FS i 91 -4
Workforce Adjustment Patterns in Four Countries: Experiences in the Steel and Automobile Industry in France,
Germany, Sweden and the United Kingdom
Peter Auer, (ed.)
August 1991
ISSN Nr. 1011-9523
discussion papers
Forschungsschwerpunkt Arbeitsmarkt und
Beschäftigung (FS I) Research Area
Labour Market and Employment
Forschungsschwerpunkt
Arbeitsmarkt und Beschäftigung (FS I) Research Area
Labour Market and Employment Reichpietschufer 50
D-10785 Berlin
Workforce Adjustment Patterns In Four Countries:
Experiences in the Steel and Autom obile Industry in France, Germany, Sweden and the United Kingdom
Contents
1. From External to Internal Adjustment? Experiences in the Steel and Automobile Industry in Four Industrialized Countries.
by Peter Auer ... ... ...,1
2. Workforce adjustment in a Cooperative Institutional Setting:
Germany
by K laus S e m lin g e r. 72
3. Workforce adjustment and the Recomposition of the Workforce.
France
by Dom inique Foray ..131
4. Workforce Adjustment and Labour Market Policy: Sweden
by Claudius Riegler with Peter A u e r......179
5. The Battleground Approach to Workforce Adjustment: United Kingdom
by Adrian C a m p b ell. 243
Zusammenfassung
Die vorliegende Studie untersucht die nach Ländern und Sektoren unterschiedlichen Wege der Arbeitskräfteanpassung an den strukturellen Wandel. Vier Länder und zwei Branchen werden analysiert: Die Stahlindustrie und die Automobilindustrie in der Bundesrepublik Deutschland (vor der Wiedervereinigung), in Frankreich, Großbritannien und Schweden.
Schwerpunkt der Studie ist die komparative Analyse des Niveaus und der Struktur der Arbeitskräfteanpassung an den strukturellen Wandel und der diesen Anpassungsprozeß begleitenden Maßnahmen der Arbeitsmarkt- und Arbeitspolitik. Diskutiert wird auch das institutioneile Umfeld, indem sie eingebettet sind.
Hauptresultate der Studie sind:
Die Arbeitskräfteanpassung erfolgt entweder intern (Veränderungen auf internen Arbeitsmärkten) oder extern ( durch Abgänge und Zugänge) und beide Wege der Anpassung haben sowohl eine quantitative als auch eine qualitative Dimension.
Regelungen und Maßnahmen folgen diese Typologisierung: sie unterstützen entweder die externe Anpassung ( z.B. Frühverrentung, Umschulung für den externen Arbeitsmarkt, etc) oder aber interne Anpassung (Kurzarbeit, interne Qualifizierung, Flexibilisierung der Arbeitszeit, Veränderung der Arbeitsorganisation).
Obwohl die internen und externen Maßnahmen in zeitlicher Abfolge angewandt werden (etwa interne Maßnahmen wie Kurzarbeit vor externen wie Frühverrentung) gibt es Zusammenhänge zwischen den beiden. Interne Arbeitsmärkte sind nicht abgeschottet und selbst reine interne Maßnahmen des Beschäftigungserhaltes haben Konsequenzen für den externen Arbeitsmarkt.
Nach der massiven Anwendung externer Maßnahmen zur Reduzierung der Arbeitskräfte in den Krisenjahren nach 1974 und 1980/81 hat sich mit der wirtschaftlichen Erholung um 1983 eine
Verschiebung des Schwerpunktes der Maßnahmen! angebahnt:
interne qualitative Maßnahmen zur Erhöhung funktionaler Flexibilität auf den internen Arbeitsmärkten, etwa durch die Veränderung der Arbeitsorganisation, durch flexible Arbeitszeitsysteme und verstärkte Qualifizierungsanstrengungen werden zunehmend wichtig. Dies heißt jedoch nicht, daß keine ex
terne Flexibilität mehr notwendig ist. Die Arbeitskräfteanpassung ist vielmehr geprägt von einer Suche nach externer und interner Flexibilität. Das konkrete Muster dieser internen/externen Strategiemuster ist jedoch nach Ländern unterschiedlich und hängt auch von den vorhandenen begleitenden Maßnahmen ab.
Üblicherweise sind die externen Maßnahmem (zur Reduzierung des Arbeitskräfteniveaus) öffentlich finanziert (durch Staat, Arbeitslosenversicherung oder aber durch die Europäische Wirtschaftsgemeinschaft) oder zumindest mitfinanziert. Dadurch werden Firmen von den Kosten struktureller Anpassung teilweise entlastet. Unter den Gründen, warum in einigen Ländern heute einige dieser Maßnahmem eingeschränkt wurden (so etwa die Frühverrentung in Frankreich) sind die hohe Inanspruchnahme und die dadurch entstandenen Defizite im Haushalt der Arbeitslosenversicherung oder anderer Träger zu nennen. Diese Einschränkung externer Optionen hat neben strukturellen Gründen wie Produkt-und Prozeßinnovationen dazu beigetragen, daß interne und auch stärker präventive Strategien wichtiger geworden sind.
Diejenigen Länder, in denen der Arbeitskräfteabbau kooperativ zwischen den Sozialpartnern verhandelt wurde (wie etwa in Schweden und der Bundesrepublik) zeichnen sich durch langfristigen, sozial abgefederten Arbeitskräfteabbau aus. Dazu im Kontrast steht der abrupte und weniger institutionell eingebettete Abbau in Großbritannien, der auf eine Phase des "labour hoarding"
folgte. Frankreich nimmt, aufgrund der starken Stellung des Staates, der den strukturellen Wandel auch durch den massiven Einsatz von sozialen Begleitmaßnahmen fördert, eine mittlere Stellung ein. Die Notwendigkeit massiven Abbaus in den Ländern mit relativ kooperativen Arbeitsbeziehungen, die sich auf stärker zentralisierte
Verhandlungen und starke Gewerkschaften stützen, war darüberhinaus geringer als in Ländern mit stärker dezentralisierten und konflikthaften Arbeitsbeziehungen. Eine kooperative Stellung der Gewerkschaften zum strukturellen Wandel, sowie ein diesen Wandel absicherndes soziales Netz hat damit auch positive Kon
sequenzen für den Arbeitsmarkt. Stärker über Konflikte "geregelte'’
Systeme industrieller Beziehung können zwar kurzfristig zum Erhalt von Beschäftigung beitragen, doch werden die Abbaubedürfnisse im Anschluß offensichtlich größer.
