Besch^igung und

FS194-201

LEAN PRODUCTION:

The Micro-Macro Dimension, Employment

and the Welfare State

Pe

Januar 1994

ISSN Nr. 1011-9523

Research Area:

Labour Market

and Employment

Research Unit:

Labour Market Policy and Employment

discussion paper

Forschungsschwerpunkt:

Arbeitsmarkt und

Beschaftigung Abteilung:

Arbeitsmarktpolitik und

Besch^igung

ZITIERWEISE/CrrATION

Peter Auer

Lean Production: The Micro-Macro Dimension,

Employment and the Welfare State DiscussionPaper FS194-201

Wissenschaftszentrum Berlin fur

Sozialforschung 1994

Forschungsschwerpunkt:

Arbeitsmarkt und Beschaftigung (FS I) Abteilung:

Arbeitsmarktpolitik und Beschaftigung

Research Area:

Labour Market and Employment

Research Unit:

Labour Market Policy and Employment Reichpietschufer 50

10785 Berlin

Zusammenfassung

Die Industriesektoren der entwickelten Industrielander befinden sich in einem Stnikturwandel, der zu den Problemen der Rezession neue hinzu-

fiigt. Das Besch^gungsniveau in diesen Industrien wird zuriickgehen,

auch wenn diese Industriezweige sich wirtschaftlich erholen. Dies geht nicht zuletzt auf eine Welle organisatorischer Rationalisierung zuriick, die meist als "lean production" bezeichnet wird und die eine klare Abweichung von fniheren Versuchen ist, Industriearbeit zu humanisieren. Diese Rationalisierung, die durch die Verscharfung der Wettbewerbssituation legitimiert wird und die Betriebe wieder in den Gewinnbereich bringen soli, hat negative Folgen fiir die Beschaftigung. Die Veranderung zeigt, daB (GroB)-betriebe offensichtlich eine sozio-okonomische Rolle erfullten, und mehr Arbeitskrafte beschaftigten, als unter den Gesetzen der schlanken Produktion notwendig. Damit trugen sie wesentlich zum Aufbau und zum

Erhalt des etablierten sozio-okonomischen Gesamtmodells bei. Eine

Konzentration der Betriebe auf ihre nur okonomische Rolle (und auf fiir die Produktion strikt notwendige Beschaftigungsniveaus) biingt diese sozio- okonomische Variante in Bedrangnis. Wer anders als der Staat wird dann die verlorengegangene soziale Rolle der Betriebe iibemehmen und die Beschaftigten auffangen?

Das vorliegende Papier beschreibt die Trends organisatorischer Verande rung, die Entwicklung der Beschaftigung und diskutiert die oben ange- sprochenen Probleme. Eine graduelle Veranderung bin zu

"wettbewerbsfahigen" Beschaftigungsniveaus wird, ebenso wie die Auf- rechterhaltung von etwas Fett in der schlanken Produktion, vorgeschlagen und begriindet. Dabei sollen auch alle zur Verfiigung stehenden intemen und extemen Anpassungsinstrumente genutzt werden. Ein Instrument, das schlanke Organisation und hohe Beschaftigungsniveaus kompatibel

machen kdnnte, sind Arbeitszeitmodelle k la VW.

Summary

The industrial sectors in the developed industrial world are in the midst of a far reaching structural change which adds problems to those caused by a business cycle downturn. That employment levels in these industries will decrease even if the industries recover is among other factors caused by a new wave of organisational rationalisation, commonly described as "lean production", a clear reversal from earlier attempts to "humanize" work.

Such an approach, legitimated on the grounds of stiffer international competition and said to be necessary to push firms back into profitability, has negative consequences for employment The change reveals that (large) firms had a "socio-economic function" which consisted especially in maintaining more labour on their pay-rolls than strictly necessary under lean production thus contributing to the establishment and maintenance of the developed socio-economic models, which characterised the economies of many advanced countries in the recent past. A new concentration of firms on their sole economic function (and on employment levels strictly necessary for production) risks to disrupt this socio-economic logic. Who, if not the state, will then take over the "social" function lost?

The present paper describes some of the trends in organisational change and in employment and discusses the above issue. The paper asks for a gradual approach to introduce "competitive" employment levels, for main taining some fat in the organisation, for the use of all internal adjustment instruments and for a new private/public mix in external employment ad justment. One instrument, which could make consistent "lean organi sations" with high employment levels are working time models like the one recently introduced at VW.

Contents

1. Introduction ¹

2. Towards a new work organisation model ³

3. Internal and external adjustment: friends or foes? ⁷

3.1 Employment security and internal change ⁸

3.1.1 Internal managementin a context of unstable employment? ¹⁰

3.2 The level of over-employment ¹²

3.3 Employment trends in Europe since 1974 ¹⁴

3.4 Four different ways to adjust employment 15

3.4.1 "Neo corporatist" countries maintained a high level

of employment 18

3.4.2 Fewer jobs in England and France ²⁰

3.5 Employment security, cooperation and internal change 23

4. Will yesterday's strengths be tomorrow's weaknesses? 25

4.1 The worst case scenario 27

4.2 What can be done? 30

4.3 Advantages of socio-economics 31

4.4 Production organisation only one factor among others 33

Bibliography 35

LEAN PRODUCTION: THE MICRO-MACRO

DIMENSION, EMPLOYMENT AND THE WELFARE

STATE.1

1. Introduction

"Volvo's Uddevalla Factory is unique in that its production system is not based on the assembly line principle A majority of the Group's production units are working with programs in the work-life area. The most far reaching approaches are applied in Volvo's new plants....As a whole, these programs will increase the satisfaction employees derive from their jobs thereby resulting in more efficient operations" (VOLVO annual report 1989 p.12 and p.61)

"The comprehensive rationalization programme that was initiated in 1990 continued throughout 1992. The objective is to achieve cost-effective production with shorter lead times, higher quality and improved delivery reliabilty the assembly plants in Uddevalla and Kalmar are being closed down Since mid-1990...the number of employees has been reduced by approximately 6500. Decisions regarding further reductions in the number of employees were made in November 1992. The substantial reductions in personnel have placed Volvo companies in situations that they have not dealt with earlier." (VOLVO, annual report 1992 p.l2 and 61)

Only 3 years interval are between these two statements: But more than merely indicating the difference between announcements of a company in boom times and in bust times, the difference between these two statements

indicates, that a fundamental change has taken place in the organization of production of a major car company, known for it's human centred work organization. A new model has emerged and shakes the foundations of industrial (and also service) production: lean forms of organisation replace traditional forms of organisation. VOLVO, all in all but a small player in the world automobile industry, stands not alone in this change. All major companies in Europe are presently engaged in large scale rationalization to

1 The article is a fundamentally revised version of "L'automobile europ6enne entre fordisme et toyotisme" which the author has written together with PASCAL CHARPENTIER and which was published in: La documentation Frangaise, "regards sur I'actualitd" No. 187, January 1993.

streamline their organisation and reduce their costs to arrive at "lean employment".

