Tekst 11 NIEUW

8/3/2019 Tekst 11 NIEUW

1/21

Dr. Mark Harcourt is a Professor in the Department of Strategy and HRM, Waikato Management School, University

JOURNAL OF ECONOMIC ISSUES Vol. XLI No. 4 December 2007

The Importance of Legislated Employment Protection forWorker Commitment in Coordinated Market Economies

Mark Harcourt, Geoffrey Wood and Ian Roper

This article extends contemporary debates about corporate governance, institutions,and firm-level behavioral effects, with a more systematic analysis of how oneinstitution, legislated employment protection (employment security), deepens thereliance of firms in coordinated market economies (CMEs) on cooperative employer-employee relations for their competitive success (c.f. Whitley 1999, 38; Wood 2001,252). This represents a meso or mid-level approach, as opposed to existing studies,

which adopt a micro-level focus on industry case studies or a macro-level focus oncross-national differences in entire clusters of employment practices. We begin with abrief overview of two schools of institutional thought: varieties of capitalism (VOC)and regulation theory (RT). We then define and describe the key elements of legislated employment protection (employment security) as an institution, in additionto how these elements differ across CME countries, and between CMEs and theUnited States, the liberal market economy (LME) with the least employmentprotection. We then discuss the importance of worker commitment to CMEeconomic success, and the crucial part played by legislated employment protection in

engendering that commitment. We acknowledge that legislated employmentprotection may have negative lethargy effects, but argue that these are potentially lessdamaging in CMEs than LMEs for the same degree of protection. Next, we suggestpractical ways that CMEs might modify legislated employment protection to bothallay the negative lethargy effects and enhance the positive commitment effects.Finally, we conclude by stressing that despite its economic importance, legislatedemployment protection in CMEs remains politically fragile, in being vulnerable toattack by employers pursuing narrow, private interests.


2/21

962 Mark Harcourt, Geoffrey Wood and Ian Roper

Introducing Varieties of Capitalism and Regulation Theory

The Varieties of Capitalism Approach

Variation in national macroeconomic performance over the last 35 years hasstimulated research interest in the institutional foundations of nationalcompetitiveness. Two groups of modern institutionalists, the proponents of so-called

VOC and RT, have been especially interested in explaining comparative economicperformance in terms of institutions. Like Veblen, Commons, and the other oldinstitutional economists, these modern theorists (Gooderham, Nordhaug, andRingdal 2006, 1492) believe that the notion of individual agents as utility-maximizing is . . . inadequate or erroneous (c.f. Hodgson 2000, 318). Individual

behavior is instead shaped by a social structure and order expressed in, andconditioned by, institutions (Albert and Ramstad 1998), especially legal institutions,in the view of John R. Commons (Hodgson 2003). Institutions can affectindividual behavior in three ways. First, they have a restrictive function inconstraining behavior. Second, they have a cognitive function in: a) transmittinginformation to individuals about what others will and will not do; and b) influencingthe way in which people perceive reality. Third, and not unrelated, they have amotivational or teleological function in influencing the goals people decide to pursue(Dequech 2002, 566). Both VOC and RT theorists believe that behavior is shaped

by social structure, laws, and informal regulation, but RT theorists see legislativeinterventions varying more in effectiveness, with any accommodation betweencompeting societal interests invariably contested as the balance of social forces andexternal pressures shift. The RT view of institutions is thus more obviously dynamic:institutions provide a temporary basis for mediating and framing social exchanges,allowing for periods of growth (Hollingsworth 2006).

VOC scholars focus on how societal rules, norms, practices and culturalfactors mold specific patterns of firm-level practice (Gooderham, Nordhaug, andRingdal 2006, 1493). They draw key distinctions between those developed countries

characterized as liberal market economies (LMEs), the United States and most otherdeveloped Anglophone economies, and coordinated market economies (CMEs), Japan, Germany and most of northern Europe (see Dore 1986; Lincoln and Kalleberg1990; Hall and Soskice 2001). In general, LME institutions stress the primacy of shareholder value maximization and shareholder rights, whereas CME institutionsfocus more on long-term national interests and reconciling the often-conflictinginterests of key stakeholders, especially organized labor and capital. Each systemencourages and constrains particular patterns of organizational practice (Dore 2000).The idea of path dependence, with national varieties of capitalism evolving alongdistinct, linear trajectories, is central to the VOC literature (Hollingsworth 2006).


3/21

The Importance of Legislated Employment Protection 963

Critiques and Developments

In contrast, proponents of regulation theory (RT), though also concerned with cross-national regulatory and governance differences, argue that LMEs andCMEs have both had to change in response to the crisis of Fordism 1 in the early 1970s (Jessop 2001). To regulationists, any form of institutional mediation isnecessarily temporary and subject to a non-linear process of evolution. Quite simply,there is no guarantee that a particular set of institutional arrangements functional inone particular time and place will be similarly functional later or elsewhere.

During the 1980s and early 1990s, both schools of thought concernedthemselves with critically evaluating the relative merits and demerits of LMEs versusCMEs, often expressing a clear preference for the latter over the former (Jessop 2001;

Dore 2000; Lincoln and Kalleberg 1990). However, the resurgent performance of LME economies, particularly the United States, in the 1990s and early 2000s haschallenged any assumption that there might be one best model of capitalism (Jessop2001). Nonetheless, VOC and RT scholars remain doubtful about the desirability of the LME model for two reasons. First, LMEs remain prone to speculative bubbles andassociated economic volatility (Brenner 2002). Second, in stressing shareholder

wealth maximization, LMEs focus too narrowly on one set of interests, those of short-term corporate capital, at the potential expense of other interests and values.