Summary
The present study explores the ways of adjustment of the labour force to structural change and the manner in which regulations, rules and measures have been used to implement this adjustment. Four countries and two industrial sectors are included in the study: The steel industry and the automobile industry in France, in the Federal Republic of Germany, in Sweden and in the United Kingdom.
The main thrust of the study is on the regulation side. Therefore a thorough picture of regulations or measures, which have been used for labour force adjustment purposes, is given.
The main findings of the present study are:
labour force adjustment has two distinct features: there are external (by exits and entries into a firms labour market) and internal forms of adjustment (by changes in the internal labour markets of companies);
also the measures and regulations come in these two forms : either they help an external adjustment (e.g. early retirement, external transfers and training, etc.) or an internal adjustment of the labour force (short-time working, internal training, changes in working time patterns and work organization, etc.);
internal and external measures, although their use might take place at different times (e.g. internal measures like short-time working are used before external adjustments are made) a strong link between
both forms of adjustment does exist. None of both labour markets (internal and external) is a ’closed system’ and the use of the one or the other forms of adjustment has usually repercussions on both internal and external labour markets.
However, a shift from external to a more qualitative form of internal adjustment strategies seem to have taken place in the very last years as internal adjustment to new technology by new forms of work organization, new patterns of working time and increased internal training takes place. But this should not lead to the conclusion, that external flexibility is not sought for by firms. It is the joint search for external quantitative and internal functional flexibility which corresponds much more to the empirical reality of labour force adjustment strategies than an exclusive use of the one or the other alternative.
Usually the measures of external (downward) adjustment are financed or at least co-financed by public authorities, the unemployment insurance or other sources like the EEC (ECSC), thus releaving firms from parts of the financial burden of adjustment.
Among the reasons why some of the schemes (e.g. early retirement) have been restricted one finds budget deficits in some of these financing institutions because of the large take up of measures.
Besides changes in markets (costumized, diversified quality products) and process innovation, this financial restriction is one of the reasons why internal work force adjustment is getting more important today and firms engage in preventive manpower planning.
The study shows, that countries with rather centralised, cooperative bargaining of adjustment amongst strong social partners (Sweden and Germany) succeeded in spreading workforce reductions over a longer period and in providing a high degree of coverage with accompanying measures. This is in contrast with the offensive of the conservative government against unions in Great Britain, which led to radical cuts in manpower levels and happened in a less institutional embedded manner.
France has a middle position between those two extremes, largely because of the role of the state as a modernizer providing ample accompanying
measures to cushion manpower adjustment. In the countries with cooperative industrial relations, there was also less need for massive downward adjustment. This confirms views that a cooperative behaviour of (strong and centralised) unions towards structural change has positive impacts on the labour market, whereas conflict-ridden industrial relations might well save jobs temporarily during periods when unions are strong, but leads to backlashes once they are weakened. Whether or not such national patterns (which by the way have changed during the structural adjustment phase of the 70s and 80s) emerge also for internal adjustment strategies is yet undecided: mainly because of a poor data basis for internal adjustment (case studies of enterprises) no clear cut overall picture can be drawn.
The present study is a revised version of the report "Technological Innovation and Accompanying Measures" (IAS, Berlin, 1989) and was financed by the Commission of the European Communities (DGV/A/2, Division "Social Aspects of Sectoral Politics, New Technologies and In
dustrial Relations").
The different country studies were carried out by Klaus Semlinger (Federal Republic of Germany) Dominique Foray (France)
Claudius Riegler with Peter Auer (Sweden) Adrian Campbell (United Kingdom).
Peter Auer coordinated the study and drafted the comparative chapters.
The difficult task of organizing, streamlining and editing the different papers and making them presentable was undertaken by Angelika Zierer- Kuhnle. Karin Reinsch helped in the production of the updated version, and Lothar Linke did a valuable job in providing data assistance.
Andy Watt had the task of the final editing. The studies of Klaus Semlinger and partially also of Claudius Riegler were translated by Moss Fitzpatrick and Noel Brady.
We are also grateful to Michael Wagner for his stimulating comments.
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3.
1.
2.
3.
4.
4.1 4.1.1 4.1.2 4.1.3 4.1.4 4.2 4.2.1 4.2.2 4.2.3 4.2.4 5.
5.1 5.2 5.3
From External to Internal Adjustment? Experiences in the Steel and Automobile Industry in Four Industrialized Countries
External and Internal Workforce Adjustment: experiences in four countries
Introduction...!
Preliminary remarks ...8
The context of adjustment ...12
Measures of external and internal workforce adjustment... 17
Measures of external adjustment...21
Tideover allowances ...21
Early retirement ...22
Redundancy payments...23
Training measures ...24
Internal quantitative and qualitative adjustment ...26
Short-time working...26
Internal training...27
Changes in work organization...28
Working-time arrangements...30
Summary and conclusion ...33
Some proposals for action ...36
Prevention is better than cure ...37
If prevention fails, some of the past remedies should be changed ..38
33. The sectoral analysis of workforce adjustment
1. Workforce adjustment in the steel industry ... ...
2. Workforce adjustment in the automobile industry... ...
Bibliography ...o... ...
Appendix.... ... ...
