open for a radically different approach to running the economy and industrial relations.

Margaret Thatcher sought to change all this with the ‘new right’. Monetarists began to put their views forward and they believed that inflation had been caused by; too much money flowing in the economy, borrowing being a significant factor, the government had to reduce its borrowing requirements, and the severity in markets and labour, which reduces how effectively they could supply goods. Under Mrs Thatcher these beliefs became government policies, which was implemented by the conservative government. The solution to this inflation was either deflation or wage restraint; therefore government was now no longer ‘neutral’ in the employee/management relations. The Thatcher government had a strong belief that economic problems had mainly been caused by too much power by trade unions and too much state intervention. Therefore it was believed that if the government could reduce these and encourage enterprise through deregulation and privatisation, the result was expected to be a significant increase in competitiveness due to low wage and costs. The theory behind this was that the unemployed would compete for jobs therefore pushing wage costs down. Minford argues that trade unions use their ‘monopoly power’ to raise wages above the market rate. As a result of this employers hire fewer union workers, which increase the rate of unemployed. According to neoclassical economics, therefore, unions not only increase costs (wages) and thereby increase inflation, but cause unemployment and a more unequal distribution of income within society and in the process reduce the efficiency of both individual firms and the economy as a whole through the imposition of restrictive practices and demarcations. (Blyton and Turnbull 1998)

Therefore it was believed that to reduce unemployment and improve efficiency they had to reduce the power of unions to reduce wages. The conservatives elected in 1979,1983,1987 and 1992 and made the reduction of trade union power a principle objective, which, with the help of high unemployment, new trade union laws and the defeat of the miners strike in 1985 was largely achieved by the mid 1980’s. (Farnham and Pimlott. 1995) During the 1980’s the internal affairs and government of trade unions were strongly affected by legislation enforcing secret postal ballots and the rights of union members. This also ...

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During the 1980’s and 1990’s employers became very aware of the problems that trade union had caused, and therefore were less likely to recognise them. Employers began to de-recognise trade unions and began to favour bargaining purposes, this meant less benefits for the employer. The steward role became under threat from management HRM (Human resource management) strategies aimed at flexible work arrangements and employee involvement, which are less susceptible to collective influence or control. (Salamon 1998) This lead to a number of questions being raised by workers to wither they should join a trade union or not.

Globalisation also had a great effect on the climate which industrial relations took place over the last 20 years. There was nothing new about globalisation, since multinationals have existed for many years. However what is new is the pace in the more recently industrialised countries have established production facilities across the world. (Blyton and Turnbull, 1998) This is particularly significant to Britain, as it has attracted an inconsistent percentage of this inward investment. For example Britain attracted 40% of all Japanese investment in Europe and 50% of all Korean investment. In addition, these companies entered into alliances and joint ventures relating to the design and production of a wide range of manufactured goods. By 1996 25% of UK manufacturing capacity was foreign owned.

Globalisation brought about new conditions relating to methods of production and labour management, with consequences for employment, labour practices, trade unions and industrial relations. The ability of this foreign management to achieve much higher levels of efficiency has focussed attention on relatively poor quality of British management. Globalisation has also brought about an intensification of competition over the past 20 years. The UK has lost out in this competition because of low levels of productivity, wages and on cost are relatively low compared to its main competitors, however unit labour costs are higher due to the low productivity, flowing from a constant lack of investment.

Britain had to respond to this competitive pressure and therefore came up with new market circumstances. Changes were to include intraorganisational developments involving, for example the introduction of new technology and adoption of new manufacturing techniques. (Blyton and Turnbull, 1998) With Britain falling far behind with productivity, UK industry has only remained internationally competitive by cutting wages relative to other industrialised economics.

Globalisation also brought about changes in employment and labour force. This led to a decline in employment in production industry and increase in service industries. The 1980’s in particular saw a massive decline in the production industries. There was an increase in female part time work especially during the 1980’ and 90’s. Overall by 1996 women made up 49.9% of the total workforce, 57% of the service sector and even higher in certain parts, for example health and social work rose to 81%, and Education to 71%. There were changes in location of sites, to ‘Greenfield sits’ located in rural areas. Self-employment also rose between 1981 and mid 90’s by almost 50%. Unemployment became 4 times higher in 1980 and 90’s than it had been in 1960’s and 70’s. More merges and takeovers began to take place, creating bigger multi-national organisations, although this happened all over the world UK saw a massive 75% of all hostile takeovers. (Blyton and Turnbull, 1998)

Between 1979 and 1997 there was a number of acts passed with the objective of changing the balance of power between labour and capital. Many of these acts restricted the behaviour of trade unions and made it more difficult for them to organise and deliver action. Others reduced people employment rights, for example protection from unfair dismissal. After pre war attempts by Health and the Industrial relations act 1971, Mrs Thatcher was determined not to make the same mistake, so it introduced legal restriction in stages. Norman Tebbit arrived at the Department of Employment in 1992 and from then on the pace of legislation change increased and became a major instrument of economic policy.