Does this development also indicate, that the humanized work organisation along the lines of an European, socio-technical model is incompatiblewith the rough world of ever increasing competitive pressure?

Has the idea of the "fathers" of the socio technical model (Trist/Bamforth, 1951, Thorsrud/Emery, 1964), that job satisfaction through new forms of work organisation is indeed a necessary condition for efficient production to be dismissed because of the new requirements of production in the face of Japanese competition? Although the authors of the now basic reference for "lean production" Womack, Jones and Roos (WJR) contend, that the lean world is "the best of all possible worlds" and unites rationalization and humanization, the former seems -after a struggle of about 20 years- clearly have taken the lead over the latter and might even have won by knock-out, resulting in employment cuts of unknown dimensions especially in countries like Sweden and Germany, known as the most advanced models of "welfare" production, with high wage, employment and social security

levels.

It has to be asked if there is an altemative to the lean approach and if there is still room for some "fat" in production, despite all the pressures in the opposite direction. We think indeed, that there is some economic (and not only social) rational to retain some fat, but this can only be argued if one is to take not only in consideration the whole chain of production from design to delivery as have pointed out justly WJR, but the impact of micro (company) decisions on the economy as a whole.

The following article is not so much written from the perspective of organisational change itself but considers mainly the linkages between organisational change and employment, a topic so far widely neglected by the literature on industrial sociology or industrial relations. However, in the understanding of the author, the consequences for employment of the present rationalisation strategies -which are not exclusive to the automotive industry- have to be questioned and solutions have to be found, which permit competitiveness without endangering the whole network of social protection of the advanced industrial countries.

The article gives a rough overview on present organisational change, discusses the links between internal and external adjustment of the workforce and the extent of (estimated) overmanning and manpower cuts.

It shows also differing workforce adjustment patterns in four European

countries in the recent past as well as the institutional embeddedness of these adjustments. Finally, some ideas on why the retention of some fat in production might be better than a totally lean production are discussed.

2. Towards a new work organisation model

Nobody would deny, that there is widespread change in the European automotive industry and that this change is, in one way or the other, influenced by Japanese practices. The book "The machine that changed the world" by WJR is a now unavoidable reference: it has had a large impact in management circles of the European car industry and is taken as illustration for the lead of the best practice Japanese firms and the bad position of leading European manufacturers in assembly productivity. Cooke (1993) shows this impact for Germany, where most major car companies bought

"thousand of copies" and use them as "a bible for top management". In his opinion, it is German industry, where the impact of the message of the book "if you don't imitate the best practice Japanese firms, you will disappear" is greatest. He shows also that Mercedes Benz got the "shock of the new" when they found out that they were the "high quality but low productivity European plant, expending more effort to fix the problems it had just created than the Japanese plant required to make a nearly perfect car the first time" cited by WJR (Cooke, p.82).

However, the organisation of production and the actual implementation of change in the different European countries can best be described as varied. It was only after industrial turmoil, which developed in almost all European countries in the late 60s early 70s that the idea, that improving work conditions and increase job-satisfaction, far from being in conflict with economic goals, was one of the conditions for promoting company efficiency, got slowly accepted. However, it was not turned into a major

trade union claim (for unions the regulatory environment of dismissal protection, worker's representation and co-determination, health and safety, etc. were far more important) until very late in the 80s. Innovations in work organisation supported by reform oriented management and social scientists were carried out, but they rarely went beyond isolated and sometimes experimental activities. It seems though, that they have gotten a second wind in the mid-80's (this time with union support) which varied in strength depending on the country: strong in Sweden, it has only recently begun to gain substance in Germany. But throughout Europe changes are underway. One element of this change is: group work in "accountable" and internally flexible units. In Italy for example, group work is taking the form of organisational changes based on "elementary technological units" (at Fiat), which find their (less technologically oriented) equivalents for example in Renaults "elementary working units", where also groups of workers are responsible for organizing and executing distinct functions in the production process.

However, changes are far from being introduced in an even manner everywhere. Take Volvo, where the work group has become an institution:

There the situation varies from plant to plant: Uddevalla has dropped the assembly line principle, Kalmar has dropped the assembly line, but kept the principle of centrally paced sequential flow (before closure decision for capacity reasons were taken for both plants) and Torslanda and Ghent have kept assembly lines. Some producers have in some factories "doubled" the assembly line with group working stations to assemble special vehicles (Mercedes Benz, Volkswagen and others). Three German manufacturers have established new factories (Opel and VW in the ex-GDR, Mercedes Benz in Rastatt) which all have introduced group work, JIT (just in time) and kaizen (continuous improvements) in various forms. Mercedes has established one of the most modem final assembly plants in Rastatt which is also based on the now defunct Swedish experiences (a mixture of Uddevalla, Kalmar and local German technical approach with some Japanese ingredients).

The level of automation also varies with each manufacturer. Almost all

of the manufacturers have automated their body-shops so that for example welding is nowadays an almost completely automatic process and

differences betweenfirms amount to a few percentage points. The corollary is that the personnel working on the automated equipment receives additional training. More differences can be found in paint shops and especially in final assembly, where still many barriers for automation do exist. Some manufacturers implemented automation of the final assembly

for large series, such as Fiat for the Tipo and Volkswagen for the Golf. At

the other end of the spectrum, Mercedes has on the whole stuck to manual assembly lines and is proud that it runs only one industrial robot at RastatL But usually one finds today "automation islands" in all final assembly plants, where tasks like body/motor marriage, seat, wheel and windshield fixing are carried out automatically. However, after attempts to maximise automation, today, a more careful approach is the mle, even in the newest Japanese Assembly plants.