.41 .54 ,65 .68
Liste of Tables and Charts
Table 1.1 Main Measures of Workforce Adjustment...20 Table 1.2 Instruments and Objectives... ...22 Table 1.3 Production and Employment in the Steel Industry 1974 and
1987... ...42 Table 1.4 Labour Productivity of Steel Workers ...43 Table 1.5 Employment Flows in the Steel Industry,total 1980-1987;
Reasons forExits 1980-1986... ...44 Table 1.6 Employment in the Swedish Steel Industry
1977-1983/86 Reasons for Exits 1980-1986 ...53 Chart 1.1 Employment in the Automobile Industry 1974-1989...,...55 Chart 1.2 Production (units produced) in the
Automobile Industry... ...55 Chart 1.3 Hours Needed per Vehicle ...58 Chart 1.4 Number of Vehicles Produced per Worker...58 Chart 1.5 Employment and Production in the Steel Industry 1974
1989, United Kingdom...,.68 Chart 1.6 Employment and Production in the Steel Industry 1974
1989, France... ...68 Chart 1.7 Employment and Production in the Steel Industry 1974
1989, Federal Republic of Germany... ...69 Chart 1.8 Employment and Production in the Steel Industry 1974
1988, Sweden... ... ...,.69 Chart 1.9 Employment Dynamics in the Steel Industry 1980-1989,
France ... ..70 Chart 1.10 Employment Dynamics in the Steel Industry 1980-1989,
United Kingdom... ...70 Chart 1.11 Employment Dynamics in the Steel Industry 1980-1989,
Federal Republic of Germany...71 Chart 1.12 Employment Dynamics in the Steel Industry 1974-1987,
Sweden ...71
I. Main trends in workforce adjustment to structural change
1. Introduction
The present report is an updated and slightly revised version of a first report which has been drafted for the European Commission (Auer, 1989).
Since the completion of this first report it seems that the topic of labour force adjustment to structural change has indeed become more important and this for at least two reasons:
1) After a period of economic recovery also for the two sectors analysed, the world economy seems to be at the onset of a new recession and although experts predict a rather short downturn, the question of labour force downward adjustment and accompanying measures is on the agenda again.
2) The East European countries are undergoing a tremendous structural change during which the questions arise whether or not past experiences of labour force adjustment to structural change in the industrialized market economies can offer lessons for the East.
Our project addresses mainly the processes of adjustment (magnitude of employment changes, coverage by accompanying measures) and tries to assess them by referring to the institutional context in which adjustment occurs. One of the major institutional variables is the system of industrial relations and the employment protection environment it has helped to create. The study looks at two branches of industry only (steel and automobile), which together directly employ between 10% (Germany) and 5% (Great Britain) of industrial employment in the various countries. But especially the automobile industry has large indirect employment effects as well. Having chosen two different sectors, we can consider the question wether the differences in the adjustment process are due to sector particularities or if there are national patterns of adjustment. One of the results of our study is, that national patterns do exist, if only because there is for example a national system of labour relations and a national system
of employment protection. Such a pattern can be seen in analysing employment protection and accompanying measures across two sectors in one country, which tends to be similar once one holds the difference in adjustment needs constant. But even regarding the mere magnitude of adjustment, country patterns do exist. However, we do not pretend that there are no sector, regional or firm level differences: Indeed, there are.
Firstly, there are different adjustment needs in the sectors: growing industries like the car industry in Sweden and Germany did not need accompanying measures to the same extent as the crisis-ridden steel industry. Secondly, firms use accompanying measures quite differently (active redeployment, different policy mixes of measures, relying more on internal than on external strategies, etc.). Thirdly, regions may have their own redundancy policy as some of them are disproportionately affected by
workforce reductions and therefore may provide additional assistance. But our results show that even given this differences it is mostly measures provided by national governments which are used to cushion redundancies. Although through the ECSC package under § 56 a certain convergence in accompanying measures has been reached in the steel industry across countries, national particularities remain strong.
Particularly in one field, that is internal adjustment through changes in work organization, training and working time patterns national patterns are more difficult to find. Here, for example, different technologies enlarge or restrict the options for organizational solutions: they are more limited in a process industry like steel than in the car industry, where assembly up to now remains overwhelmingly manual. However, one should not overstate the technological determinination of organizational options, because some of the new approaches such as team work are introduced in steel as well. Firms also have different strategies of internal qualitative adjustment and there is a large heterogeneity of solutions. The conclusion that it is difficult to find national patterns of internal qualitative adjustment is also due to the fact, that the data base for internal adjustment policies consists mainly in case studies: large scale national enterprise surveys would be needed to find national patterns in that regard too. Nonetheless, some national particularities emerge from our analysis.
Sweden seems to be European leader in introducing team work into its 2
factories and polyvalent skills are today often produced at team level.
Management pushed actively for that kind of organization, because it considers delegation of responsibility resulting in enriched work at group level as a possible answer to competitive pressures on the world market.
Although group work is spreading in Germany now (it has found a pro
active agent in the IG Metall) its introduction is more hesitant (perhaps only more carefully planned) and is often made on technical grounds only while basic skills for the production process are still provided not by skilled work groups but by the individual Facharbeiter. In Great Britain and France the picture is more heterogeneous, and although team building and human resource management is on the agenda in both of the sectors little is known on the extent of the changes. A comparison of British Leyland and Volvo finds less group activities in the United Kingdom than in Sweden (Pontusson, 1990). In general, one has to consider that internal qualitative adjustment is a rather new phenomenon still in progress, the contours of which are not yet well defined.
The story is different when it comes to large redundancies: If they are massive, they usually become a major political concern for which state intervention is sought. In the field of external downward adjustment, national patterns have therefore emerged.
To describe these country differences in work force reductions as concisely as possible:
Germany and Sweden are the two countries of our sample where adjustment processes have been made in a cooperative manner and where accompanying measures have the largest scope. The cooperative pattern of adjustment means that adjustment processes have been discussed between the social partners and usually the state has provided accompanying measures. This has resulted in reductions being spread over a rather long period (less prone to labour hoarding) and a rather "holistic"
coverage with cushioning measures for the people made redundant.
Internal quantitative adjustment in the form of short-time working has been used extensively, showing that governments tend to protect internal labour markets of firms before they provide assistance for external adjustment. As the regular share of voluntary quits in both countries is
comparatively high, attrition and/or voluntary resignations with severance payments have also been used before measures like early retirement.
Germany has used early retirement to a larger extent than Sweden, which relied more on an active labour market policy and has kept unemployment levels very low. The up-market quality product strategy in the automobile industry (and the early diversification and upmarket product strategy in the steel industry as well) has lowered the need for massive manpower reductions in both sectors of both countries altogether.