Advocates of the LME model claim that this is essential: corporate profitability must

receive priority over other goals like the quality of working life; the pursuit of thelatter must necessarily come at the expense of the former. However, VOC and RTinstitutionalists argue for the mutually reinforcing complementarity of labor andcapital interests in CME capitalism. In a negotiated, national settlement, the partiescan together devise win-win solutions, workplace practices and institutions, which arefunctional to the interests of both and involve no obvious, major loss of efficiency, atleast in the long-run (c.f. Jessop 2001; Boyer 2006).

Legislated Unjust Dismissal Protection

Defining Employment Protection

Legislated employment protection or employment security typically refers toa variety of mandatory practices that deliberately make it harder and/or moreexpensive to dismiss employees. These practices typically include severance paymentsand/or advance notice for redundant workers, dismissal procedures that adhere torules of natural justice, and permitting dismissals only where there is just cause.

Where available, severance payments typically vary with years of service and salary.

Sometimes, severance payments are only owed if the employer provides insufficientadvance notice. The period of advance notice usually depends upon the workers yearsof service and sometimes the number of redundancies among other factors Dismissal


4/21


involvement. This may vary from simply informing workers of why and how they have been selected for redundancy to involving workers or their representatives inmaking dismissal decisions through works councils. Just causes for dismissal ordinarily fall into three categories: worker performance, worker misconduct, and redundancy.Performance ordinarily covers issues like incompetence and incompatibility, wherethere is no obvious, willful attempt to do harm to the employers interests. Incontrast, misconduct typically involves willful violations of duties or rules thatundermine the employers interests. Examples include dishonesty, disobedience,disloyalty, and negligence. Redundancy may be defined broadly or narrowly. A broader notion of redundancy allows employers to sack employees whenever theirjobs are eliminated. No reason for eliminating the jobs need be given. A narrowernotion of redundancy permits employers to only eliminate jobs and sack their

incumbents in a narrow range of circumstances such as bankruptcy and insolvency.

Employment Protection in Comparative Context

Table 1 outlines the degree of legislated employment protection for aselection of CME and LME countries. It shows that CMEs (like the Netherlands andGermany) have substantially more protection than LMEs (like the United Kingdomand United States), despite a trend toward less protection. CMEs in Europe alsodiffer considerably in the extent and nature of their employment protection

(Abraham and Houseman 1993; Bertola, Boeri, and Cazes 2000; Kraft 1997; Morinand Vicens 2001). For instance, just-cause rules allow redundancies in widercircumstances in Germany than France, but, in requiring greater levels of workerinvolvement, Germanys dismissal procedures are in many ways more onerous thanFrances (Morin and Vicens 2001). Despite such differences, CME governments haveshared a common objective in providing some degree of employment security, at leastto permanent, full-time employees.

At the other LME extreme, the United States only affords employmentprotection to civil servants and, via negotiated provisions in collective agreements, to

unionized workers. The bulk of nonunion, private sector workers are covered by anofficial policy of employment-at-will (Barber 1993, 166). This essentially allowsemployers to fire people for any or no reason and without having to provide advancenotice or severance payments. However, over the last thirty years, the courts havecircumscribed this policy, though only marginally, by providing just-cause employmentprotection in three situations: when the employee is dismissed for complying withU.S. law, when the dismissal involves discrimination on a prohibited ground, and

when employer promises of job security constitute an implied term in the employeescontract (Miles 2000). In addition, the 1988 Worker Adjustment and RetrainingNotification (WARN) Act requires employers outside the state and federal civilservices to provide employees with 60 days advance notice of termination for plantclosings and mass dismissals of 500 or more workers (Eger 2004 396)


5/21


Table 1. Summary Indicators of the Strictness of Employment ProtectionLegislation*

*Note on methodology of indices: These indices were compiled by the OECD (2004). Employmentprotection is described in terms of 18 basic items, divided into three categories. These are theemployment protection of individual workers from regular dismissals, the particular requirements forcollective dismissals, and the regulation of temporary employment contracts (OECD 2004). These arethen distilled into four cardinal summary indicators that are widely recognized as a comparative summary of employment protection legislation. A full discussion of the methodology employed may be found inOECD (2004).

(1) Composite index compiled from the strength of regular procedural inconveniences (nature of procedures and delay to start notice), the notice and severance pay for no fault individualsdismissal), and the difficulty of unfair dismissal (definition of unfair dismissal, trial period beforeeligibility starts, unfair dismissal compensation, and extent of reinstatement)

(2) Composite index compiled from the strength of inconveniences in the case of temporary employment.

(3) Composite index (definition of collective dismissal, additional notification requirements, additionaldelays involved, other special costs to employers [additional severance pay requirements in the caseof collective dismissal and whether social compensation plans apply])

# = Average of indicators for regular contracts and temporary contracts## = Weighted index of indicators for regular contracts, temporary contracts and collective dismissals

A = Coordinated Market Economies

B = Liberal Market Economies

(Data Source: OECD 2004)

Nature of Employment

Contract

Country

Regular (1)

2003

Temp. (2)

2003

CollectiveDismissals(3)