Concerning operator autonomy, the number of layers of hierarchy, the level of equipment flexibility and the amount of time equipment is used, a general rule is that production units become more responsible for costs and quality of their products, hierarchies are becoming flatter (even in the formerly very hierarchical french firms) equipment more flexible (as to allow simultaneous operations on different models or variants of cars) and shift systems are introduced everywhere to allow for intensive use of equipment. Also as far as the relationship between manufacturers and suppliers is concerned, there are similarities in developments like the increase in outsourcing and globalization while reducing the number of

"first tier" suppliers which will in future deliver whole "modulized"

systems (and arrange their own network of second and third tier suppliers).

But in all these dimensions differences remain: sometimes hierarchies have

only three layers, sometimes more. Sometimes far reaching cost accountancy is introduced at low levels of the organisation, sometimes it is not, in some European factories continuous shift work or night shifts are introduced, in others not. Some of the manufacturers will rely in the future on only a few main suppliers, some -while reducing their overall number- will cope with more (for ex. Volkswagen will go from 950 to 100 while Mercedes will go from 1100 to 550 and Ford from 900 to 600.) Despite common trends and a fair degree of similarity in goals large differences have and will remain. Some of this differences have to do with production

volume (e.g. the difference between high and low volume producers) some with the age of a factory (old sites vs. green field sites). Others have to do with the firm specific business cycle, the labour market situation (tight or loose) and industrial relations (changes depending for example on the bargaining power of the unions). In the final analysis, despite common trends and the introduction of such policies as Just-in-time, Kaizen, Total Quality, Group work, Profit-(or Cost-)centers, outsourcing, etc., there is still a fairly wide spectrum of different practices in work and production organisation across countries, companies and individual plants (Turner,

Auer, 1992),

It might be one of the paradoxes of organisational change, that unions turned work organisation changes into an important policy issue just when the "lean production" concept made its successful entry in management.

But it is clear that while unions do not oppose efficiency, their goals are different from that of management. For management, efficient production in a competitive world remains the main goal, whereas unions have also to fight for the maintenance of the acquired rights of their constituencies.

Because their constituencies are being endangered by the lean, cost reduction approach it might well be, that after a period, where a coalition between reformist management and unions seemed possible (see Kern and Schumann 1984, Auer and Riegler, 1990) with employment cuts linked to lean production opposition will probably grow again, if no solutions are found. The only chance for conflicts not arising overtly is the present vagueness of the concept of lean production under which -with some efforts- even former human centred work organisation concepts can be subsumed: at least, the emphasis on group work, multiskilling, suggestions schemes, kaizen, JIT can be part of both. The diversity of actual situations on the shop floors contributes to this vagueness and the fact that employment cuts caused by organisational change cannot be easily divided by those stemming from overcapacity, has also its impact.

However, despite all the differences, there is something in common to all European manufacturers and this is worrisome for workers and trade unions as well as for those managers which where brought up in the cooperative and "humanization of work" spirit of change of the 80s; it is also disturbing for all those concemed by the problems of employment and

unemployment; all manufacturers try to get leaner as they presently are and try to reduce their costs, putting also a lot of pressure on their major

suppliers which will hand on this pressure down to the last tier of suppliers.

And this will lead to reductions in manpower levels everywhere, even if demand will increase again in the future.

3. Internal and external adjustment: friends or foes?

The specificity of the European automobile industry compared to the Japanese automobile industry seems to be that, as the former has fallen behind, both internal adjustment through lean forms of organisation and external adjustments to reduce the labour force are now required. In this context, it becomes more and more important that companies engage in what could be called "redundancy policies": These policies comprise an array of measures of internal (internal transfers, internal training, short time work, etc.) and external adjustments (attrition, external transfers helped by company based placement units and training programmes, early retirement schemes, etc.). They permit to lower workforce levels without disrupting totally "corporate cultures" -important for having a motivated workforce, willing to be flexibly allocated to different tasks- and are already an important issue of bargaining which will gain in importance in the future.

As workforce adjustment is not a new issue, but has already been used to different degrees before the present recession, the following chapter looks at the ways in which workforce adjustment was managed in the past. Four countries with different patterns (Sweden, Germany, France and the UK) have been selected . Before presenting shortly the experiences of these countries, the issue of why employment security seems to be important for efficient production, is discussed.

3.1 Employment security and intemal change

The cooperative attitude of Japanese employees and their labour unions towards intemal change, and their very strong identification with the

destiny of their firm, are not conceded without certain things in retum. One of the most important is undoubtedly the employment security large firms

in the automobile sector offer their employees, and the managementof their intemal labour markets, where salary (and promotion) is based on seniority and training. The three pillars of Japanese management (employment for life, salary based on seniority -which goes together with training and evaluation- and enterprise labour unions, see Inagami, 1988) although now shaken by a prolonged recession, seem still to hold.

It is interesting to see how this trade-off between acceptance of intemal adjustments, industrial peace, identification with corporate strategies and employment security, has spread to other national contexts through Japanese transplants or joint ventures. For example, at NUMMI, the Toyota-General Motors joint venture in California, the personnel are guaranteed employment security as long as the "long-term financial viability of the Company" does permit. In this case, it does not mean a given job is guaranteed, but it means that the firm will not lay off workers.

It has already worked, since the drop in sales in 1989-90 was not followed by lay-offs, but rather by in-plant training programs and the installation of a new production line for small commercial vehicles. In exchange, the job security system, i.e. the assurance that each individual will only perform the task for which he was hired, and which corresponded to many job classifications (approximately 80), has been eliminated to allow for greater intemal flexibility. In GM's Satum project too, employment security was assured to allow for intemal flexibility (Coriat, 1988). In England, in the Sunderland Nissan plant, such a guarantee also exists, without however being made official by contract. Furthermore, Japanese transplants in England are either union-free or sign agreements with just one union (single-union deal), which then represents all categories of workers wishing to join (single status).

