CUIDADOS

It is clear that this model focuses almost entirely on organisations’ labour requirements and neglects the other influences on employment systems that have been identified in this chapter. This is a weakness, since it assumes that managers are free to organise their employment systems in this way. Empirical research in the UK has found very little evidence for the emergence of the flexible firm, largely because of some of these other influences.

Organisations have been constrained in their ability to take such a sophisticated approach to their employment systems because of the inability or unwillingness of man-agers to take a strategic, long-term approach to business decisions (Hunter and MacInnes, 1992; Sisson and Marginson, 1995). This may have reflected pressure from 144 Chapter 4 · Human resource management and the labour market

Source: Institute for Employment Studies (1995)

Figure 4.3 The ‘flexible firm’

Public subsidy trainees

Peripheral group I Secondary labour markets Flexibility through quantitative

adjustment

Peripheral group II co

ntra cts term

Sh o

rt-Delayed recruitment

Jo b-sharing

Part -timers Self-employment

Subcontractors

Agency temporaries

Outsourcing Core group Primary labour markets

Flexibility through utilisation

financial institutions in the City to concentrate on short-term financial performance rather than long-term planned development. Research has also found little evidence of multi-skilling and a functionally flexible core workforce. This reflects the low priority and limited investment that most British firms give to training, something that has been aggravated by the relatively heavy emphasis on short-term profits in British business that discourages long-term investment in training.

Rather than developing internally differentiated employment systems along the lines of the flexible firm, British management has been found to have taken one of three approaches to labour flexibility, each of which is biased towards numerical rather than functional flexibility. These are:

● To seek cost minimisation through the employment of so-called ‘flexible’ labour, i.e.

low-paid, part-time, female workers. This approach takes advantage of the relatively high degree of ‘labour market flexibility’ in the UK. Put simply, this means the relative absence of constraints on hiring and dismissal and until recently, the absence of a minimum wage and the ability to pay part-time and temporary workers less pro rata than permanent full-time workers. However, recent changes in British and European Union legislation may make this cost-cutting route more difficult to pursue in future.

● To minimise costs by achieving numerical flexibility in ‘core’ as well as ‘peripheral’

functions. Extensive use is made of temporary workers and subcontracting.

● To combine functional flexibility in core functions with numerical flexibility in peripheral functions by contracting peripheral functions out to external agencies.

However, functional flexibility is not developed to a high degree and consists more in the multi-tasking of semi-skilled labour than in the multi-skilling of highly trained workers (Cully et al., 1999).

Evidence from the USA suggests that employers have tended to divide their workforces into primary and secondary segments. The employment system for primary workers continues to be internalised, i.e. based on long-term commitments from the employer and the employee, while that for the secondary segment is externalised, i.e. organised on a short-term hire and fire basis. There is also some evidence that ‘firms which provide better benefit packages to their full-time, more permanent workers are more likely to rely on flexible staffing arrangements’ (Rosenberg and Lapidus, 1999: 77). This is in line with the idea that numerical flexibility in the periphery protects the employment condi-tions of core workers.

However, this does not mean that US firms have made a strategic HRM choice to adopt the model of the flexible firm in order to combine functional and numerical flexi-bility. As in Britain, there is little evidence of widespread multi-skilling of ‘core’ workers.

As in Britain, the main motive for hiring non-standard workers, particularly self-employed and temporary agency workers, is to reduce costs. US employment law forbids employers from offering benefits to one group of full-time employees and with-holding them from another, but employers are allowed to withhold such benefits from non-standard workers, i.e. self-employed workers and workers hired through temporary agencies (Rosenberg and Lapiches, 1999: 77; Heckscher, 2000). This has encouraged the wider use of these workers.

Overall therefore, while there is evidence of increased differentiation and segmenta-tion of employment systems in Britain and the USA, there is little evidence that the flexible firm model has been adopted as an employment strategy. Specifically, there is little evidence that employers have reorganised their employment systems to combine numerical and functional flexibility. Instead, numerical flexibility appears to have been extended to the majority of functions within enterprises as employers have taken advan-tage of weakened employee pressure and influence to reduce costs.