2003

OverallEPL

strictness:Version

1#

Late1990s

OverallEPL

strictness:Version

1#

2003

OverallEPL

strictness:Version

2##

Late1990s

OverallEPL

strictness:Version

2##

2003 Austria A 2.4 1.5 3.3 2.2 1.9 2.4 2.2Belgium A 1.7 2.6 4.1 2.2 2.2 2.5 2.5Canada B 1.3 0.3 2.9 0.8 0.8 1.1 1.1Denmark A 1.5 1.4 3.9 1.4 1.4 1.8 1.8Finland A 2.2 1.9 2.6 2.1 2.0 2.2 2.1France A 2.5 3.6 2.1 3.0 3.0 2.8 2.9Germany A 2.7 1.8 3.8 2.5 2.2 2.6 2.5Netherlands A 3.1 1.2 3.0 2.1 2.1 2.3 2.3Norway A 2.3 2.9 2.9 2.7 2.6 2.7 2.6Sweden A 2.9 1.6 4.5 2.2 2.2 2.6 2.6UnitedKingdom B

1.1 0.4 2.9 0.6 0.7 1.0 1.1

USA B 0.2 0.3 2.9 0.2 0.2 0.7 0.7


6/21


Worker Commitment: A Positive Effect of Legislated Employment Protection

Worker Commitment and Varieties of Capitalism

Worker commitment to the firm and its goals is more important to CMEthan LME capitalism, because of the formers greater dependence on skilled labor.CME firms are particularly reliant on the synthetic or engineering knowledge of

workers, often only accumulated with years of experience in the same firm orindustry, for a competitive advantage, especially in manufacturing industrial inputs insmall batches to particular customer specifications (Asheim and Coenen 2006; Haake2002; Thelen 2001). Success is achieved through product differentiation, withemphasis given to durability, reliability, and performance (Streeck 1992). LME

economies are more bifurcated in their reliance on skills (Estevez-Abe, Iversen, andSoskice 2001). Innovation-driven industries like computers, advertising, banking, andpharmaceuticals depend on the analytical or scientific knowledge of their workers,often obtained while at university (Asheim and Coenen 2006; Haake 2002; Leborgneand Lipietz 2001). However, most firms in the small business service sector and intraditional manufacturing industries, producing highly standardized goods for massconsumer markets, rely heavily on relatively unskilled labor, usually poorly paid,

working in Taylorist 2 production environments (Estevez-Abe, Iversen, and Soskice2001).

Skilled workers cannot be easily directed and controlled through directsupervision and bureaucratic rules. What skilled workers do is often too varied andcomplex to reduce to the standard operating procedures of a bureaucracy. Task complexity, what Ouchi (1979; 1980) refers to as low task analyzability, also makes itdifficult for supervisors to accurately assess how well skilled workers are performing by observing their behavior. Likewise, high levels of interdependence between skilled

workers, especially when they work in teams, can make it difficult to attribute specificoutputs to any one skilled worker, even when such outputs are measurable. As aresult, motivating skilled workers to work through traditional incentive and merit pay

systems can be problematic. High levels of skill and task autonomy are largely incompatible with traditional Taylorist methods of control (Roobeek 2001).In contrast, high task analyzability makes it easier for managers to detect

when unskilled workers are shirking. It also enables managers to develop standardoperating procedures, using the time and motion practices of scientific management,to prescribe efficient work practices. Managers can then use discipline, andparticularly the threat of discharge, to ensure efficient compliance with such work rules. This is the traditional model of management advocated by Frederick Winslow Taylor, and so widely practiced in the United States and other English-speakingdeveloped countries (see Gordon 1998) in industries as diverse as engineering andfast food. It relies heavily on unskilled workers under the direct control of anextensive multi-layered hierarchy of managers and supervisors what Marxists have


7/21


extensive use of such guard labor as compared to their CME counterparts. Whereasguard labor accounts for perhaps one tenth of the workforce in the United States, itaccounts for barely 2-3% in the more developed European countries (Gordon 1998,191).

The effectiveness of guard labor in ensuring compliance with efficient work practices critically depends upon the credibility of the dismissal threat and thepotential pain of unemployment (Bowles and Gintis 1990; Shapiro and Stiglitz 1984).In a labor shortage, employers avoid dismissing their workers and those few workers

who do get dismissed have an easier time finding a job. As a result, low unemployment diminishes the effectiveness of guard labor as a worker controldevice.

The evidence does show that productivity slowdowns are associated with

falling unemployment. However, the effect is small or nonexistent for skilled workersin good, long-term jobs, where guard labor is likely to be both ineffectual andunnecessary (c.f. Spencer 2002). In a study of U.S. manufacturing, Green and

Weisskopf (1990) found that unemployment was positively related to work intensity/labor productivity. However, the relationship was much weaker in so-called primary industries, characterized by unionization, high wages, large employer size, and productmarket concentration, than in secondary industries. Results suggested that . . . if theunemployment rate rose by 50%, work intensity would rise by just over 9% in atypical most secondary industry but by only 3% in a typical most primary

industry (Green and Weisskopf 1990, 247). In a similar study, Rebitzer (1987) alsofound evidence of an unemployment-related, worker discipline effect, which wasmuted in industries with long, standardized 3 tenure. Finally, Weisskopf (1987)found that periods of low unemployment were strongly associated with productivity slowdowns only in LMEs, not CMEs. Ironically, given recent concerns about highunemployment in some European countries, such findings suggest greater scope forusing Keynesian policies to reduce unemployment to low levels in CMEs than inLMEs, mirroring the achievements of the 1960s, when unemployment was generally lower in Europe than in the United States.

Skill Based Production and Commitment

If skilled workers are hard to control externally through, for example, rules,supervision, and rewards, firms may have to resort to controlling them by instillingthe enterprises goals and values or by hiring people who already have such values,

what William Ouchi (1979; 1980) calls clan control. In urging U.S. firms to adoptmore organization skill-based production systems along European or Japanese lines,several researchers have recognized the need to develop the commitment of skilled

workers, using human resource practices like employment security (Pfeffer 1994;Pfeffer and Veiga 1999).