The principle of trading greater internal flexibility for less external flexibility through greater employment security is one of the cornerstones

of the Japanese "model". But as has been advanced by many authors, in Japan, external flexibility is ensured through less employment stability among smaller subcontractors, through inter-company transfers (shukko)

mainly for older employees and increasingly also by temporary workers (Sako,1992). But clearly, internal adjustment is preferred to external adjustment and an employer financed and government run "employment stabilization" fond contributes to that by subsidising short-time work, training and intra-company transfers. The present prolonged recession puts some question marks on the capability of the Japanese employment system to be maintained but up to now unemployment levels are, at 2,7% of the labour force, still very low.

If we look at employment development over a long period, we can see that, compared to other geographic regions, employment in the Japanese automobile industry including those subcontractors classified as belonging

to the motor vehicle sector fluctuates much less than in the American

automobile industry, and is also more stable than in Europe (main EEC manufacturers plus Sweden) (Figure 1). That is, employment stability as a whole seems to be far greater in Japan, than in the two other regions.

Employment in the Automotive Industry in the Triade 1974-1991 Japan, USA, Europe

2500

2000

X isoo ii.

•i. 1000

C

(B 500

1974 1976 1978 1930 1982 1984 1986 1988 1990

1

JapM = SicJ 31i. USA= Sic 371. Europe= NACE=35:EEC(•» D, F. NU L UK: • jince 1986E) + Sweden Source:Atzen WZB,Eorosar.JAMA,Sveneka BilindustriJI)feni{en

(c) AueiflJnlce WZB

Chart 1

- EEC+SWE EEC-4SWE

s 100

Employment in the Automotive Industry in the Triade 1974-1991 Japan, USA,Europe

(bdex 1974 s 100)

\

1974 1976 1978 1980 1982 1984 1986 1988 1990

Japan<= SScI 311, USA» 371, Europe = NACE33: EEC(c D, r, NL,I, UK; * without Spain) -f Sweden

Soutk: AaotV^, Eurojtat, JAMA. Svenska BUindeaoiAnniten

(c) Ausr/UnkeWZB

Qian la

- EEC**SWE

3.1.1. Internal management in a context of unstable employment?

Europe is -as we have already said- handicapped in relation to Japan: on the one hand, it will have to push through internal adjustment through changes in work organisation and the development of human resources to face technological changes and catch up with the Japanese, and on the other hand, its workforce will have to "lose weight" to achieve "leaner"

production. But in a lean organisation, technical and human faults are felt

"on line", and production becomes more fragile. Therefore, skilled labour is required which is able to act in case of failures and itself works without making errors. We therefore reach a dilemma: if you make a major investment in your personnel (and this is presently the case as further training is becoming increasingly important), you have to think twice before letting it go or introduce highly unstable labour markets, where the most motivated easily opt for the exit option. Furthermore, the commitment to and motivation for sustained qualitative internal adjustment seems to be

10

easier, as tbe Japanese example shows, if there is a catain degree of employment security. Womack, Jones and Roos noted in their book that the hesitation to express your know-how and commit yourself "would lead directly to catastrophein the Ohno plant" and that "the high work morale in the Takaoka plant was probably due to the fact that all workers had life enq)loyment in exchange for their commitment" (p. 58 and 84 of the

German edition).

If there is no development of the market to counterbalance the effects of rationalization and such markets are yet not in sight, the European automobile industry will steer somewhere between Charybdis ( massive layoffs - and have difficulties making internal changes and get trained labour) and Scylla (have too high labour costs and be disadvantaged in competition). In any case, it won't be easy going. A substantial segment of industrial employment is concerned: aside from the automobile industry (manufacturers, equipment makers, see chart 2), which in 1992 represents more than 8% of all jobs in EEC manufacturing, there are other depending sectors (repairs, insurance, shipping, etc.). It is estimated that 10% of total jobs in the economies of the major car producing countries concerns directly or indirectly the automotive sector (CCFA, 1992, JAMA, 1993).

SCO

700

«00

500-

<00-

ill

S 300- UI

200-^

lOO-K

oliV-f-' , I I— I I I I .

Gennany F^ce UK Italy Spain Belgium Netherlands Ponugal other EEC

• • •

NACE 35:Manttfietors ofmotor veluciss andofmotor vehicle pans andaccessories

•) 1990. VDA ••)DK3.9,GR2.l (1990). IRLSJ.Uia0.4 SooTce: Eurostat, V^A

(c) Auet/UnkeWZB

Employment in the Automotive Industry in EEC Countries1991 ii Chan 2

11

3.2. The level of over-employment

The figures given are not reassuring and there is hardly a day without

announcement of planned lay-offs by one of the automotive companies in

Europe. Without additional outlets, and with a productivity similar to that

of its Japanese counterpart, the European automobile industry would only continue to employ half its workforce (Womack/Jones/Roos, 1990). The firm Mc Kinsey estimated that as many as 700,000 jobs could disappear in Europe in the coming years. The declarations made by European automobile executives for future employment levels are not cause for optimism. There are, of course, many uncertainties concerning the development of the market, and such uncertainties will increase with the opening of new markets in Eastern Europe, which have already (temporarily) spurred the German - and French - automobile industry.

Remember also that during the first oil crisis in 1973-74, massive layoffs were predicted, as well as the disappearance of many manufacturers in the

then near future. But aside from the UK where more than 55% of all auto

jobs (and more than 30% of production) of 1974 where lost in 1991, the automobile industry weathered the storm quite well.

In fact, no one knows in which countries most of the layoffs will take place. Different sources come to different results: according to Morgan Stanley among European manufacturers, France and Italy - whose market share is said to be shrinking by roughly 3%, from now to 1995, to the benefit of the Japanese (+5%) - are more directly concerned, whereas Germany (VW/AUDI/Opel) should increase its market share for new cars by +1% by 1995. It is probable that the European countries whose automobile markets are the most protected against Japanese imports, i.e.

Italy and France, will be the ones to suffer the most when the market opens after the year 2000. But here all depends on how "managed" this trade will remain. A European Commission study which measures the effects of European integration on 40 "sensitive" economic sectors taking foreign trade into account, shows that the automobile industries of Germany and Spain, and, to a lesser degree also France, are in very good competitive positions, and that the United Kingdom, Italy, and the Netherlands are in bad positions (especially with relation to countries outside the EEC, i.e.