The European union has also had great influence on employee relations. The main European countries tended to have more corporatist than Britain. Britain joined Europe in 1973 and from then on there was potential for tension and friction. Initially the focus of policy initiatives was not on employment and industrial relations, however with the passing of the single market act in 1987, there has been a push to establish a ‘level playing field’ for fair competition to take place. The fear amongst many countries is that the result of competition might be the driving down of pay and conditions to the lowest common denominator. Therefore the EU sought to establish and agree minimum standards and these were put forward in the social chapter at the Maastricht. The UK opted out of these agreement, however some of them were passed as health and safety laws. The conservatives saw the social chapter as an imposition adding to the burden on firms.

The effect of Technology change also had an effect on the change in employee relations. This varies depending on the nature of product or service, the type of organisation and attitudes to trade unions. Technology lead to a significant reduction on demand for unskilled labour in manufacturing industries, while at the same time creating a demand for low skilled and semi-skilled labour in the service industries. Another effect of technology, in particular information systems, has been the closer integration of different stages of production, with the result that firms have been able to almost eliminate stocks, and operate just in time systems.

The main forces, which have caused the change in economic and political factors, are the shift of economic policy from employment to inflation. Due to the depression in the 1930’s and the sacrifices of the Second World War there was a strong will to build a better future for the majority of people in Britain. When conservatives came in to power 1979 Mrs Thatcher’s focus was to reduce inflation, to do this they had to increase unemployment. Labour government before had tried to increase the number of people employed, which, lead to inflation. Thatcher believed that these economic problems were caused by too much power from the trade unions and too much intervention from the government; therefore conservatives set to change these.

Forces also came with Globalisation, putting pressure on business to be come more competitive with there European companies. The resulting intensification of competition in both home and export markets is widely perceived to have exacerbated an already difficult economic situation in the UK, as indicated by the decline of its share of world trade in manufactured goods and total world exports and market by several decades of ‘slippage’ in productivity relative to major industrial competitors. Blyton and Turnbull, 1998) In more difficult trading conditions of the 1980’s, the UK became a net importer of manufactured goods for the first time ever (in 1983), and the relative weakness of the UK economy- arising from poor productivity growth and the decline of manufacturing industries, became even more evident. Conservative government redoubled its efforts to keep wage inflation down, especially in public sector, while at the micro level management have placed even greater emphasis on improving productivity and competitiveness. Therefore businesses were under a lot of pressure from Europe to be more competitive.

The forces that led to the legal factors in change of employee relations, were the 9 acts being passed by the conservative party in 1980’s and 1990’s. These were Employment act 1980 & 1982, Trade Unions Act 1984, Wages Act 1986, Sex discrimination Act 1986, employment act 1988, 1989 and 1990’s and Trade union reform and employment rights act 1993. These act were passed to try and rectify the problems, which had been caused with the previous labour government, and the problems, which occurred with trade unions. It was these factors, which lead to the change in legislation, leading to the changes in employee relations.

The original 6 countries European Economic Community established by the Treaty of Rome (1957) was primarily economic in nature, to support economic development through increased trade derived from the elimination of barriers to the free movement of goods, services, capital and labour. (Salamon, 1998) As industrial relations matters are concerned, there are major variations in the way in which industrial relations are conducted in each country. Certainly, there was a conflict of political ideology between UK conservative government and the majority of its EU partners. Salamon states that the ‘social democratic’ ideology of most European countries has been reflected in the direction of EU developments and was at variance with the more ‘liberalist/ laissez-faire’ ideology of the UK government. This lead to the first social action plan in 1974. However the tension with the EU came to the fore in 1989 with the development of Social Charter and again in 1991 with the Maastricht Treaty on Political union. The primary means for achieving developments in the employment area is the European Social Charter. The object was to ensure that the organisational benefits gained from the single market after 1992 are shared with employees. It aims not only to introduce employment standards but also to enhance the rights of employees, to be involved in organisational decision-making. (Salamon, 1998)

Since the start of the industrial revolution, technology and industrial development have been a continuous integrated process involving the elimination of some types of work and creation of others. The nature and rate of change increased through the 1980’s and 90’s to the extend that it has been named the ‘Technological Revolution’ This came about with globalisation and the competitive advantages of other businesses in the EU. Salamon argues that it could be the reduction in trade unions’ power through recession and their consequent inability to secure substantive negotiations and agreement over the introduction of new technology, rather than any inherent difference in new technology as opposed to productivity changes, which resulted in the primarily procedural nature of many new technology agreements. (Salamon 1998)

All of the factors have consequences, which affect the way employee relations have changed over the past 25 years. Economic factors brought about deflation for workers with unemployment issues and wage reductions for those employed. Since the election of conservative party in 1979 the direction of economic policy has shifted to a monetarist approach which regards the control of inflation and the achievement of a competitive international position as of central importance. The government policy was directed at reducing public sector expenditure by privatisation, cash limits and low pay increase, to reduce public sector borrowing and taxes thereby reducing interest rates and change national resources into investment in the private sector. The public and private sectors are seen in ‘competitive’ rather than ‘complimentary’ terms, and high unemployment has been seen as necessary, but hopefully temporary, introduction to improved productivity and competitiveness, which will result in, sustained economic growth. (Salamon 1998)