On the other hand, the U nited Kingdom has seen a fierce political battle around the issue of labour force adjustment, eventually resulting in the defeat of labour and the adoption of a "market oriented" policy of radical manpower cuts by the conservative government. Cuts have been severe and the accompanying protection measures less developed than in the other countries. However, a large proportion of the quits in the car industry (and also in the steel industry) have been on the basis of "voluntary redundancy agreements" whereby workers opt for leaving in exchange for a lump sum payment. Compulsory redundancy, that is direct dismissals were rare even in the British case. The question remains to what extent "voluntary" is a pure euphemism in a period of large scale redundancies. (Despite a certain hostility of the government at least in the beginning, the ECSC package of measures has however provided at least the steel workers with some additional measures to redundancy payments.) In addition, Great Britain does usually not follow an upmarket strategy (this has been analysed throughout many branches in British industry, see for example Steedman/Wagner,1987).
France seems to be in the middle range between the two approaches:
adjustment in steel, although it has been spread over time, is greater in magnitude than in Germany or Sweden and continues up to 1989. Also in the automobile industry the adjustment process is tending towards a continuous decline spread over time. Here adjustment processes are also bargained, but bargaining is usually not cooperative and involves conflicts due in part to multiunionism. The number of voluntary quits being comparatively low, attrition cannot be used to the same extent as for example in Germany. Also therefore, redundancies have been even more selective than in other countries and have led to a rather important 4
restructuring of the work force. To allow for a "softer" adjustment, the state, however, steps in quite heavily and provides for accompanying measures comparable in scope to those provided in Sweden and Germany, although they are more geared to the withdrawal of older workers from the labour market (the extent of early retirement is statistically often underestimated, as many of the de facto retired receive tideover allowances). In the latter period of adjustment after the mid 80s, early retirement possibilities have been reduced and French firms and sectors have engaged in the development of preventive policies of manpower planning the state providing some assistance for human resource development.
Process and outcome of adjustment
Our analysis focuses mainly on the process of adjustment and not so much its outcome for the economy and the workers made redundant. Another project would be needed to examine the question of what became of the steel and automobile workers made redundant and how the two industries have overcome the crisis in the different countries. The OECD has compiled some data on the basis of existing case or regional studies, but here no clear cut picture emerges to tell us which adjustment strategies are more successful for the redeployment of workers. In France and Sweden surveys of people made redundant in all sectors of the economy showed that in Sweden 54% were reemployed, 27% benefited from labour market programs and only 19% were unemployed (22 220 persons surveyed 3,5 months after redundancy). In France, only 45 % of the 1565 people surveyed one year after their dismissal were employed and 55 % remained without employment. Another French survey found differences in deployment according to whether a firm used existing measures actively for redeployment or if they just endorsed changes passively. A survey of a British steel making firm shows that 61% of 6500 workers made redundant worked again 5 years after their redundancy (OECD, 1990). It is clear that those figures cannot be compared since sample sizes, sectors and timing of surveys are different.
A thorough comparative analysis of unemployment and employment in the
closure and restructuring areas, including the question of withdrawal from the labour market as shown in participation rates would be needed to answer the question of the outcome of policies at the end of the day. In particular not only the level, but also the structure of "new employment"
created in replacement of the "old" has to be analyzed. It seems that a large proportion of the "new" employment consists of jobs in the service sector, filled by women on part-time and/or for a temporary period. This compares with the "old" employment of rather well paid, stable jobs for men in the core industrial sectors. However, in the shrinking industrial sectors (and in some parts of the service sector as well), jobs are to a larger extent upgraded as our analyses points out too. Although this seems to be a trend throughout the economies in the industrialized market economies, there are of course large national, regional and enterprise differences to it.
Another question is the present shape of the two sectors: both have recovered in the last years and it would be erroneous to consider the steel industry henceforth a declining industry: the decline might concern manpower levels, but not so much production. Charts 1.5 to 1.8 at the end of this chapter show, that although manpower levels have been trimmed down to low levels, production is up again. What that reveals is productivity progress and the steel industry today is a sophisticated, highly automated process industry, producing a growing share of high quality steel in smaller units with fewer workers, sometimes organized in teams.
"From now on, steel will be manufactured and processed increasingly by small, highly skilled and highly integrated teams" (European Commission,1990; for changes in the steel industry see also Moinov,1990 and Biinning, 1989). Rationalization of production has taken place and in the eighties production remained almost stable or even increased, while manning levels are down. Again, country differences remain in all these dimensions: For example, the special steel share is much higher in Germany than in the United Kingdom (22% as opposed to 11%, France being in the middle with about 15 %) and Germany as well as Sweden seem to have engaged an upmarket strategy also in steel leaving the lower segments of the market to countries like the UK or Italy.
Also the car industry has either recovered (even in the UK production and 6
employment is again up but at much lower levels) (see charts on page 69ff.) or stabilized after some turmoil in the mid seventies and the early eighties, which however affected the up market producers much less then the high volume mass producers. But lately some of the up market producers as for example SAAB and even VOLVO in Sweden were also adversely affected. Technological as well as organizational changes have been enormous and the car industry of today is to a large extent not comparable to that of the fordist assembly line industries of the 60s. Here again, the German car industry, albeit it has also mass-producers, offers more up-market models than for example the British car industry.
Particularly the car industry, but also the steel industry is engaged in mergers or joint ventures and partnerships of all kinds in order to face the challenge of the more competitive market which is expected once the European common domestic market is completed and import restrictions are withdrawn. The recovery of the British (car) industry is also due to Japanese transplants having moved parts of their production to Europe in order to benefit from this large market.
Only with a more thorough analysis of the outcomes of the adjustment process will the impact of these processes on longer term economic and social development become clearer. As far as the process of adjustment is concerned, it appears to us that a longer term, socially cushioned pattern of adjustment clearly contributes to the reduction of social hardship of structural change. Whether or not it is also the most successful policy of economic recovery in the long term, only time will tell. If recent theories of economic and social development are adequate interpretations of the functioning of the institutional embeddedness of structural change, then countries with a developed system of institutions (industrial relations, labour law and training) are well adapted to change as they are constantly pushed upwards in the higher segments of the market where the competitive strength of developed economies is assumed to be (see for example Streeck, 1991). If this assumption is correct, strong but flexible institutions seem to support economic development and ensure at the same time a high degree of equity and/or equality.