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The future of employment systems: theory and evidence

■ An alternative model? ‘Flexible specialisation’

Critics of developments in Britain and the USA argue that they amount to a ‘low road’

path of economic development based on cheap labour. Low wages reflect low skills and low productivity, which are in turn the product of management’s pursuit of short-term profits and its neglect of long-term investment in training. These biases have been rein-forced over the years by the operation of the British and American financial systems and their governments’ unwillingness to provide workers with strong, legally enforced employment rights. By making it easy for employers to make use of ‘cheap labour’ it has reduced incentives for employers to invest in highly skilled, functionally flexible work-forces (Nolan, 1989; Cappelli et al., 1997; Dex and McCulloch, 1997). These critics argue that the long-run consequences of this are increasing technological backwardness, inability to compete in the markets for high-value, sophisticated goods and services, and an increase in low-paid, insecure employment.

The alternative to the ‘low road’ is the ‘high road’ path of development that is based on high skills, high productivity and high wages. The ‘high road’ strategy is one of ‘flex-ible specialisation’. This seeks to develop new areas of competitive advantage by exploiting new technologies and new market opportunities rather than defending old ones against low-cost competition. The emphasis is on internal, functional flexibility of labour to support adaptation to new technologies and innovations in product design and production methods. Advocates of the ‘high road’ strategy argue that countries that develop a highly educated and trained workforce and foster labour–management coop-eration are better placed to compete in the markets for high-quality goods and services.

This is because highly skilled workforces are crucial to high levels of research and devel-opment, sophisticated design of goods and services and high quality in their manufacture or delivery. The benefit of this strategy is that premium goods and services sell at premium prices, with higher mark-ups and hence profits. This supports high wages, good working conditions and comprehensive, generous levels of social welfare provision.

The ‘high road’ position on labour market policy is that it should aim to increase the capacity of workers to acquire new, high-level skills, broaden their range of skills and adapt to changes in technology, rather than pursuing wage and numerical flexibility.

The viability of this alternative has come to be questioned in recent years. The main reason for this is that competition on the basis of quality is no longer a straight alterna-tive to competition on the basis of price. High-quality goods can be produced using low-cost methods of production and high-cost producers are less able to rely on prod-uct quality to protect them from lower-cost competition. During the 1970s and 1980s, West Germany was seen as the best example of a country that was attempting to take the ‘high road’. Although sometimes exaggerated, the strengths of the German system included a strong legal framework of rights for workers, including co-determination rights, that limited management’s freedom to hire and fire workers at will and provided a basis for worker–management cooperation in the workplace. They also included a strongly developed system of initial vocational training that ensured a relatively large supply of skilled labour. However, in recent years German producers have come under increased competition and a growing number have located more of their production capacity outside Germany in order to avoid high labour costs. This has also created pressures for greater labour market flexibility in Germany. Trade unions in private and public sector organisations have agreed to various concessions in order to protect job security for incumbent workers, including the systematic use of part-time and fixed-term contracts to fill new vacancies. This creates a growing division between ‘insiders’, who retain job and income security and access to promotion and career progression, and the ‘outsiders’ on part-time, temporary and fixed-term contracts who increasingly occupy the periphery of the employment system (Jacobi et al., 1998; Katz and Darbishire, 2000).

146 Chapter 4 · Human resource management and the labour market

■ The virtual organisation, networks and the end of long-term employment?

Some analysts have interpreted recent developments as indicating a transformation in work patterns as greater flexibility is demanded of firms and workers. In their view, tra-ditional careers are a thing of the past. As tratra-ditional internal labour markets decline, rather than progressing careers through vertical job mobility based on internal promo-tion within one organisapromo-tion, workers now have to make sideways moves across organisations as they search for better pay and opportunities. It has been claimed that, in future, workers will have to change their careers several times in their working lives, acquiring new sets of skills and changing occupations as old skills and occupations become obsolete (Bayliss, 1998).

For some of these observers, the whole concept of employment is becoming out-moded as a result of the emergence of the ‘virtual organisation’. The virtual organisation is presented as the antithesis of bureaucracy and hierarchy. There is minimal formal, permanent organisation and there are almost no direct employees. The virtual organisa-tion is based on networks that bring individuals and groups of workers together for specific projects. Once the projects are complete, the assemblages of workers break up and new assemblages are created for the next set of projects. Some commentators have claimed that this is the future of work and that eventually most workers will no longer be employees of a single employer. Instead they will be ‘portfolio workers’ doing a range of jobs for different employers, as a ‘freelance’ worker or a self-employed producer of services. The most frequently cited examples of this emergent breed are the self-employed business consultant, the freelance journalist and television producer (Bridges, 1995; Handy, 1995; Leadbeater, 2000). Therefore the picture being painted is one in which not only are long-term employment relationships giving way to more contingent forms of employment, such as temporary and fixed-term contracts; the employment relationship in general is giving way to commercial transactions between self-employed workers and organisations buying in their services.