How can an institution like legislated employment protection influence


8/21


restrictive function in making it difficult and/or expensive to use dismissals to reducestaffing levels or modify staff behavior, so that alternatives to this practice must befound. Second, it fulfills cognitive functions in raising employee expectations of along-term relationship with the employer and of a fair hearing in the unlikely eventthat relationship is terminated, and in convincing both employer and employee thatthis social order is appropriate and normal. Third, it performs a motivationalfunction in changing the employers and employees goals, in that both pursue morecooperative, long-term relations with each other. The result is that employeecommitment to the employer greatly improves, and provides the basis for competitiveadvantage in a range of industries. All three of these influences are evident in theinstitutional effects described below.

Legislated Employment Protection and Perceptions of Job Security

Employment security is typically part of the workers psychological contract with the employer. Continuity of employment is typically an unwritten expectation,even in the United States (Kim 1998; Roehling 2002; Roehling and Winters 2000).Perceived job insecurity, precipitated by threats of redundancy or recent experiencesof colleagues being made redundant, may trigger the so-called survivor syndrome.Research shows strong links between perceived and actual job insecurity and key aspects of this syndrome, including intentions to quit (Ashford, Lee and Bobko 1989;

Rosenblatt and Ruvio 1996), lower commitment (Adkins, Werbel and Farh 2001; Ashford, Lee and Bobko 1989; Bishop 2002; Buitendach and De Witte 2005; Davy,Kinicki and Scheck 1997; De Witte and Naswall 2003; Yousef 1998), lowercommitment to change (Chawla and Kelloway 2004; Pate, Martin and Staines 2000;Preuss and Lautsch 2002; Rosenblatt and Ruvio 1996), and lower performance(Rosenblatt and Ruvio 1996; Yousef 1998). Essentially, workers who feel they havelittle or no job security cease to trust the employer and resort to self-preservationbehavior (McCauley and Kuhnert 1992; Pate, Martin and Staines 2000). Legislatedemployment protection obviously helps provide workers with some assurance that

their jobs are reasonably secure and will not be taken away from them in the absenceof due process, compensation, and some advance warning.

Legislated Employment Protection and Procedural Fairness

Legislated employment protection can also more directly affect commitmentby increasing the perceived fairness of dismissals. Folgers (1986) referent cognitionsmodel explains how. Dismissal is obviously a negative outcome for workers. In beingassociated with such an outcome, the dismissing employer also risks being negatively judged. However, in making such an assessment, the dismissed worker also considersthe employers behavior in the dismissal process. More specifically, if an employeracts procedurally fairly he or she is likely to be dissociated from the negative outcome


9/21


decision by expressing his or her own views (Thibault and Walker 1975). Second, thedecision-maker, the employer, must apply decision criteria consistently across workersand over time, base his or her decision on accurate information (e.g., facts), andprovide the victim with an opportunity to appeal the dismissal decision (Leventhal,Karuza and Fry 1980). Third, the decision-maker must explain the reasons, orgrounds, for the dismissal (Bies 1987). These procedures accord, roughly speaking,

with those commonly applied in just-dismissal law. Studies show that when theseprocedures are followed in redundancy situations, victims, survivors, and outsideobservers all tend to maintain a positive view of the employer. When they are notfollowed, the opposite occurs (Brockner et al. 1994; Davy, Kinicki and Scheck 1997;Konovsky and Folger 1991; Skarlicki, Ellard and Kelln 1998). Moreover, recentevidence (Pugh, Skarlicki and Passell 2003) suggests that when one employer does not

follow just-cause rules, the resentment engendered prompts the victim to resent thenew employer.

Legislated Employment Protection and Longer Service

Legislated employment protection can also indirectly affect commitment by discouraging both voluntary and involuntary turnover so that workers stay longer withany one firm. Workers are less likely to quit, or have any intention to quit, when they believe they have a secure future with their firm. U.S. workers feel less secure about

their jobs than their more protected European counterparts and so remain readier toleave (Sousa-Poza 2004). In CMEs, employment protection rules reduce involuntary turnover by prohibiting employers from firing people for no reason, as is lawful underU.S.-style employment-at-will, and by making it more difficult to do so even whenthere is just cause. As a result, Table 2 shows that worker tenure with any oneemployer is generally longer in CMEs than in the United States and other LMEs (seeOECD 1997; 1999).

Longer service with the firm offers at least the potential to build strongercommitment. A worker who stays longer with a firm is more likely to develop strong

social ties to other staff, including management, leading to greater harmony andcollaboration in the day-to-day workplace environment (Armstrong and Stephens2005). Constant immersion in the life of a firm is likely to produce assimilation of the firm's culture and endorsement of its goals and values. A close connection over anumber of years may promote a perception of mutual dependency between the firmsfinancial performance and the workers financial security, prompting a worker to takemore interest in controlling costs, pursuing sales, and raising productivity (c.f. Kochanand Osterman 1994). Longer service workers may have a particularly acute sense of having interests to protect because of pension benefits accrued and above-market pay increases earned in an internal labor market, or because of psychological attachmentsestablished to co-workers and the job over a long period. Expectations of acontinuing relationship also discourage opportunistic behavior involving for