2. Preliminary remarks
1. In order to situate the different regulations and adjustment measures, we had first to look at the actual workforce adjustment which had taken place in the two branches and four countries we had chosen for our comparison. In doing so, we found it difficult to differentiate between workforce adjustment to technological innovation, to longer term structural change by shifting markets or consumer preferences and/or product innovation and adjustment made necessary by short-term cyclical downturns as they seem to overlap to a large extent. This can be clearly seen in dealing with accompanying measures: although there are measures specifically designed for coping with adjustment needs for (short-time) business cycle variation (like short-time working) they have increasingly been used to deal also with structural change. The case of the German steel industry, where short-time working, which usually has a duration of only 6 months, has been extended up to 36 months (and in fact has been used sometimes as a sort of preparatory period for redundancies) is but one striking example.
2. There are differences in workforce adjustment magnitude according to whether a sector is potentially declining or growing. If the sector is potentially growing, but temporarily affected by cyclical down-turns, the negative employment effects of short-term cyclical declines might not translate into massive redundancies and can be coped with by transitory measures. Also possible labour-saving effects of new technology can be compensated by the conquest of new market shares and the work force can grow despite such rationalization effects as the example of the Swedish and German automobile industry shows. If market shares decline structurally, technological, other structural and cyclical effects together will result in an important labour-shedding effect, as the experience of the steel industry (and also the automobile industry in the UK) shows.
3. To classify adjustment policies we distinguish between external and internal strategies of adjustment, a distinction which proved quite useful for our research, although it is merely an analytical distinction, as external and internal strategies may in reality be strongly interrelated (for a thourough discussion of internal/external strategies see Sengenberger,
8
1987). It was, however, clear that there are different regulations governing the two forms of adjustment. The main external channels are exit and entry policies. Usually exits are more ’regulated’ than entries which are more a domain of unilateral employers’ decisions. There are of course large national, regional and firm-specific differences here, depending for example on the extent of co-determination arrangements. But it is clearly the exit side where most of the regulations take effect, and it is work force reduction where - in both industries and in all countries, albeit in different forms - regulations and (publicly financed) accompanying measures lead usually to a "socially cushioned" workforce adjustment. Internal strategies of adjustment - as well as adjustment by entries - are far less regulated - at least by public intervention - as external exits. These facts are reflected in our research: in empirical terms we have more information on exits than on entries and our typology of regulations is more a typology ©f exits than one of entries. However, in the reports some figures on changes in the structure of the workforce also shed some light on entries, which have occurred in all countries - even in the crisis years - to at least partially compensate for exists.
4. In the light of our project results it can be shown that in both sectoral labour markets the dynamics of both flows into and out of employment are important. Even the crisis-ridden steel industry had constantly to hire new personnel (the extent of hirings varied of course over time and across countries, see charts page 7Iff.) by external channels and the automobile industry’s need to compensate for high labour turnover made it, for example in Sweden, very dependent on the external labour market undercutting constantly the stabilization required for the introduction of new ’production concepts’. The flows into and out of the two sectors and therefore the weight of quantitative external adjustments both by shedding labour and by hiring new employees are thus very large and the labour market dynamic even within a "declining" sector like steel is far greater than commonly thought. Of course, this labour mobility varies between countries and is depending also on the business cycle. The example of the steel industry shows for the years 1974-1987 a higher aggregate replacement rate of exits for Germany and Sweden than for France or U.K. However, in the recovery of the last years even in the U.K.
there are now almost as many entrants as leavers in the labour market of the steel industry (see charts page 69ff.).
5. In our original project proposal, the steel industry seemed to us
’idealtypical’ for external adjustment of employment, whereas we saw the car industry as an example of internal adjustment to change. In the light of our project results, the picture is not as clearcut. While measures accompanying workforce reductions were more widely used in the steel industry than in the less affected car industry, external downward adjustment strategies and accompanying measures in a particular country are similar in both industries once also the automobile industry enters crisis, as the British and to a lesser degree also the French reports show. In other words: the important variable in explaining downward manpower adjustment measures seems not to be sector-specific conditions (product and processes) of an industry as such, but the economic situation of the sector. Once the economic situation deteriorates, external adjustment policies are similar in both sectors of a country. Hence, the national institutional arrangement, that is the system of industrial relations and the network of protective measures it has contributed to build, act as
"guidelines" for the choice of adjustment policies in both sectors.
Therefore, albeit there exist also sector specific regulations, a national picture of quantitative adjustment seems to emerge. However, as far as internal qualitative adjustment (e.g. changes in the organization of work) is concerned such national patterns are more difficult to detect and sectoral and firm differences are large. This might be due to the fact that technical change is more complex in the automobile industry, and therefore the scope for organizational solutions larger than in highly auto
mated process industries like steel.
6. There is a time sequence in the use of adjustment policies: Usually it is quantative internal adjustment (reduction in working hours) which is used before external adjustment (reduction in numbers). Attrition (non replacement of labour turnover) is a first step to reduce the numbers of workers. The scope for such "soft" adjustment is however limited by the rate of voluntary quits in the industries. Büchtemann (1991b) shows (unfortunately only for 1989) that the voluntary quit rate is higher in Germany and the United Kingdom than in France. Our figures show also 10
high quit rates in both sectors in Sweden, where attrition has indeed been used frequently in downturns. Attrition is then followed by other policies like non-renewal of fixed term contracts, "voluntary" redundancies, early retirement, training for external redeployment, etc.
Fortright dismissals of the core labour force without any accompnaying measures are rarely used (see Biichtemann, 1991a) and labour market exits because of "economic" reasons (caused by cyclical or structural effects) are usually "cushioned" by some form of publicly financed accompanying measure (see also Mosley, 1991). There are however large differences in the magnitude, the structure and the degree of protection of redundancies in the different sectors and countries (see below).
Our country report shows, that in the recovery following the heavy downward adjustment of the labour force in the early 80s, a new sequence of internal qualitative adjustment through a flexibilisation of working time, new forms of work organisation and internal training for multi
skilling in a search for functional flexibility is underway. That they come in an economic boom seem at first sight to point to a dependence on the business cycle and a shortage of skills in some areas of the economy.