12

Japan) (EEC, 1990). To this it must be added that manufacturers such as

VOLVO and SAAB, which sell a large part of their output on the highly

competitive American market, already did suffer from the Japanese

competition in the top-of-the-line range there.

However, it seems that especially those countries, which have had up to know very high employment levels, such as the German manufacturers are

increasingly concerned by cuts in their workforce: Mercedes has lost about 13000 jobs in 1992and announced the shedding of about 15 000 more and

Volkswagen decreased its workforce by about 7500 in 1992 and 15 500 more are expected to be cut in 1993/94. VW has introduced a large scale work sharing arrangement by which 30 000 jobs will be maintained for at least two years (cuts in working time of 20% lead to a loss in income of about 10% for workers). GM announced a cut of 9,2% of its German and European workforce (Financial Times, 8.9.93). In fact, it is hard to base oneself on those announcements as they get more alarming from day to day. Observers judge this numbers as not sufficient and estimate that in Germany alone suppliers and manufacturers together could loose as many as 200 000 to 300 000 jobs by 1995 (Die Zeit, Nr.l2, March 1993).

Where will jobs be cut: among manufacturers, among equipment makers, or both? Table 1 shows job distribution between equipment

makers and manufacturers in 1987 and 1991.

Table 1

Employment Distribution among Manufacturers and Suppliers (in % of total)*

Europe^) USA Japan

1987 1991 1987 1991 1987 1991

with manufacturers 67.5 66.7 45.0 44.2 27.4 25.8

with suppliers 32.5 33.3 55.0 55.8 72.6 74.2

total = NACE 351 (construction and assembly of motor vehicles and engines and NACE 353 (production of motor vehicle parts and accessories) (US = Sic 3711 and 3714, Japan = SicJ 3111 and 3113)

1) Germany, France, Italy, UK

Source: VDA, US dpLof labor,StatistischesBundesamt, Facbserie4, own calculations

13

The three regions of the triad show very different types of distribution between manufacturers and suppliers. Whereas Japan has most of its workforce with suppliers and also the United States have more employed at the suppliers plants, Europe has most of its employed with the major manufacturers. The distribution of the employed is by the way consistent with conventional wisdom on the degree of subcontracting which gives Japan a clear lead. However, Japanese suppliers are more tight in with their large costumers and are part of an "extended internal labour market"

(Lecler, 1992) comprising transfers from the costumers to their suppliers.

In all regions (Japan included) the trend is clear: expressed in percentages of the total, employment in automobile manufacturing is decreasing, whereas the employment part of suppliers is increasing.

Especially in Europe, one can expect most job cuts by manufacturers, as the potential of subcontracting seems far from being exhausted. This does not mean, that the jobs lost by manufacturers are simply transferred to suppliers: as suppliers are themselves pushed into hard rationalization programmes to produce at low costs by their costumers the balance on the whole will be a supplier biased distribution of employment but less jobs than before at the end of the day. The present difficulties of such large suppliers as BOSCH in Germany, where fringe benefit cuts seem not enough to avoid lay-offs, show this already.

3.3. Employment trends in Europe since 1974

A glance at the past shows variable adjustment levels depending on the country. We have already mentioned employment stability among major

manufacturers in Japan compared to the United States and Europe. In

Europe, over the last 15 years we see very different trends, especially beginning in 1979-80. In Germany, despite a fairly strong cyclic reaction (after 1973 and 1980), employment has recovered and increased steadily since 1983. In 1991, a historic record was reached with 785,000 jobs, i.e.

150,000 (+24%) more than in 1974. In Sweden, the reaction of employment in terms of cycles is somewhat less sharp than in Germany;

but between 1974 and 1988, employment also increased by some 30,000

14

jobs. Among those countries which have increased their workforce in the

automobile industry from 1974 up to the onset of the present recession are also Belgium, Holland (both with fairly strong cyclical swings and slower growth rates) and Spain.

Three European countries have continually lost jobs since 1979, and have in 1991 employment levels lower than in 1974: UK (-55%), Italy (- 15%) and France (-19%).

Between 1978 and 1985 - i.e. the same number of years as those remaining between now and the year 2000 - 350,000 auto jobs were lost in countries which registered job losses during this period. This is more than for the European steel industry, which cut 265,000 jobs over the same period. This means that a fairly massive readjustment of the workforce is not a new phenomenon for the automobile industry or for European industry in general. But there are great contrasts between the different countries: England alone accounts for 57% of all job cuts in the automobile industry (and 45% of all jobs cuts in the steel industry). Furthermore, aside from the quantitative aspect, over-employment was managed differently in different European countries, which is explained by their different socio economic models. The subsequent analysis of the different country pattern of workforce adjustment concerns mostly the period going from after the first "oil shock" to just before the end of the recovery (1989).

3.4. Four different ways to adjust employment

We have plotted the different performances of four countries in chart 3 and chart 3a. Two countries succeeded in creating jobs during the period, and two others suffered job cuts. It seems clear that the need to adjust employment is firstly determined by the economic development and strength of the automobile branch in the world market. There is a relationship between production and employment (see chart 4 and 4a), though this relationship is much looser in France and England than in West

15

Germany and Sweden^. This shows that, while in the final analysis,

management of the workforce is a function of production and the market, it also depends on employer, labour union and government strategies, i.e. the power balance in the system of industrial relations. Employment is a political as well as an economic issue. Since the balance of power is governed by institutions such as the Labour Law (the regulation of employment protection: see Auer et al. 1992, Biichtemann/Meager, 1991, Mosley 1993), employment and training policies, etc., a filter exists between adjustment requirements determined by market changes and the actual adjustments. For economists of the pure neoclassical tradition, this is a distortion of market forces; employment should not be affected by social or political factors. For supporters of the "institutionalist" approach, the intervention of the industrial relations system can provide a buffer against the abnormal functioning of the market and regulate employment levels more efficient as the market. For some authors, the existence of strong institutions even makes it possible to implement post-Taylor or post-Fordist production models, and is a prerequisite for economic growth, since strategies for mass-producing low-quality goods, requiring cheap, unskilled labour, are no longer adapted to the current expectations of consumers.