10/21


Coordinated Market Economies Job Tenure in

Years

Austria 10.6

Belgium 11.7

Denmark 8.5

Finland 10.1

France 11.2

Germany 10.3

Luxembourg 10.9

Netherlands 9.6

Sweden 11.5

Switzerland 9.4

Liberal Market Economies

Australia 6.9

Canada 8.1

United Kingdom 8.3

United States of America 6.7

Table 2. Job Tenure in CMEs and LMEs

(Source of information: CESifo Group Munich, (1999), SectoralDifferences in Average Job Tenure, 1999 [Table]. Retrieved April23, 2007, Database for Institutional Comparisons in Europe(DICE), http://portal.ifo.de/pls/diceguest/download/F5552/SEC-DIF-JOB-TEN.PDF )


11/21


A long-term relationship also provides employers with an opportunity to usebenevolent policies and practices to build a more relational psychological contract,

with a more open-ended and flexible set of mutual expectations (Bratton and Gold1999). In the short-term, a worker can ignore or trivialize employer benevolence orattribute it to manipulative motives. In the long-term, a worker cannot easily sustain anegative attitude, and engage in negative behavior toward a benevolent employer

without feeling some cognitive dissonance. Accordingly, in the long-term,benevolence builds trust and confidence and encourages reciprocity throughorganizational citizenship behaviors (c.f. Bratton and Gold 1999). Achieving highlevels of commitment obviously saves money, since workers perform tasks beyondtheir job description for which they might otherwise have been paid. It also saves onsupervisory and management costs, since trustworthy workers need less monitoring.

The greater dedication and enthusiasm of workers may also mean that workers work harder and therefore more productively. It may also lead to dynamic efficienciesthrough greater cooperation in innovation.

Employment Protection: The Need for Legislation

If there are commitment advantages, why make employment protectionmandatory through legislation? Offering employment protection when many firmsdo not, creates an adverse selection problem, the so-called market for lemons

problem as first described by Akerloff (1970).4

In the real world, firms often lack good quality information about workers productivity characteristics. Therefore, if afirm offers employment protection, it is likely to attract more of the so-calledlemons, workers a firm would probably want to later dismiss because of theirincompetence or misconduct. Lemons would value protection more highly thanmore productive workers less fearful of being fired. 5 However, if a firm does notoffer employment protection, it is less likely to entice the lemons. As a result, few,if any, firms voluntarily provide employment protection, even though it may be intheir collective interest to do so. A classic market failure results, where employment

protection, though efficient in many cases, is under-provided.

Lethargy: A Negative Effect of Legislated Employment Protection

The Lethargy Effect and Employment Security

There is an alternative view, which must be acknowledged that employmentsecurity actually increases costs and decreases productivity by making workers less

willing to work hard. Neo-classical economics assumes that people maximize theirsatisfaction by engaging in leisure and consuming products. Work is perceived as abad, a disutility, something to be avoided. Agency theory and transaction costeconomics have taken this seemingly self-evident truth to portray workers as shirkers:


12/21


behavior, to be modified through the application of various management techniquesinvolving, for example, performance-related rewards and/or behavior or outputmonitoring. If shirking really is the baseline human condition, legislated employmentprotection can only encourage shirking by shielding shirkers from dismissal. Indiscussing the specific case of mandatory severance payments, Suedekum andRuehmann (2003) refer to this as the lethargy effect. Specifically, more workers may avoid working by coming in late, being absent, not cooperating with management,engaging in misconduct, and working slowly, in the knowledge that management hasless power or fewer incentives to dismiss them for such shirking.

There is some empirical evidence for the lethargy effect. For instance,Riphahn (2004, 353) found that a higher level of employment protection, whichmade it almost impossible to fire someone over 40 except for severe misconduct,

increased absenteeism by up to 35% in some parts of the German public sector.Public sector workers with high employment protection were absent an average of 16days per annum, as against 10 days for those with low employment protection.Moreover, public sector workers with low employment protection were absent almostthe same number of days per year as their private sector counterparts with similarly low employment protection.

The Limited Nature of the Lethargy Effect in Practice

The lethargy effect is unlikely to be large for several reasons. For instance,in most jurisdictions with unjust dismissal legislation, employers may still sack someone for irredeemably and unrelentingly poor performance, major misconduct ona first offense, and minor misconduct on a repeated offense. Any shielding fromdismissal that does occur is likely to be temporary; bad workers can still be fired, atleast eventually. In any event, McCall (2003) argues that depictions of the shirkingproblem, and the extent to which it has been exacerbated by dismissal protectionlegislation, have been greatly overstated. The fact is that many workers are motivatedby a need for achievement, a need for status or reputation that comes with success, a

sense of professional pride, a desire to learn new skills and knowledge, and a sense of interest and fun that comes from engaging with the job. Many are also motivated by adesire for promotion or pay increase that comes with performing well. Accordingly,Suedekum and Ruehmann (2003) argue that the lethargy effect is unlikely to besignificant except in boring, low-paid jobs with no long-term career potential, the sortthat are more common in the United States than in Europe. However, even in thesejobs, the threat of dismissal can only engender the minimum performance levels andrule compliance necessary to avoid dismissal. Most firms can, and must, do more tomotivate their workers, especially to achieve and maintain a competitive advantage.To take just four examples, employers cannot realistically rely on threats of punishment to make workers: 1) be cooperative with management; 2) be friendly tocustomers; 3) be enthusiastic about learning new skills; and 4) be innovative in