However, it seems as though strategies of "functional flexibility" have developed into a structural feature of the labour markets in industrialized market economies: Product market changes (custumized products), technological and demographic changes and regulations and/or practices aiming at stable internal labour markets seem to make such flexibility arrangements necessary.
7. The project results show that the Industrial Relations System has an impact on the way of adjustment. There are indeed marked differences in the way adjustment is done in the countries of our sample. A bargained adjustment policy in an institutional setting of dismissal protection, rationalization protection and a tightly woven social security system as in Germany and Sweden contrasts with the ’battleground’ approach of management in Great Britain and the often conflict ridden adjustment processes in France. However, there are indications that the differences are not as clearcut as it may appear at first sight. In Germany, too, conflicts arose around structural change and industrial action took place
for example during the restructuring of the steel industry. Differences occurred between local union representatives in firms which were directly concerned by manpower cuts and the central union officials who in general supported structural change and became more active in proposing policies of structural adaptation. The Swedish report shows that whereas trade unions have always generally supported structural change (indeed the whole ’Swedish Model’ is basically a solidaristic policy of structural change), in the beginning of the adjustment process in steel an attitude of job-preservation rather than structural adjustment prevailed. This has changed since and trade unions seem to be now themselves ’agents’ of structural change.
On the other hand, there are also examples of bargained adjustment in Great Britain. Since 1967, a worker directors experiment was tried at the British Steel Corporation, but has been abandoned since privatization.
Interestingly enough, the internal trade union conflicts in the UK often seem to have been the reverse of those in Germany or Sweden. There are examples where the local shop stewards accepted restructuring deals which were opposed by central trade union bodies. By-passing the national level was one of the strategies in British restructuring policies and cooperation between management and unions at the local and distrust at the national level of industrial relations - at least in steel - has developed.
Also in France, bargaining accompanied conflict as is shown for example in the setting up of vaste programmes for the ’social cushioning’ of restructuring (the ‘Convention generale de protection sociale de la siderurgie’), where the state acts as a major agent for promoting "soft"
adjustment processes, and introduced a large variety of measures.
However, conflicts and industrial action during restructuring have been much more frequent in Great Britain and France than in Germany and Sweden.
3. The context of adjustment
When talking about workforce adjustment, it is not only the measures (e.g.
active labour market policy) directly involved which are important, but also contextual factors such as rules governing dismissals (and hiring) 12
procedures in general or rationalization protection regulations, as well as the general provisions for social protection in case of unemployment or retirement. Workforce adjustment takes place within the whole framework of institutions governing the labour market.
Take for example dismissal protection, which can prevent or facilitate quantitative external workforce adjustment and can also have a decisive impact on its structure.
The German dismissal protection law (Kündigungsschutzgesetz von 1969) stipulates for example that dismissals have to be ’socially justified’
and a certain rank order of dismissals (selection on social grounds) has to be maintained. In the case of mass dismissals (more than 30 dismissals within 30 days in firms with more than 500 employees) preliminary notice has to be given and a social plan has to be negotiated. The law was supplemented in both the steel and the automobile industry by collectively agreed bargaining results including a paragraph forbidding dismissals of older workers.
In France up to 1986 mass redundancies had to be reported to the labour market authorities, which could decide on their legitimacy, veto the decision and introduce a certain ranking amongst the persons selected for redundancies. The abolition of the right of the authorities to control mass redundancies in this way has led to an immediate upsurge in the fortright dismissal of older workers, which up to then had been protected by the regulation and were usually never dismissed without the benefit of an early retirement regulation. In the new procedure, co-determination rights of workers representatives are maintained and even enhanced, but the veto of the administration has not been reinstated.
In Sweden dismissal protection is on the basis of ’last in first out’, i.e.
older workers are usually better protected from dismissal than their younger colleagues. In Great B ritain, where the law plays a lesser role than in the other European countries, protection from unfair dismissal existed before 1978 after 6 months’ employment with the same employer.
This has since been changed to two years.
Clearly such regulations can exert an impact on the level and the structure of dismissals; where dismissals are costly as in West Germany, the
regulation can make it cheaper to hoard labour during cyclical throughs than to lay off workers. It can also lead to a preference for internal adjustment which, in the case of Germany and Sweden involves state intervention through short-time working schemes. However - and this has to be particularly underlined here - none of the regulations currently in use will prevent mass dismissals if they are legitimated on economic grounds. But strict dismissal protection rules could possibly have a posi
tive impact on the social ’cushioning’ of workforce adjustment. Such rules impede the right of management to dismiss according to pure economic logic and to adjust their labour force to their production requirements.
This seems to have induced governments to step in with adjustment measures which permit dismissal protection to be by-passed. Trade unions often accepted if an adequate social protection for the workers made redundant was provided for, that is, when income maintenance of dismissed workers was considered fair. Provisions for early retirement are a prominent example. Introduced in all countries they have of course completely by-passed the dismissal protection of older workers and made the most protected groups paradoxically one of the main targets for redundancies. The effects of dismissal regulationmight therefore only be limited concerning the actual protection of the jobs but seems to have a larger impact on the provision of accompanying measures (see also Auer, 89; Biichtemann, 91; Mosley, 91).
As far as social protection in the case of unemployment or retirement is concerned, its impact on adjustment is of course related to the adjustment measures themselves (which are in fact part of social protection networks in the different countries) but quantitative external downward adjustment is also affected indirectly by more general regulations. The statement is quite trivial: take for example retirement age. If it is reduced to 60 years (as has happened in France) and unemployment benefits are prolonged for older workers, they will be an easier target for redundancies than if there were no such regulations. Also here there seems to be a close relafionsship between the acceptance of dismissals in this age group and the availability of social protection. In general it seems to us, that there are complex interrelations between the network of dismissal regulation, social protection and external quantitative workforce adjustment in the different 14
countries.