Therefore, strong institutions support a "diversified quality production" in a high skill, high wage economy (Streeck, 1991),

Regression coefficients show that around 75% of the variation in production is

"explained" by employment variation in Germany and 60% in Sweden, but only 10%

in France and 20 % in the UK. In other words: in France and the UK output increases are less "caused" by increases in employment thus resulting in productivity increases (output per worker, see appendix 1)

16

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3.4,1. "Neo-corporatist" countries maintained a high level of employment

Up to very recently, there seems to be reason to believe Streecks arguments: chart 3 shows that employment has -over the long-term fared

better in countries with "neo-corporatist" type social relations and strong

labour unions than in countries with more conflictual industrial relations and weak or weakened labour unions. Furthermore, the former increased

their ouQ)ut fairly quickly after the two oil crises and took advantage of the subsequent recoveries by concentrating on the top-of-the-line range. This

also holds true for industry in general, and particularly for the steel industry, where they cut fewer jobs over a longer period than the two other countries, and production was redirected towards special steels (Semlinger,

1991; Riegler, 1992).

Germany and Sweden have strong labour unions and employers' associations and a tradition of communicating between social partners at different levels as a result of deals which include industrial peace clauses.

Therefore, strikes are rare but can be serious and widespread, as during the struggle for a 35-hour week in Germany. In both countries, the trend towards decentralisation in bargaining did not weaken the labour unions thanks to strong institutions (Works Council, Betriebsratin West Germany, Labour union "clubs" in Sweden) at enterprise level. Employment is certainly not "guaranteed", but it is protected by legislation against layoffs and agreements to counter the effects of rationalization (Rationahsierungsschutzabkommen in West Germany). It must be said that large companies in the automobile industry have developed "internal labour markets" with their own recruitment, career and redundancy rules, which come close to employment security for workers with unlimited employment contracts. Compared to France, they make less use of fixed term contracts and temporary workers (Auer, Biichtemann, 1990). But they do not ensure this "employment security" alone: they are assisted, when needed, by measures financed in part by the government. In West Germany, short-time work was heavily used during drops in demand: in 1974, 14.5% of workers in the automobile industry were on short-time work, and during the second oil crisis, the figure was 7% on average. Short-

18

time work is used in Sweden along with subsidies for training on the site of employment during slow growth periods.

Freezing hiring and using attrition makes it possible to avoid layoffs. In

the automobile industries of both countries, but more in Sweden than in Germany, where departing employees often receive severance pay

(Aufhebungsvemage), adjustments were made easier thanks to a fairly high turnover (and therefore voluntary departures), even though there are fewer departures during economic slumps. The fairly high level of mobility and

the return of activity enabled the renewal of personnel, but, at the same time, underlined the tightness of local labour markets.

In both countries, though much more in West Germany than in Sweden, the early retirement solution was used. In West Germany, where immigrant labour is laid off more than German labour, "expatriation grants" together with facilities to recover pension funds, were proposed temporarily to immigrant workers who accepted to return to their home countries. For both countries, the decrease in work time has also supported employment: in Germany, the working week was significantly shortened through collective bargaining (37 hours by now and probably 35 in 1995).

In Sweden, where the working week remains the same, and, for example, is still 41 hours at VOLVO, the numerous possibilities for legal absence (parental leave, training leave, etc.) have decreased the effective time worked to one of the lowest in Europe. And different shift systems have been introduced in both countries which allow a longer use of equipment.

While there are many differences between the two countries, internal adjustments were favored over extemal adjustments, and there was job stability for a large "core" of employees with substantial seniority, which is still encouraged by a solid "institutional environment". This employment stability (relative because of turnover) was put to the test during the two oil crises but was not seriously threatened, and with the recovery up to the 90s, the lack of qualified labour sometimes became even more of a problem than ensuring employment stability. This has changed with the present recession coming together with changes towards the lean company.

19

3.4.2. Fewer jobs in England and France

This "institutional environment" is differently developed in the two other countries, which have more conflictual industrial relations, even if changes can currently be noted. True, there are major differences between the way England and France approach layoffs; France - with the help of the government - is a case of "managed exits" with accompanying measures

largely paid for by the public, while the UK is a case of neo-liberal market

led adjustment.

Adjustment by the market

In England, after 1979, the very liberal policy of adjustments by the market became a key issue in the battle against what was considered an ineffective

"over-manned" industry and was also part of a strategy against labour unions and against certain institutional rules laid down earlier to protect jobs (such as the "guaranteed week" agreements, a sort of short-time working scheme, which guaranteed employees in the automobile industry a certain number of paid hours of work per week). Massive job cuts were, however, at the heart of the "liberal" adjustment. Nevertheless, even in the UK layoffs are not without any compensation thanks to the legal protection in case of layoffs (Employment Protection Act), backed up by the law on severance pay (Redundancy Payment Act). Adjustments in the various automobile firms were therefore generally negotiated with the labour unions. The most widely used system is redundancy payments which were often increased by the firms. Almost all layoffs were "voluntary redundancies", i.e., with the consent of the departing worker, and with higher severance pay than the statutory minimum payes in case of involuntary redundancies. But, is has been noticed that redundancy payments are the least protective measures, and a large part of workers who received those payment are later on filling the ranks of the long term unemployed (White, 1983; Rees; Thomas, 1988). Early retirements were also used; they concerned approximately 20% of all departures (Campbell,

1992).

Some companies (British Leyland, Vauxhall, Ford) attempted retraining programs, which have led some authors to draw parallels

20

between the British automobile industry employment market and the German concept of "internal markets" (Marsden et al., 1985).

However, the adjustment was carried out more rapidly (e.g. 130,000

job cuts in 1980/81 alone) and with less protection than in Germany,

Sweden or France. This is obviously linked to the very different need to

make adjustments due to very low productivity; during the 70's, the labour unions practiced "labour hoarding": their splintered organisation and

attitude of opposition to change sometimes impeded the internal adjustments required. This has changed since, and there is a current renewal of industrial relations (e.g. single union deal, single status) coming from the transplants (mostly Japanese, which today account for about 22%

of UK car production), which offer a certain degree of employment security for their employees. This renewal could become widespread if it is taken up by established national companies.