13/21


14/21


the rules are currently cryptic, complex, and inaccessible (Bertola, Boeri and Cazes2000; Eger 2004). If basic, substantive grounds and straight-forward procedures fordismissal were more clearly laid out in the schedules of statutes, employers andemployees would have a stronger understanding of their respective rights andobligations and the penalties associated with failure to recognize these. Greaterawareness would promote rule compliance by reducing mistakes. Employers wouldadhere to procedures more readily and refrain more often from firing people they didnot have substantive grounds to dismiss (Galdon-Sanchez and Guell 2003), bolsteringthe commitment effect through increased perceptions of job security, at least amongso-called good employees. More employees would work harder to meet minimumperformance standards and avoid engaging in misconduct, knowing that not doing so

would result, at least eventually, in dismissal. This would help to minimize shirking

associated with the lethargy effect. Fewer breaches of the rules would mean fewerpotential conflicts and more consistent employee treatment, producing a greater senseof procedural fairness that would help build and maintain trust and confidence,strengthening the commitment effect. Simpler and more overt rules would makecourt dismissal decisions more predictable. If employers followed the rules, they could more confidently dismiss wrongdoers, poor performers, or redundant workers,knowing that the courts would be unlikely to reverse their decisions (Eger 2004). If employers followed the rules, this would be more obvious to dismissed employees and

would dissuade them from appealing dismissal decisions (Galdon-Sanchez and Guell

2003). With these changes, employers would find it easier and cheaper to sack employees for gross misconduct, recurring minor misconduct, and entrenchedperformance problems. Once again, this would help deter shirking associated withthe lethargy effect. Employers would also find it cheaper and easier to useredundancies to cope with a downturn in business conditions, giving them additionalnumerical flexibility.

Governments could cut the costs of dismissal even further by making theprocess speedier and more informal. For instance, they could make compulsory mediation a precondition of access to adjudication of a dismissal case. They could

also use private arbitrators or tribunals rather than courts to adjudicate such cases inthe first instance. Appeals could also be limited to errors of law. Some aspects of thelaw, such as advance notice of redundancy, could even be completely codified and leftto labor inspectors to enforce.

Governments could simultaneously preserve long-term relations betweenfirms and workers and promote additional numerical flexibility by more lightly regulating overtime and providing short-time, unemployment compensation. Lightovertime regulation could mean either lower minimum overtime premiums (e.g.,25%), longer hours of work before qualifying for overtime premiums (e.g., 48 hours),or both. The evidence suggests that this would encourage firms to respond totemporary declines in labor demand by varying average hours of work instead of laying people off (Nunziata 2003) Short-time unemployment compensation would


15/21


easier and cheaper to reduce working hours, while preserving long-term relationships with workers so important to developing commitment.

Compulsory severance payments, based on years of service, would strengthenthe long-term bonds between workers and firms. Such payments would strongly deterfirms from engaging in late-career opportunism by making highly paid, long-service

workers redundant (Suedekum and Ruehmann 2003). Workers would feel moreconfident about their long-term prospects for pay raises and promotions, and so morelikely to see the relationship with their employer as long-term, thereby supportingcommitment.

Employment Protection and Flexicurity

Some people have advocated so-called flexicurity as an alternative toemployment protection. With flexicurity, the government funds and organizescomprehensive, ongoing training and development programs to promote workeremployability on the open labor market. Formal employment protection is relatively

weak, so the focus is on re-equipping jobless workers to re-enter employment asquickly as possible (van Lieshoudt and Wilthagen 2004). This system is mostcommonly associated with Denmark and to a lesser extent the Netherlands, but thereare some constraints on further dissemination elsewhere (Bredgaardt, Larsen andMadsen 2005). Despite much rhetoric, governments elsewhere in Western Europe

have been cautious in adopting the flexicurity model in its entirety, and have beeninclined to adopt more modest changes. Any set of regulatory compromisesrepresents the outcome of complex compromises, trade offs, and an element of serendipity. This makes it very difficult to benchmark and replicate institutionalfeatures in different contexts (Boyer 2006). Rather than completely transplantflexicurity or any other model, a more fruitful route for policy reform would involvea more incremental process of experimentation, even if, in the end, some aspects of the flexicurity model are adopted. In any event, governments can and havecombined institutional features of flexicurity with extensive employment protection.

For instance, Sweden retains extensive employment protection and has long usedactive labor market policies to promote employability. The two policies can becomplements rather than substitutes.

Conclusions

We begin this conclusion with a caution: we share the regulationist view that any form of institutional mediation is necessarily temporarily and spatially specific(Hollingsworth 2006). We acknowledge that high levels of employment protectionprobably have helped to sustain high value-added production in CMEs, especially inincrementally innovative areas of manufacturing (Asheim and Coenen 2006; Parker2004; c f Thelen 2001) However this does not mean that the future of such


16/21


This certainly applies to employment protection, especially given that employers areunder short-term pressure to reduce costs by firing incompetents and making staff redundant.

Legislated employment protection is part of the post-war politicalaccommodation of competing class interests. However, any compromise, even amutually beneficial one like employment protection, is inevitably contested, if arelative rise in one partys power enables it to demand more favorable terms andconditions from the other party (Harcourt and Wood 2003; c.f. Thelen 2001). Thisis precisely what has happened in the post-1975 era, as power has shifted toemployers. Many of the gains won by organized labor in the 1950s and 1960s werelost or eroded in the 1970s, 1980s, 1990s, and 2000s (Harcourt and Wood 2003).

Yet, we argue for more limited systematic reforms: employment protection can

continue to attract political support, if its strengths are enhanced and its weaknessesare diminished.