France can serve as one example of how institutional settings interrelate in cases of workforce adjustment. We have already briefly discussed dismissal protection in France and its recent change. The ’administrative authorization’ had been installed in 1975 at the same time as a particularly favourable system of income maintenance within the unemployment insurance system in the case of redundancies due to economic reasons (’allocation supplementaire d’attente’, which provided for an income replacement rate of 90% of former wage for a year). It might be asked, if the original intention of the law, given its social protective corrolaries, was to prevent dismissals or rather to allow for regulated, socially cushioned dismissals. The trade-off seemed to be that firms were allowed to dismiss their employees on economic grounds but the dismissed received social protection, not only through the ’supplementary benefits’ but also from an early retirement scheme already installed in 1972 (Bouillaguet, 1987). It is interesting to follow the history of this arrangement up to the 1980s.
Because of financial restrictions the unemployment insurance system had to be amended and the special benefit was lowered in 1979 and cut in 1982.
Moreover, the early retirement provisions were restricted in 1984. It is in this context that employers opened talks with the trade unions on the
’flexibility of the labour market’ where they demanded among other things the abolition of the ’administrative authorization’. The rule was now utterly defended by the unions. It had in their vue developed into a real dismissal protection scheme, although (or better because) some of the social protection measures which were centered around it had already been abolished. In 1986 the then conservative government abolished the regulation and the ’administrative authorization’ is no longer necessary.
The immediate impact of the change was a higher percentage of'non cushioned" dismissals of older workers, which has led to a provision that enforces the payment of three months’ salary on each employer who dismisses an older worker without special protection such as early retirement.
This short example shows, that there is a close relationship between dismissal protection, social protection and workforce adjustment. It also indicates that the original function of a rule may well change over time.
The relationship between dismissal protection and adjustment measures is also shown by the British example. Whereas before 1978 redundancy payments were paid to dismissed workers after 6 months, with the change of dismissal protection legislation (see above) they are now entitled only after 2 years tenure. The introduction of the Redundancy Payment Act in 1964 by the way "made employers more willing to make workers redundant, then was previously the case" (Gennard, 1982, p. 137), again pointing to the fact, that measures of employment protection usually have a corrolary form of measures allowing flexibility and regulating exits (see also Daniel and Stilgoe, 1978).
The rules and regulations cited above form the complex background of workforce adjustment to structural change. Another important regulation in this regard is protection from the effects of rationalization, which usually provide protection of income and skill-level in cases of internal transfers to other (lower graded) jobs. Often these regulations protect the transferred person only for a limited time period, but also offer possibilities of retraining (this is for example the case in the German automobile industry) or led - in the Swedish case - to the setting up of specific ’adjustment groups’ which take care of special needs of older or handicapped people to cope with workplace changes (see the Swedish report). These rationalization protection rules are, as well as dismissal protection rules, of great importance for workforce adjustment. They offer possibilities for management to change the production process and transfer people to other jobs, but make transfers more costly. Indeed, there have been complaints, that such rules impede the speed of adjustment as management cannot freely adapt manpower levels and structures to the requirements of structural change. This might be so in the short run, but in the longer run rationalization protection regulations seem to be an efficient instrument to allow for internal adjustment of manpower to technological change at a low social cost, provided internal transfers are linked to an effort to retrain the transferees. This is even more so in the face of a change in demographic developments which is leading to a declining share of youth entering the labour market and an ageing of the work force.
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These contextual variables are to be kept in mind, as we now turn to the different measures of external and internal workforce adjustment themselves.
4. Measures of external and internal workforce adjustment
The term ’external adjustment’ refers to an exchange process between an internal (company) labour market and the outside labour market (or the education or retirement systems) whereas internal adjustments are those made within company labour markets. There are nevertheless spillovers:
take for example short-time working. It is a measure of internal adjustment, but by preventing those currently employed from becoming unemployed it has indirect effects on the external labour market too. Or, if large numbers of workers leave the company labour market on early retirement schemes, the internal labour market structure has to be changed. Thus we do not argue that internal and external labour markets are ’closed systems’ but that they are closely interrelated. However, there are time sequences in their use (see point 6 above).
A common feature of the measures of external adjustment is, that they are usually financed, or at least co-financed by government sources or by the unemployment insurance system. The question of financing adjustment measures is certainly a fascinating one: By the introduction of publicly financed measures like early retirement schemes, the state allows firms to have a large degree of external adjustment and thereby subsidizes in a certain way their personnel policies. The same holds true for some of the internal measures, particularly for the short-time working schemes. In some countries, for example in France, it is precisely the enormous cost of downward adjustment through early retirement which has led to restrictions and had therefore a decisive impact for adjustment in firms, pushing them also into more preventive policies. Reissert/Schmid and Bruche (1987) argue, that it makes a difference whether labour market policy is paid out of funds collected through contributions or out of the general budget. They argue, that if labour market policy measures are paid out of funds collected through contributions (like in Germany), the room for maneouvre of active labour market policy is restricted in times of
growing unemployment because the money has in priority to be allocated to unemployment benefits. If there is a clear cut division between unemployment benefits financed via contributions and active labour market policy financed out of the general budget this crowding out seems not to occur. Financing institutions seem thus to have an impact on measures and those measures seem to have some impact on the redundancy "behaviour" of firms. For a thorough discussion of such topics we refer to Schmid/Reissert/Bruche (1987), to Schmid (1987) or to Rees/Thomas (1988). For internal adjustment this outside financial intervention is possible (e.g. in the case of short-time working, internal training) but not typical as the actions are taken within individual firms.
They are however usually bargained with local or central trade-unions and often covered by collective bargaining agreements.
An important means of external adjustment used in all countries and sectors does not fall into the category cited above: the non- or partial compensation of turnover. Employment turnover (and particularly voluntary resignation, the biggest part of turnover) and its compensation by new hirings is indeed one of the main channels of external workforce adjustment and can be a valuable instrument in coping with adjustment needs. Different mobility patterns - that is, differences in voluntary quit rates - restrict or widen the possibiiites of adjustment through attrition (Biichtemann, 1991b). But while it may serve to restructure the workforce according to the requirements of new technology, it is difficult to influ
ence voluntary exits at least on a large scale. That is, the structure of voluntary exits cannot be geared to fulfill adjustment needs and may have the unintended result that skilled workers, which are not easy to replace, may leave. The difficulties of the Swedish automobile industry with high turnover rates are an example of the negative impact of turnover on manpower planning in a time of technical and organizational change.