The government as an adjustment agency ?

In France, employment fared better during the 70's but job cuts increased after the second oil crisis. The management of job cuts has become a major issue. Despite the fact that the labour union membership rate is now the lowest of all OECD countries, labour unions are not powerless and the government, which plays a more important role in industrial relations and industrial modernization than in the other countries, has made a fairly wide range of adjustment measures available to companies and individuals, such as short-time work, training and especially early retirement. It is true that the French automobile industry uses fixed term contracts and temporary employment more than other countries to counterbalance swings in production and the external adjustment policy is also based on the departure of immigrant workers, and, more than in other countries, on "age measures" (e.g. it has been estimated that the costs for the french state of early retirements at Peugeot SA alone accounted to more than 2 bn FF over an 8 years period). But this exit management, through the early retirement of older workers, was gradually slowed due to its cost for the government and the loss of experienced workers for the companies and by efforts to introduce a system of preventive employment management and exit management based on training. In fact, the "retraining" policy has become

21

one of the key aspects of employment policy in the 80's (Villeval, 1991, Ardenti, Vrain, 1988), also demonstrating the government's wish to support companies in their adjustmentprograms without footing the entire bill. The relative weakness of labour unions, a gradual change of their policy towards more cooperative models, and a corporate strategy to improve

"out-placement" using external labour market management tools financed in part by the government, have led to a relative consensus on the need to

cut jobs to increase productivity in the face of competition.

Table 2

Main Measures ofWorkforce Adjustment inthe Automobile Industry^)

Public Labour Market Policy for external adjustment

Public Labour Market

Policy for internal adjustment

carly^^re- redundancy external rcpatria-

tirement payments training don aid

short-time internal

working training

France xxx jl xx xx

Germany xxx x x

Sweden x - x(x)

UK XX xxx X

xx(x) X

xxx X

-4)

XXX = very important; xx = important; x = less important

The table gives only a very rough overview on some of the most important measures and regulations and tries to asess the importance of measures between countries. The table is not more than an indication of very general trends. Brackets indicate that measure gmned tecenUyin importance.

including tide-overs for early retirement

firms pay also departure bonuses in the other two countries(e.g."AufliebungsvertThge") 4) discontinued in 1984

The Overview on adjustment measures in the automobile industry in four European countries shows the main instmments which were used in the last two recessions; Early retirement is by far the most important part of public labour market policy intervention in all countries with the exception of Sweden. In particular it was used extensively in France. Also in Germany, when the need arose, the dismissal of workers above 58 (and sometimes 56) which then receive unemployment benefits until they retire early at 60, as well as a temporary scheme of early retirement after 58 years was used

22

to adjust manpower levels. In Germany extensive use is also made of short-

time work.

It will be interesting to analyse, how these measures are (and will be)

used in the present recession,if new measures are introduced and how the accompanying measures will be financed given the cost problems in both private and public budgets. At VW in Germany, for example, extensive early retirement schemes for workers aged +55 were already negotiated. At

VOLVO instead, the retirement option was, in the absence of a favorable

public scheme allowing exits at an early retirement age, used by only a few.

However, this time it seems clear that attrition, voluntary "primed"

departures and labour market policy measures are not sufficient to manage exits as in the two former recessions and dismissals take place even at such employers which have up to now granted an employment guarantee* like

Mercedes Benz.

3.5. Employment security, cooperation and internal change

Our initial hypothesis was that employment security, one of the aspects of the Japanese model, would make adapting to internal structural changes easier. It seems that in Sweden and Germany, during the 80s, the state of the market, the strength of labour unions and the institutional support of internal markets protected jobs, but did not stop external adjustments, when needed. They also made internal change easier, such as the introduction of new technologies, group work, work time flexibility and even "Just In Time". However, the type of changes introduced were usually more

"human centred" as with the lean production concept. Even if systematic comparative data for "qualitative" internal adjustments are not available, many authors have shown how extensive they are in these two countries, sometimes introduced in different ways (Berggren, 1991; Turner/Auer, 1992; Auer/Riegler, 1990). The well-known changes in work organisation at VOLVO or the introduction of group work and flexible hours to increase the operating time of equipment in German plants (Muster, 1988;

Lehndorff, 1991) illustrate this fact. In comparison, difficulties are greater in other coimtries, as, for example, Pontusson (1991) pointed out in a

23

comparison of Sweden and the UK. Other studies (Bouche eL al., 1992) show the difficulties of modernization in France as well. These changes have been described extensively in comparative literature, where the factors which impede or support change have been brought out

Numerous job-classifications which create, among other things, major discrepancies in salaries and statuses, multiple hierarchic levels and numerous and relatively weak labour unions with non-cooperative strategies constitute just so many obstacles to change. Fairly unskilled and highly mobile labour markets and a training system too far removed from industry realities would not make it possible to solve the problem of modernization, which must also be qualitative. However, a certain degree of equal pay (nevertheless allowing "pay for knowledge"), statuses with loose classifications enabling versatility without changing categories, "flat"

hierarchies, a training system closer to the realities of the company, labour unions which have the power to act - i.e. are strong and supported by their members - and which follow a cooperative policy, a relatively stable labour market, yet with sufficient internal flexibility; all these things would make changes easier and be conducive to a development strategy based on flexible production and high quality.

While it is difficult to generalize, employment security in the two countries with "cooperative" industrial relations has, up to very recently, been considered as a positive factor to allow for internal change, as labour unions have sought a balance between production requirements and more human working conditions. They did not oppose change, and in the two countries it has been said that a "modernization pact" was concluded between the labour unions and management (Kem/Schumann, 1984;

Auer/Riegler, 1990). It seems that in the new French and British models of industrial relations, although the labour unions have been weakened, a more cooperative approach is being sought. While during part of the 70's there was a tendency towards non-cooperation and a labour union policy which attempted to simultaneously prevent internal and external change (hence a policy based on rigid labour management), the 80's, with its job cuts and weaker labour unions, brought about a change.

