MGMT375 Chapter 14 Labor Relations Process Process Book Discussion

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For this week’s discussion, review the 14 chapters in the textbook. Reflect on how confident you are in your understanding of those topics and complete an essay on each of the four textbook parts to demonstrate your understanding.

Then reflect on the course (LABOR RELATIONS) as a whole. What area(s) do you want to learn more about? What area(s) do you feel you are lacking or will need to know more about as you continue to pursue your future scholastic career?

Book: The Labor Relations Process

4 Textbook Parts:

Part 1: Recognizing Rights and Responsibilities of Unions and Management

Part 2: The Bargaining Process and Outcomes

Part 3: Administering the Labor Agreement

Part 4: Applying the Labor Relations Process to Different Labor Relations Systems

The responses are to be in essay form using the MLA writing format. These assignment papers should be double spaced, 12 point font, with one inch margins, and they should be approximately 2-3 pages long. Grammar, spelling, structure, and references should be in alignment with upper level class standards.

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CHAPTER 14 Labor Relations in Multinational Corporations and in Other Countries IN PREPARING FOR your first job after graduation, you need to go shopping and buy some clothes to wear to work. Nearly all of your clothes now are fine for attending class, but they don’t look very professional. Since you have accumulated a fairly sizable student loan debt, you have to be careful with your spending and you are looking very hard for bargains, but all of the best prices for clothes are those which are manufactured in places like China, Thailand, Vietnam, and Guatemala. In your studies, you have learned about the low wages, long hours, and unfavorable working conditions for workers in those countries and don’t want to support these types of conditions of employment. You also want to support American workers and manufacturers by keeping your money in America, but you will end up paying more for your clothes. Questions 1. What should you do? 2. When you buy these imported goods, are you actually supporting the foreign workers or the companies? 3. Are you supporting the low wages, long hours, and unfavorable working conditions in those countries? With the development of a global economy, movement in Eastern Europe and China toward greater political democracy and market-oriented economies, and increased trade between countries, the study of labor relations within multinational corporations (MNCs) and foreign countries becomes imperative to today’s student. This chapter begins with a general discussion of the operations of MNCs in a global economy and unions’ approaches and problems in dealing with MNCs. Concerns about globalization and free trade are addressed and principal characteristics of the labor relations systems of the major trading partners of the United States are also presented. Multinational Corporations and Transnational Collective Bargaining The growing interdependency among nations and the activities of MNCs have become important facets of economic life. Although MNCs have existed for more than 150 years, their numbers and share of world output have expanded their importance and visibility in recent years. MNCs in the United States are enormous in size. Worldwide employment by U.S. MNCs is 34.5 million workers. Foreign-owned MNCs employ 5.6 million workers in the United States. The annual sales revenue of Wal-Mart in 2014 ($476.2 billion) was greater than the gross national product (GNP) of each of the following countries: Austria, Iran, Israel, and South Africa. The annual revenues of ExxonMobil ($390.25 billion) in 2014 were greater than the GNP of Greece, Chile, Finland, Ireland, Portugal, and New Zealand. In fact, of the 30 largest MNCs in the world, 13 have their home offices located in the United States, and nine of these are heavily unionized (AT&T, Chevron, Phillips 66, ExxonMobil, Ford, General Electric, McKesson, General Motors, and Valero).1 Total employment among U.S. parent companies abroad was 22.9 million; employment among U.S. affiliates of foreign companies was 5.6 million. Spending by U.S. firms or U.S. direct investments abroad in 2012 was $388 billion. The cumulative amount of book value is $4.4 trillion. Europe accounts for over half of all U.S. direct investments.2 Investments in the Netherlands (14.5 percent of the total) and the United Kingdom (13 percent) followed by Canada (7.8 percent) and Luxemburg (8.6 percent).3 Value added by majority-owned affiliates of foreign companies totaled $736.4 billion in 2011 and these MNCs employed 5.6 million. The countries are Canada, France, Germany, the Netherlands, Switzerland, the United Kingdom, and Japan accounted for three-fourths of the total. The United Kingdom (18.9 percent) was the largest investing country, followed by Germany (12.1 percent) and Japan (9.4 percent).4 Exchange rates have a great deal to do with the trade between countries and production within a specific country. The importance of fluctuating exchange rates is reflected in Exhibit 14.1, which shows the indexes of hourly compensation costs for production workers in manufacturing for 29 countries during periods from 1980 to 2012. In 2012, hourly compensation costs for manufacturing production workers in Belgium, Germany, Denmark, Norway, and