As Wood (2001, 252) notes, core legal incentives, supported by informalconventions, help reinforce firms reliance on specific institutions associated with a

variety of capitalism. This paper has focused on the effects of one such incentive,legislated employment protection, both in helping to define a national way of doingthings and in encouraging specific firm level practices. The central conclusion is thatemployment protection represents one of the main institutional supports to CMEcapitalism. It provides a sturdy foundation for developing worker commitment to firm

goals and strategies. It complements co-determination legislation, requiringconsultation and participation in management decisions, in helping to establishproduction paradigms predicated on incremental innovation. In contrast, lower levelsof employment protection in LMEs help reinforce production paradigms based ongeneric skills and/or more tenuous relations with the workforce.

Notes

1. Fordism refers to the mass production/mass consumption paradigm developed and popularized by Henry Ford and his Ford Motor Company. This paradigm was founded on a systemic consistency between mass production and a mass of consumers demanding standardized products (ODoherty 2001, 202). See http://en.wikipedia.org/wiki/Fordism for more details.

2. Taylorist and Taylorism refer to the ideas and practices spawned by Frederick Winslow Taylors 1911book, The Principles of Scientific Management . More specifically, they encompass the process of redesigning jobs through their fragmentation into the simplest component tasks, reassembling themin a way conducive to a high division of labor, close surveillance, and a linking of immediate outputto reward (ODoherty 2001, 182). See http://en.wikipedia.org/wiki/Scientific_management for moredetails.

3. Standardized for the workers personal characteristics like age and gender.4. In 2001, George Akerlof was awarded a Nobel prize in economics for his seminal work on adverse

selection. See http://nobelprize.org/nobel_prizes/economics/laureates/2001/public.html.

5. The contrary argument is that a no lay offs pledge might attract more loyal, more stable, moreserious workers, with more interest in a long-term future with the employer. However, a promise notto fire for poor performance or misconduct still risks attracting lemons.


17/21


References

Abraham, K., and S. Houseman. Does Employment Protection Inhibit Labor Market Flexibility? Lessons from

Germany, France, and Belgium. NBER Working Paper No. 4390, Cambridge, Massachusetts:National Bureau of Economic Research, 1993. Adkins, Cheryl, James Werbel, and Jiing-Jih Farh. A Field Study of Job Insecurity during a Financial

Crisis. Group and Organization Management 26, 4 (2001): 463-483. Akerlof, G. The Market for Lemons: Quality Uncertainty and the Market Mechanism. Quarterly Journal

of Economics84, 3 (1970): 488-500. Albert, A. and Y. Ramstad. The Social Psychological Underpinnings of Commonss Institutional

Economics II: The Concordance of George Herbert Meads Social Self and John R.Commonss Will. Journal of Economic Issues 32, 1 (1998): 1-46.

Armstrong, M. and Stephens, T. A Handbook of Employee Reward Management in Practice . London: KoganPage, 2005.

Ashford, S., C. Lee, and P. Bobko. Content, Causes, and Consequences of Job Insecurity: A Theory-basedMeasure and Substantive Test. Academy of Management Journal 32, 4 (1989): 803-829.

Asheim, B., and L. Coenen. Contextualising Regional Innovation Systems in a Globalising LearningEconomy: On Knowledge Bases and Institutional Frameworks. Journal of Technology Transfer 31(2006): 163-173.

Barber, C. Comparison of International and U.S. Employment Termination Procedures: How Far Have We Come? - A Step in the Right Direction. Syracuse Journal of International Law and Commerce19 (1993): 165-195.

Bertola, G., T. Boeri, and S. Cazes. Employment Protection in Industrialized Countries: The Case forNew Indicators. International Labour Review 139, 1 (2000): 57-72.

Bies, R. The Predicament of Injustice: The Management of Moral Outrage. In Research in OrganizationalBehavior edited by L.L. Cummings, and B. Staw, 9: 289-319. Greenwich, Connecticut: JAIPress, 1987.

Bowles, S. and H. Gintis. Contested Exchange: New Microfoundations for the Political Economy of Capitalism. Politics and Society 18 (1990): 165-222.

Boyer, R. How do Institutions Cohere and Change? In Institutions and Working Life, edited by P. Jamesand G. Wood. Oxford: Oxford University Press, 2006.

Bratton, J. and J. Gold. Human Resource Management: Theory and Practice. London: Macmillan, 1999.Bredgaardt, T., F. Larsen,and D. Madsen. The Flexible Danish Labour Market: A Review. CARMA

Research Papers 1/2005. University of Aalborg: Aalborg, 2005.Brenner, R. The Boom and the Bubble: The US and the World Economy . London: Verso, 2002.Brockner, J., M. Konovsky, R. Cooper-Schneider, R. Folger, C. Martin, and R. Bies. Interactive Effects

of Procedural Justice and Outcome Negativity on Victims and Survivors of Job Loss. Academy of

Management Journal 37, 2 (1994): 397-409.Buitendach, J., and H. De Witte. Job Insecurity, Extrinsic and Intrinsic Job Satisfaction and Affective

Organisational Commitment of Maintenance Workers in a Parastatal. South African Journal of Business Management 36, 2 (2005): 27-37.

Chawla, A., and K. Kelloway. Predicting Openness and Commitment to Change. The Leadership andOrganization Development Journal 25, 6 (2004): 485-498.

Cohen, R. Resistance and Hidden forms of Consciousness among African Workers. In Work andIndustrialization in South Africa , edited by E. Webster. Johannesburg: Ravan, 1994.

Davy, J., A. Kinicki, and C. Scheck. A Test of Job Securitys Direct and Mediated Effects on WithdrawalCognitions. Journal of Organizational Behavior 18, 4 (1997): 323-349.

Dequech, D. The Demarcation between the Old and the New Institutional Economics: Recent

Complications. Journal of Economic Issues 36, 2 (2002): 565-572.De Witte, H., and K. Naswall. Objective vs Subjective Job Insecurity: Consequences of Temporary Work for Job Satisfaction and Organizational Commitment in Four European Countries.


