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Management Report

Management reports, briefs issued by Samsung Economic Research Institute

Six Principles for Stable Industrial Relations

Six Principles for Stable Industrial Relations

TAE Won-You

May 1, 2006

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In advanced industrial countries, the trade union power has been waning in recent years. The rate of union membership - the so-called union density - is declining as the share of blue-collar workers in the manufacturing industries shrinks, while the share of white-collar workers in the service sector expands. A rapid development of information-technology sector as well as the changing perception of unionism by workers themselves have spurred the trend of falling union membership. All this has set a new low in the number of industrial disputes - big labor disputes have fallen to 14 cases in the US in 2003. (Labor disputes here refer to those involving large workplaces with over 1,000 workers)

Against this backdrop, the union movement is facing serious challenges. In the context of growing demand for internal reform and changes in activities, some unions are splitting up while others are merging.

In the US, Teamsters (truckers' union), Service Employees International Union (SEIU), United Food and Commercial Workers International Union (UFCW) have split from the American Federation of Labor-Congress of Industrial Organizations (AFL-CIO), the largest union federation formed in 1955.

In Europe, a variety of unions have sought to integrate into a more effective and larger trade union organization in order to shore up their influence and tide over their financial difficulties. Amicus, the largest private sector union in Britain, was joined by Graphical, Paper and Media Union and UK's finance sector union UNIFI in 2004, eventually growing into a 1.2 million-strong membership.

Both the labor and management understand they need to cooperate for the sake of corporate competitiveness. Japanese unions have long demanded the so-called "base-up" raise (across-the-board wage increases). But today, they more or less agree they will not stick to the wage scheme. Their base wages will reverse to an increase in 2006 in the wake of economic recovery and better corporate performance, but now each employee at the same workplace receives different wage increase depending on his or her performance.

In Europe, an increasing number of companies choose independent negotiation rather than industry-wide collective bargaining with large-scale union federations. The focus of negotiation is on maximizing efficiency and labor flexibility. France kicked off a huge amount of controversy by proposing to legislate the New Recruitment Contract (Contrat Nouvelle Embauche or CNE) in order to help small businesses with less than 20 workers to lay off newly employed workers without giving reasons.

Germany has allowed companies to extend worker probation or Probezeit (This German term refers to training period during which employers can terminate contract without having to offer an explanation) from six months to 24 months. In the US, a series of membership withdrawals from AFL-CIO has weakened the militant union movement. Not only employers but also the government and unions now understand that their cooperation is essential for enhancing competitiveness.

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