This picture, most frequently painted in popular management literature and press com-ment, is greatly exaggerated. It is true that there has been an increase in the number of temporary and fixed-term contracts of employment in various countries such as the UK, the USA and Spain. It is also true that prospects of long-term, stable jobs have declined for some labour market groups. In Britain and the USA in particular, men are facing increased competition for long-term jobs. Young men and older workers have been par-ticularly affected in both countries and, in the USA, black workers have suffered the greatest drop in job stability (Gregg and Wadsworth, 1999; Bernhardt and Marcotte, 2000). Despite this, however, long-term employment relationships remain the norm. In 1985, 31.1 per cent of the UK working population were in jobs that had lasted more than ten years. In 1998, the proportion was 28.6 per cent. In 1998, 48.8 per cent of workers were in jobs that had lasted more than five years (Gregg and Wadsworth, 1999). Clearly the employment relationship is still a long-term one. Neither is there much evidence that the self-employed worker is replacing the employee. Freelance work-ers and self-employed teleworkwork-ers operating from home via computer modems remain a small minority of the British workforce. The proportion of workers who are self-employed in Britain fell continuously as a proportion of total employment between 1994 and 2001, from 13.5 per cent to 11.7 per cent, and in the European Union from

147

The future of employment systems: theory and evidence

What do you think are the main advantages and disadvantages of being a ‘portfolio worker’? Is this a pattern of work that appeals to you? Why or why not?

Stop and

think

16.2 per cent to 14.8 per cent (Millward et al., 2000: 48; European Commission 2002:

173, 188).

One reason for this is that most workers value the security and stability of long-term employment relationships. While there is evidence from the USA that most self-employed workers and independent contractors are happy with their status and do not want standard jobs, most temporary workers would rather be in permanent employ-ment (Polivka et al., 2000; Heckscher, 2000). Dissatisfaction is also widespread among temporary workers in Britain. Moreover, even among self-employed freelancers, there is evidence that insecurity is perceived as a problem (Gallie et al., 1998; Baines, 1999).

A second reason is that the network form of organisation can carry significant disad-vantages from a managerial point of view, so managers continue to have an interest in maintaining long-term employment relationships. The widespread use of temporary workers generates friction between temporary and permanent staff, leading to reduced commitment from permanent workers, especially where temporary workers are employed on inferior terms and conditions (Geary, 1992; Heckscher, 2000). Moving from conventional employment to ‘networks’ has been shown to carry the potential for considerable disruption. A study of a major shift from long-term employment to free-lance and contract labour in the British television and broadcasting industry in the 1990s (Saundry and Nolan, 1998) found that it led to an increase in administrative costs, skill shortages and lower morale among workers. Eventually companies began to return to more traditional employment patterns through efforts to ‘improve job security for existing staff and persuade freelancers to return to permanent contracts’ (Nolan and Slater, 2003). Case study research in the USA has produced similar results. After an ini-tial phase of radical organisational restructuring that broke up internal labour markets, problems of declining product quality, skill shortages and lower morale and employee commitment have led organisations to reintroduce elements of internal labour markets (Moss et al., 2000).

The US economist Charles Heckscher gives a vivid summary of these issues from a US perspective:

For workers, long-term employment provides security of income and is also frequently valued as a source of psychological stability and personal identity (Sennett, 1998). For employers, the costs of labour turnover, the need for firm-specific skills and the need to gain workers’ cooperation in production will continue to provide a basis for long-term employment, even in the face of weakened trade unions, changes in the labour market and the wider institutional environment. However, this does not mean that internalised employment systems have remained unchanged. As shown above, although they have not collapsed, they have been weakened and modified as a result of organisational restructuring and the search for labour flexibility.

148 Chapter 4 · Human resource management and the labour market

For the vast majority of employees, the open labor market is a fearful place. It is hard to get training, it is hard to get placement, it is hard to get health care, and it is hard to explain to your family and friends – and to yourself – why you are not working. For man-agers the turbulence caused by employee turnover is far more dangerous than the possible gain from getting better people. Managers are better off working with what they have, which is at least predictable, than taking a wildly uncertain bet on the labor market.

(Heckscher 2000: 277).

■ Implications for HRM: strategic HRM and the new