In 1979 – 81 inflation was massive and brought great consequences for employees in the UK. During this period the numbers employed in manufacturing continued to decline. In addition employment also fell in other industries and services, by 700,000. In the period 1981 to 1991, manufacturing employment last a further 1.5 million jobs, there was also a decline in the energy industries, water supply, and construction industries. Service sector employment, however, began to expand with more women becoming employed. All of these developments raise issues for the nature of relationship between the employee, management and unions. The change in composition in the work force, combined with the decline in union members, has lead trade unions to focus more on instinct needs of non-manual workers, women and part-time workers both in their recruitment strategies and in other negotiation s with management. Throughout most of the 1980’s and 90’s the UK experienced a continuing high rate of unemployment. During this period there was also a huge shift in the burden of taxation, away from direct taxes, like income tax and corporation tax and towards indirect taxes, like VAT and excise duties. The effect of these changes was to redistribute income towards the wealthier and away from the poorer groups.

Given the low levels of productivity due to low investment, the response of many British companies to the intensification of competition was to cut wages. The result of this together with the government’s social security policies was to push more and more people into poverty and produce a level of in equality in Britain, which exceed most countries in Europe. The lack of investment in people, in Britain, is along standing problem. The rates of participation in post compulsory education is amongst the lowest in Europe and well behind our main competitors. The same was true of those gaining vocational qualifications. Almost 2/3’s of the UK work force do not have vocational qualifications compared with 26% in Germany (Hutton, 1996) Conservative government dismantled the training boars which industry was required by law to contribute and replaced it with an employer-led system. However British industry has a very poor record in this respect, viewing training as a cost rather than an investment and often resorting to poaching from competitors.

Organisational changes meant that the economic climate of the 1980’s and 90’s the use of subcontracting has increased. This has a number of substantial advantages for management. The threat of putting more work out to subcontractors can be used to get workers acquiescence. The large firm subcontracting to small on e can be dictate terms therefore they have lower costs and much more flexibility in their use of labour. This allows larger to push the costs of unstable product markets onto smaller subcontracting firms.

With the election of the conservative government there was a number of acts passed, these were to help improve employee relation in Britain. The most significant act was Tebbits Employment act 1982, which denies legitimacy to many disputes, which are clearly about industrial relation issues. Second trade unions were also given a ‘legal personality’, through the removal of their immunity from civil court action, meaning that union could now be used for a wide range of unlawful activities. There were restrictions put on strike actions, with closed ballets being introduced. (Blyton and Turnbull, 1998)

The conservative laws have had an adverse effect on the rights of individual at work, and in many respects a perverse effect on trade union organisation and representation in specific situations. Conservative economic policies have been more instrumental in weakening unions than their programme of legislative reform. In the public sector, where the state is itself the employer, government policy over the past twenty years has actually increased industrial conflict. (Blyton and Turnbull 1998)

The EU brought about many changes for employees, this came about with the passing of the Single Market Act in 1987, there has been a push to establish a level playing field’ for fair competition to take place. The fear amongst many countries is that the result of competition might be driving down a pay and conditions to the lowest level. Therefore the EU sought to establish and agree minimum standards and these were put forward in the social chapter at the Maastricht. The UK opted out of these arrangements, however some of them have been introduced as health and safety measures. However the present labour government had decided to sign up o the social Chapter and its provisions will be incorporated into British law. Conservatives saw these as an imposition adding to the burden on firms. This now means minimum standard are in place for all workers, with equal opportunity rights.

The effect of technology on the number of jobs is unclear, however technology has contributed to the reduction in the demand for unskilled labour in manufacturing industries, while at the same time creating a demand for low-semi skilled labour in service industries. In relation to deskilled the effect of technology is also unclear. Some industries have been deskilled, with previously skilled workers being nothing more than machine operators. Another effect of technology, in particular information systems, has been the closer integration of different stages of production, with the result that firms have been able to almost eliminate stocks and operate just in time systems. These systems have an effect on employees’ and employer, as the systems are very sensitive to any distribution in the flows of production and delivery. Therefore they depend on the active co-operation of employees’, which gives employees a potential power in the situation.

The main factors, which have caused these changes in employee relations, are: economic and political factors, legal factors, influences of the EU and technology. Economic problems, which occurred in post war Britain, with the focus on making a better future for majority of people, which, in tern led to inflation. Conservative government under Margaret Thatcher tried to solve this problem by shifting the economic policy from employment to inflation. Consequently leading to deflation, unemployment, reduction in trade union power and wage reductions. Leaving employees with less income, less rights, less union representation. Various acts were passed under the conservative government, which lead to a shift in power from the employer to the employee, with the introduction of the employment acts under Tebitt, which were put in place to help improve employee relations. The EU brought about a number of changes in the way of working conditions and equal opportunities, however these were not adopted by conservative government but have since been put in place by the labour government. It also brought about a lot of competition for the British industry; organisations would have to change to keep up with its competitors. Technology came about with globalisation and competitive advantage of other companies with in Europe, however this lead to a reduction on demand for skilled workers with in Britain, with the introduction of just in time systems.