Table 1.1 gives a rough overview of the most important measures of external workforce adjustment and also attempts to indicate preferred strategies of application by sectors and countries. Table 1 is based on the results of our country studies and some aggregate data but is not a systematic comparison of aggregate data. Therefore, it is to be taken as a starting point for more thorough investigations. In the following, we 18
discuss the different measures to find out more about their functions and on problems associated with their use. Also some of the more important modifications in the measures are discussed. A more empirical and comparative discussion is found in our summary of workforce adjustment in the different sectors and countries (part II on page 39). Further details are also to be found in the country reports themselves.
ts)©
Table 1.1 Main Measures of Workforce Adjustment1 )
Steel industry
early2 ) retirement
external adjustment internal
quantitative adjustment short-time working redundancy
payments
external repatriation
training aid
France xxx X X X X X X
FR Germany X X x x 3 )
X X xxx
Sweden X X X X X - X X
UK X X xxx X - X 4 )
lita b ile industry
France xxx X X X X X X
FR Germany X X x x 3 )
X X xxx
Sweden X X X - X X
UK X xxx X - X 4 )
xxx = very important xx = important x = less important
1) The table gives only a very rough overview on some of the most important measures and tries to underline the importance of measures by countries. The table is not more than an indication of very general trends.
2) including tide-overs for early retirment 3) 'Aufhebungsvertrage'
4) discontinued in 1984
4.1 Measures of external adjustment
To interpret our ’external’ regulations we base our appraisal partially on a scheme developed in a study of the European Commission on ’re
adaptation aids in the coal and steel industries’ (Rees/Thomas, 1988). For the authors of this study the re-adaptation aids of the European Community in coal and steel have from the late 1970s served in particularly the following aims:
a) achieving acceptance of industrial restructuring by those involved b) achieving withdrawals from the labour force
c) assuring reasonable social protection for the individual d) attaining optimal reallocation of labour
The authors have also tried to put a judgement on the instruments by looking at the purposes they serve best. Their estimation of goal attainment is set out in Table 1.2.
In the following chapter we do not always stick to the classification of Rees and Thomas as we include also other regulations which do not fall under the EC re-adaptation aids. However, their study is of great value for our research, especially for the steel industry, as a certain homogenization of measures has been achieved by the European Steel Policy (especially under § 56 of the treaty of the ECSC) of which the measures of labour force adaptation are part.
4.1.1 Tideover allowances
In a way ’tideover’ allowances are in their practical impact not very different from early retirement provisions, as they usually serve the purpose of ensuring income whilst waiting for regular early retirement. If they only serve the purpose of waiting for unemployment, their main function is the prolongation of income replacement. As they are usually used in conjunction with early retirement we have included them in the discussion of early retirement in our sectoral summary (particularly for France, where the ’dispense d’activity’, that is a waiting period for early retirement, is massively used). However, in the UK tideover allowances have been used also together with training and can therefore be used also
"actively". For the period considered - 1974 to 1987 - the regulations are
only relevant for the steel industry and are not applied in the automobile sector.
Table 1.2
Instruments and Objectives
Acceptance of Optimal Withdrawal from Social restructuring reallocation the labour force protection
Tideovers
-for unemployment 1
-for early retire- 1 ment
Earning supplements 2
Early pension 1
Training allowances 2 Mobility allowances 3 Severance payments 1 Short-time working 3
3 - 1
1 1
1 - 2
1 1
2 - 2
1 - 2
4 3 3
- 1
Note:
The authors’ aim is only to state ’their general impressions about the actual impact of measures’. Number 1 shows the instruments with the greatest impact, number 4 with the weakest in reference to goal attainment (Source: Rees/Thomas, 1988, p. 113).
4.1.2 Early retirement
Early retirement measures have indeed developed into the single most important measure of workforce adjustment to structural change in almost all of our countries. However, they have been to a greater extent used in the structurally declining steel industry than in the car industry.
Sometimes in conjunction with ’tideover allowances’, actual early retirement age has been as low as 50 years. This again holds true mainly for the steel industry and not for the car industry which has to use in general the regular early retirement rules existing in all of our countries.
The main modification of rules governing early retirement has been the continuous reduction of retirement age as the need for restructuring grew stronger. In France after a phase of massive expansion of early retirement schemes, the measures have been restricted to crisis sectors. Whereas before one could opt individually for early retirement, such a withdrawal from the labour market is now only possible within a social plan. Other
22
modifications included the setting up of early retirement with a replacement condition (like the solidarity contracts in France or the
’Vorruhestandsregelung’ in the FRG). Such regulations have been used mostly in the automobile industry where adjustment to modernization was an important target. In steel, withdrawal was the main function of regu
lations and early retirement with a replacement obligation were not used.
This by the way does not mean that replacement of those entering early re
tirement did not occur in the steel industry. If we look at the table above, we see that early retirement (and the tideover allowances used as awaiting period for early retirement as well) served well the purpose of acceptance for restructuring, of facilitating withdrawal from the labour market and of offering social protection. If v/e include the early retirement options with replacement as sometimes applied in the car industry, the aim of modification in the age/qualification structure also seems to have been reached.
However, problems are associated with the massive use of early retirements during the first half of the 1980s. Especially those firms, which have used hiring stops and early retirement jointly (as, for example in the French steel industry) are left with an age pyramid where workers are concentrated overwhelmingly in the prime age groups, but where only few workers are found in the upper or lower end. This will lead over time to an ageing of the work force. In the French state run steel producer USINOR- SACILOR about 50% of the personnel will be over the age of 50 in the year 2000 if the present age pyramid stays unchanged and no early retirement options are offered for the persons over 50 years of age after 1991. It seems as though the German steel industry has avoided the problem by ensuring that apprenticeships were continued during the crisis years.
4 .1 .3 R edu nd ancy paym ents
In the Rees/Thomas table above redundancy payments (the "golden handshake") have a very bad notation except for the purpose of gaining acceptance for restructuring. This is broadly compatible with our own findings, but needs some specification. It is only in Great Britain where
