My oYce is in a university building in London. One day when I came to work, a man was busy replacing the sliding glass doors at the entrance. I asked him something about what he was doing, and what I got was a short lecture on the varieties of entry systems.
The ‘‘entry system,’’ it seems, includes not only the door but also such things as my swipe card. So it’s a complex system, with parts both mechanical and electronic, and an interface with the university’s information systems. There were many such systems on the market, of which ours was apparently not the most advanced. I learned something about how this one diVered from the older ones, and from the more advanced ones, all of which I have now forgotten. What I remember was that within a few minutes I had heard a concise dissertation on entry systems, and that the man who delivered this oration was a German.
Compared with LMEs, there are a lot fewer workers in CMEs who have very low levels of numeracy and literacy. CMEs have far higher participation in vocational training and smaller proportions of the population with university degrees. In other words, the distribution of skills in CMEs is more concentrated around the mean than in LMEs, with thinner tails at both the low (illiterate) and the high (advanced degree) ends.
The types of skills found in CMEs and LMEs diVer as well. One of the implications of high levels of participation in vocational training is that workers in CMEs typically have higher levels of skills speciWc to a particular craft, profession, industry, or company.
It takes a considerable investment of time to learn as much about the installation and maintenance of entry systems as had my German informant in London. All of that industry-speciWc knowledge might suddenly be worth little if a shift in the market left fewer jobs in entry systems than the number of trained entry system technicians. What leads workers in CMEs to make much heavier investments in such speciWc skills than those in LMEs?
Margarita Estevez-Abe, Torben Iversen, and David Soskice (2001) draw a connection between the willingness to make such investments and the level of ‘‘social protection’’
for employees. By social protection they mean a combination of job security (employ-ment protection), and unemploy(employ-ment protection.
In LMEs, private sector employment contracts are built on the principle of ‘‘employ-ment at will,’’ in which either the employer or the employee may unilaterally end an employment relationship. And, in an LME, if you lose your job you cannot normally expect more than modest income support from unemployment insurance, if you are lucky. So, in an LME, if you’ve invested in nontransferable skills and the demand for those skills suddenly shrinks, you can Wnd yourself thoroughly out of luck.
In all CMEs there is stronger employment protection, or job security, than in any LME.
There is a lot of variety between CMEs, however, both in the strength of employment protection and in the way it is provided. The latter includes legal constraints on the actions of the employer, the power of trade unions to protect employment, and employer policies aimed at earning commitment from employees. Some variants of these protect individuals from dismissal, while others protect groups of employees in the case of downsizing, relocation, and other forms of corporate reorganization. Legal constraints include the grounds, formal procedures, and severance payments required for dismissal of a worker. Unions may have a legally established right to consultations on
156 THE GLOBAL ENVIRONMENT OF BUSINESS
dismissals or workforce reductions, and may also have the practical ability to disrupt production or otherwise impose costs on employers if jobs are cut without the union’s agreement. Companies may, for strategic reasons, adopt policies which commit them to ensuring job security; for instance, they may agree to participation of the union in decisions about employment reductions, or have a practice of transferring employees within a group of aYliated companies in order to avoid layoVs.
The mix of diVerent sources of employment protection – the state, trade unions, and employer policy – varies considerably between countries, reXecting diVerences in institutions. Estevez-Abe et al. boiled them all down to a single index of employment security. It is indicated on the horizontal axis of Figure 11.1.
In most CMEs, there is also stronger unemployment protection than in any of the LMEs.
That is, if you do lose your job in most CMEs, there is more generous provision for transition to a new one: better unemployment beneWts, and/or better provision of retrain-ing. An index of unemployment protection is shown on the vertical axis of Figure 11.1.
Firm/industry/occupational
Figure 11.1. Employment security, unemployment security, and vocational training
Note: Bolded numbers are mean tenure rates for the cluster of countries circled; bracketed numbers are the percentage of the relevant age cohort going through vocational training.
Source: Estevez-Abe, Iversen, and Soskice (2001). Reproduced by permission of the authors.
We should bear in mind that creating indices of this sort invariably requires the addition of apples and oranges, and so some arbitrary choices cannot be avoided in arriving at the numbers; see Estevez-Abe et al. (2001) for details. DiVerent ways of slicing the numbers on employment systems can result, for instance, in moving Ireland out of the LME category, and putting the Netherlands and Switzerland in an indeter-minate zone (Amable 2003). With this caution in mind, the indices are helpful in cutting through the thicket of the institutional variation and creating a clearer picture.
Notice that all LMEs are clustered in the lower left-hand corner, with low levels of both employment and unemployment protection. Although employment protection is higher in all CMEs than in any LME, there are big diVerences between the CMEs. The range of unemployment protection between CMEs is even more striking: in Japan and Italy, it is fully as weak as in most LMEs. On the basis of these diVerences, we can identify some CME sub-types. In Japan and Italy, job security is an extremely important form of social insurance, since in both cases the state’s social safety net is weak (the number next to each subcluster is the average job tenure for countries in that group: at 8.6 years, Japan and Italy are the highest of any). That worked well from the end of World War II through the 1980s, when both countries were growing fast and the systems described here were developing; in more recent years, slower growth has meant a dearth of good jobs and an accentuation of the dual labor market in both countries, with a growing secondary work force that is less well paid and has virtually no job security.
Denmark, the Netherlands, and Switzerland have systems sometimes described as ‘‘Xexi-curity,’’ in which it is relatively (by CME standards) easy and cheap for a company to dismiss a worker, but in which unemployment beneWts and retraining are excellent. In recent years, many have regarded this system as the best of both worlds (Visser and Hemerijck 1997; Becker 2005). In Austria, Belgium, Germany, and Sweden, both types of protection are quite strong; these labor markets have often been regarded as quite inXexible, and their successful functioning depends on high levels of cooperation between unions, employers, and the state. If we were to deWne CME quite narrowly, it might be limited to the countries in this group; many papers in the Hall/Soskice volume deal with Germany alone. France is sui generis. It was the most Fordist of European countries, its economy dominated by large, hierarchically managed companies with relatively unskilled production workers. While France’s employment system is plainly not that of an LME, it is diYcult to classify it as a CME; we will see similar problems when we come to its Wnancial and political systems.
The overall level of participation in vocational education and training (VET) is much higher in CMEs than in LMEs. Figure 11.1 shows the average levels of such participa-tion, among the relevant age group, for LMEs and CMEs (with the latter broadly deWned): 7 per cent in the LMEs, against 33 per cent in the CMEs.
The crux of the Estevez-Abe et al. argument is that investment in speciWc skills goes hand in hand with social protection. Notice how their argument parallels Williamson’s
158 THE GLOBAL ENVIRONMENT OF BUSINESS
transaction cost theory: industry- or Wrm-speciWc skills have transaction-speciWc value, just like special-purpose machines. Workers with speciWc skills can, in many situations, be more productive than those with only general skills, but investment in the speciWc skills is risky for the individual. A governance framework which insures against their sudden loss of value encourages investment in the special-purpose skills.