24

The French labour unions, weakened yet (at least the reformist wing) more cooperative than in the past, accepted internal change, apparently also in exchange for increased preventive employment management, and

adjustments combined with social protection measures such as in the

"accord h. vivre" at Renault (Morel, 1991).

4. Will yesterday's strengths be tomorrovt^'s weaknesses?

The emergence of the Japanese production method and the recession has suddenly cast doubts not only on the viability of the kind of European style organisational change (the VOLVO approach but also the German style group work supported by the unions provides an illustration of European style approach) but also in general of the socio-economic model dominant in the advanced European countries.

It is true, that European models of work organisation change, as at Uddevalla and Kalmar - called not so long time ago a "dead horse" by

Womack in an interview with the New York Times - have been

discontinued and production has been recentred at the bigger but traditionally organised plants in Torslanda and Gent. It is true that managers at the Mercedes plant in Rastatt are worried, and might ask themselves if they have engaged in the right solutions for the "most modem" car plant in Europe. Put under pressure of delocalisation, unions have also accepted wage restraint there to attract production of Mercedes' city car.

Also the high employment levels reached during the last upswing in the German and Swedish automobile industry are put into question and have already been substantially lowered.

However, beyond what can be seen as normal adjustment in economic troughs it seems that it is the whole socio economic model with its labour law regulations, high wage levels and substantial social benefits (and assorted wage and non wage costs) which was only possible to develop because of strong and participative unions and compromise oriented

25

management is now blamed to be part of the problem rather than being part of the solution, thus putting a question mark on Streeck's thesis..

It is true that beyond the never ending story of economic troughs and peaks and continuous adjustment to structural change this recession seems to have an additional quality which has precisely to do with organisation.

An enormous labour saving potential seems to lie in new lean ways to organize work. And it seems that the European automotive industry is taking advantage of the present recession to carry out sweeping organisational changes.

According to some specialists (such as McKinsey consultants) the European auto industry could produce the same amounts of cars with roughly half of its manpower. According to standard economic thinking, this does not really matter, because workers made redundant will find jobs in other sectors of the economy. Stmctural adjustment has been a constant of economic development and for example millions of agricultural workers have found work in industry, as well as millions of industrial workers have found jobs in the service sector.

However, this story of structural change has acquired a new quality ever since mass unemployment developed and has also to be questioned in the light of large numbers of redundant workers which left the active labour force through measures like early retirement.

And this time things could develop differently, as the business cycle downturn comes together with organisational rationalisation not only in one sector of the economy but in almost all sectors simultaneously (not to count with continuing technological development). Take the German machine- tool industry: some 150 000 jobs will be cut due to a slump in demand but also because of the introduction of lean production in this sector of usually middle and small size companies (Morgan, Cook, Price, 1992). The head of McKinsey Germany, Heinz Henzler, reckons that about 2 to 2,5 million people in German industry (that is 20 to 30% of industrial employment) have to be considered as "hidden unemployed" and are not strictly necessary to maintain production (Die Zeit Nr.12, 1993 p. 29). And organisational rationalisation does not only concern industry but also parts of the service sector like banking or financial services. In addition state

26

budgets are -also because of the record numbers of unemployment reached now in most European countries, the threshold of three millions being overpassed in France, the UK and the reunited Germany- not expansive i in employment terms.

4.1 The worst case scenario

The defenders of lean ways of organisation advance, that lean organisation will lead to low costs, low prices, will spur demand and increase market shares and will be eventually the weapon to defend European markets against the Japanese. They contend that in any case, if one does not engage in cost efficient lean ways of organisation, one is simply to disappear from the market altogether and employment and production is lost totally. In that view, lean production is simply a necessity to survive and it is difficult to argue against that view.

But, if we add all our factors cited above together, the developed economies engaging in lean organisation on a large scale (not only in the automobile industry) could face important problems, difficult to overcome.

An enormous job shedding could take place without any chance to find replacement jobs in sufficient numbers to compensate losses and this comes on top of already very high unemployment levels. The number of remaining jobs (a lot of them part-time or temporary) might equally not be sufficient i to finance the welfare state we knew up to now. Despite claims to base taxes more on equipment or on consumption than on employment which are put forward repeatedly by experts, the financing of the welfare state is still based overwhelming on pay roll taxes. But even if based on general state budgets, wage earners income as the main tax base might not be sufficient to finance social welfare while there will be an increasing need for such financing.

On a micro level, "fat production" is more costly than "lean production", just as "fast food" is cheaper than "slow food". However, for national economies lean production might be a danger which brings the economy in a downward spiral. Seen from an employment point of view

27

and seen in a micro-macro link perspective the present changes towards

"lean" production and organisation in large sectors of the economy might

therefore well announce the end of the "fat years" in the economy altogether and "lean" organisational change of the present which might be, for individual firms, a remedy, seems -on the macro level- a cause for the deterioration of the economic and social climate in general. More than being a bitter pill to swallow, with promising health soon to follow, the

remedy could be poisonous and kill the patient. Lean production in Europe

means after all cost reduction (Cooke, 1993) and cost reduction means lean employment (slack concerning mostly overmanning or redundancies) and this seems still to be a fundamental difference with Japan, which has obviously the employment levels compatible with lean forms of production, although Japan -more so because of falling demand- faces now problems on the employment side.

And, it is far from sure that the advantages in product prices which should go together with cost reductions due to the leanness of organisations will lead to a corresponding expansion of demand and subsequently the maintenance or expansion of employment. This also, as some economists put forward, because many products of the economies in the industrialized countries have entered markets where price-elasticities do not work any more as they should: price reductions do not lead to an expansion of demand compensating for productivity increases thus resulting in job losses (Appelbaum, Schettkat, 1993). Just as the employment/economic growth relationship has lost much of its elasticity, leading to growth without jobs (European Commission, 1993), so did the price-demand link weaken.

But more than just simply translating into higher unemployment the lean approach announces a fundamental change in how big corporations are run: up to the present, many of this corporations were in fact.socio economic entities which integrated economic and social responsibilities.

But these responsibilities were embedded in a system from which all benefited: the employed because of employment security and high wage levels, the employers because of the maintenance or expansion of demand, public budgets because of tax income which served also to provide the unemployed with benefits and active labour market policy measures, others with replacement income in form of retirement benefits or social assistance.

28