18/21


.Stock Market Capitalism: Welfare Capitalism . Cambridge: Cambridge University Press, 2000.Eger, T. Opportunistic Termination of Employment Contracts and Legal Protection Against Dismissal in

Germany and the USA. International Review of Law and Economics 23 (2004): 381-403.Estevez-Abe, M., T. Iversen, and D. Soskice, D. (2001) Social Protection and the Formation of Skills: A

Reinterpretation of the Welfare State. In Varieties of Capitalism: The Institutional Foundations of Comparative Advantage , edited by P. Hall and D. Soskice, pp. 145-183. Oxford: OxfordUniversity Press, 2001.

Folger, R. Rethinking Equity Theory: A Referent Cognitions Model. In Justice in Social Relations, editedby H. Bierhoff, R. Cohen and J. Greenberg: 145-162. New York: Plenum, 1986.

Galdon-Sanchez, J., and M. Guell. Dismissal Conflicts and Unemployment. European Economic Review 47(2003): 323-335.

Gooderham, P., O. Nordhaug, and K. Ringdal. National Embeddedness and Calculative Human ResourceManagement Practices in Europe and Australia. Human Relations 59, 11 (2006): 1491-1513.

Gordon, D. Conflict and Cooperation: An Empirical Glimpse of the Imperatives of Efficiency andRedistribution. In Recasting Egalitarianism: New Rules for Communities, States and Markets , editedby S. Bowles and H. Gintis. London: Verso, 1998.

Green, F. and T. Weisskopf. The Worker Discipline Effect: A Disaggregative Analysis. Review of Economics and Statistics 72, 2 (1990): 241-249.

Haake, S. National Business Systems and Industry-specific Competitiveness. Organization Studies 23, 5(2002): 711-736.

Hall, P., and D. Soskice. An Introduction to Varieties of Capitalism. In Varieties of Capitalism: TheInstitutional Foundations of Competitive Advantage , edited by P. Hall and D. Soskice. Oxford:Oxford University Press, 2001.

Harcourt, M. and G. Wood. Under What Circumstances do Social Accords Work? Journal of EconomicIssues 37, 3 (2003): 747-767.

Hirschman, A. O. Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States. Cambridge,

Mass.: Harvard University Press, 1970.Hodgson, G. M. What is the Essence of Institutional Economics? Journal of Economic Issues 34, 2 (2000):

317-329.. John R. Commons and the Foundations of Institutional Economics. Journal of Economic Issues 37, 3

(2003): 547-576.Hollingsworth, J. R. Advancing our Understanding of Capitalism with Niels Bohrs Thinking about

Complementarity. In Institutions and Working Life , edited by P. James and G. Wood. Oxford:Oxford University Press, 2006.

Jensen, M. C. A Theory of the Firm: Governance, Residual Claims, and Organizational Forms . Cambridge, MA:Harvard University Press, 2000.

Jessop, B. Series Preface. In The Parisian Regulation School - Regulation Theory and the Crisis of Capitalism,

Volume 1 , edited by B. Jessop. London: Edward Elgar, 2001.Kim, P. An Empirical Challenge to Employment at Will. New Zealand Journal of Industrial Relations 23, 2(1998): 91-103.

Kochan, T. and P. Osterman. Mutual Gains Enterprise . Cambridge, Mass.: Harvard University Press, 1994.Konovsky, M.A., and R. Folger. The Effects of Procedures, Social Accounts, and Benefit Levels on

Victims Layoff Reactions. Journal of Applied Psychology21 (1991): 630-650.Kraft, K. Hiring and Dismissal Costs in Theory and Practice: A Comparison of Institutional Constraints

and Employment Adjustment Patterns in Six OECD Countries. Kyklos50, 3 (1997): 341-368.Leborgne, D. and A. Lipietz. Conceptual Fallacies and Open Questions on Post-Fordism. In Regulation

Theory and the Crisis of Capitalism 3 Regulationist Perspectives on Fordism and Post-Fordism , editedby B. Jessop. London: Edward Elgar, 2001.

Leventhal, G., J. Karuza, and W. Fry. Beyond Fairness: A Theory of Allocation Preferences. In Justice andSocial Interaction , edited by G. Mikula: 167-218. New York: Springer-Verlag, 1980.

Lincoln, J., and A. Kalleberg. Culture, Control and Commitment: A Study of Work Organization in the United


19/21


20/21


Thibault, J., and L. Walker. Procedural Justice: A Psychological Analysis. Hillsdale, New Jersey: Erlbaum,1975.

van Lieshoudt, H. and T. Wilthagen. Twintig Hypothesen over de Ontwikkeling van Flexicurity Strategeein. Paper presented at the 20 th Social Science Workshop, Amsterdam, 2004.

Weisskopf, T. The Effect of Unemployment on Labour Productivity: An International Comparative Analysis. International Review of Applied Economics 1 (1987): 127-151.

Wood, S. Business, Government and Patterns of Labor Market Policy in Britain and the Federal Republicof Germany. In Varieties of Capitalism: The Institutional Foundations of Competitive Advantage ,edited by P. Hall and D. Soskice. Oxford: Oxford University Press, 2001.

Yousef, D. Satisfaction with Job Security as a Predictor of Organizational Commitment and JobPerformance in a Multicultural Environment. International Journal of Manpower 19, 3 (1998):184-194.


21/21

Tekst 11 NIEUW

Documents

Transcript of Tekst 11 NIEUW