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Labor disputes and recessions: Who has your back?

Earnings season is upon us, and several banks and financial companies have reported remarkable improvements over the last two quarters. Unfortunately, things are still gloomy for the manufacturing sector as it continues to suffer due to the global recession.

Businesses are still closing doors and company workforces continue to shrink as organizations restructure.

Many European newscasts have reported labor strikes at numerous companies, especially those in France, and major automobile companies have been forced to negotiate with labor unions while restructuring their organizations.

Meanwhile, there are very few labor disputes in Asian countries, including Japan, even though companies still lay off large numbers of employees. How are Asian countries able to avoid labor disputes unlike their European counterparts?

In Japan, the reason can be pinpointed to a law passed in 1999 defining temporary employees.

Prior to this law, Japanese employers hired workers on a permanent basis, and most of the workforce was organized through labor unions.

Unions periodically negotiated new contracts with employers, and threatened to strike if their demands were not met. I remember many labor disputes in Japan during the 1970s and 80s. The economy was solid, but companies’ compensation packages were sub par.

Each year, Japanese public transportation ground to a halt when local unions called for a strike and did not return to normalcy until new contracts were voted on and approved by the rank and file.

The new law provided flexibility to employers and employees and offered more choices for secure work. Manufacturing companies began to not hire employees directly, and used temporary personnel services that hired and trained prospective candidates. There were several benefits to this process for manufacturers.

First, manufacturers avoid the risk of having too large a payroll during slow business periods since employees are assigned on a temporary basis and can be redeployed depending on manufacturing activity.

Second, payroll costs from this now semi-permanent labor pool fluctuate with revenue and can also be considered variable instead of a fixed monthly cost. Reductions in payroll can happen almost immediately depending on revenues.

Third, management teams are able to focus on strategy development and business building ideas instead of continuously managing a fixed payroll budget.

Additionally, workers also benefit because more job opportunities are available through the temporary personnel agencies.

Japan’s employment system flourished under this new strategy as the economy continued to grow.

The labor force was flexible and shifted from slowing industry sectors to busier ones and workers transferred to companies offering higher compensation packages.

Employers benefited from the temporary work force because workers were not part of any unions, and employers could terminate employees at will. (Over the last 20 years union wages have decreased and the unions have lost much of their negotiating power).

Things were good until the global recession hit.

Workforce reductions in Japan began once employment contracts expired. Temporary personnel agencies had way too many unemployed people on their books and not enough job vacancies to fill. (Most of these temp agencies filed for bankruptcy and are no longer in business).

Temporary employees have no union affiliations or union support, which explains the lack of organized labor disputes in Japan amidst wholesale job eliminations. The unemployment rate in Japan is currently at historical levels, and homelessness is also on the rise.

Japanese politicians are publicly voicing their concerns, but solutions to address unemployment and the growing homeless problem have not surfaced.

Meanwhile, China’s increase in unemployment has also grown considerably over the last three quarters as job losses continue to mount. From my perspective, no reports about labor disputes in China have been communicated; unfortunately, I do not have enough information to comment on China’s current employment crisis.

In my opinion, the labor situation in China is very different from Japan because of the socialist system. The ruling Communist party in China will steer the ship instead of labor unions.

Read about China’s growing labor unions.

Source: EPT Newsletter, VentureOutsource.com, July 2009

 

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