Switzerland were 28 to 78 percent higher than those in the United States. Compensation costs were 88 percent of the U.S. figure in the United Kingdom, 134 percent in Australia, 75 percent in Spain, 42 percent in Korea, 27 percent in Taiwan, and 23 percent in Mexico. In 1980 Japan’s hourly compensation cost (hourly pay plus benefits) was 57 percent of that of the United States; however, it increased to 87 percent by 1990 and then to 99 percent by 2012. In Germany in 1980, the cost was 25 percent higher than the United States; but by 1990 it had risen to 44 percent higher than U.S. compensation costs and then fell to 28 percent higher by 2012.5 Operating in different countries creates opportunities for MNCs to bypass protective tariffs by making parts in one country and assembling the final product in another. For example, an automaker may make 90 percent of its parts in Japan, do the assembly work in the United States, and ship products from the United States as U.S. exports. With Japanese automakers locating in the United States, such issues provide challenges in trade between countries.6 MNCs in the United States prefer to locate production facilities in foreign countries that have a decentralized bargaining structure, like that in the United States. Labor relations features like union density and strike intensity do not appear to be nearly as important. The most important reason behind decisions related to locating production facilities is the national resources of the particular country.7 MNCs have the capacity to force concessions from unions by threatening to shift production to another country and essentially pit one group of employees against another. One automaker that operated a plant in Ohio sought to introduce new technology; the union resisted because the membership would lose jobs. The company then took a number of the union leaders to a new plant in Juarez, Mexico—just across the border from El Paso—showed them the technologies used in the plant, and said: “It is your choice. Either you concede what we are asking in terms of bargaining or the work that you do in Ohio will be transferred to Juarez. If you think this is an idle threat, this is the plant. This is the production process.”8 MNCs do not deploy consistent employee relations policies in the various countries in which they operate. In 2011, Wal-Mart purchased 51 percent of the South African retail chain store Massmart. Massmart operates about 290 stores in 14 African countries. Upon announcement, South African labor groups claimed that Wal-Mart was anti-union in the United States. In response, Wal-Mart said it will respect present labor contracts and is committed to working with South African unions.9 The American Rights at Work Education Fund has alleged that T-Mobile USA*and its parent company German telecommunications giant Deutsche Telekom operate under two standards: (1) respect workers’ rights in Germany and (2) interfere with employees’ rights to organize and bargain in the United States.10 Some MNCs pursue policies of “divide and rule.” For example, they inform workers in one country that they cannot have the improved employment conditions they seek because they are less productive than its employees in another country. Other MNCs embrace the accepted employee relations philosophy and approach of their own country but apply totally opposite policies in another country. Unions have responded by exchanging information about employment practices in their country with employees of the same MNCs that operate in other countries. International links between trade unions are not new. One international organization, the Global Union Federation (previously known as the International Trade Secretariats), has operated for almost 100 years. There are currently 11 autonomous Global Union Federations of which Union Network International with 140 million members in 900 unions on every continent is the largest. Other Global Union Federations include the Education International, the International Transport Workers Federation, the Public Services International, and the International Metal Workers Federation. Currently, none of the federations have authority to enforce their instructions against affiliated unions; however, they can share information in pursuit of common objectives.11 Exhibit 14.1 Indexes of Hourly Compensation Costs for Production Workers in Manufacturing for 31 Countries or Areas, 1980–2012 Organized labor in the United States has been critical of the effect of U.S. MNCs on employment and labor relations for the following reasons: Their foreign investments deplete capital resources needed for domestic investment and undermine economic growth and new job creation at home. ▪ They export U.S. technology to exploit low-cost foreign labor, depriving American employees of their rightful share of the rewards of technology. ▪ They substitute imports from their affiliates in low-wage countries for American-made goods, thereby undermining the American wage standard, depressing economic conditions at home, and decreasing employment and payrolls. ▪ They displace U.S. exports with foreign-produced goods from their foreign affiliates, thereby adversely affecting the U.S. trade balance.12 Foreign MNCs have grown rapidly and installed facilities in the United States. Unions have often viewed these MNCs with suspicion, but the management and employment practices tend to be more similar to those of home-based firms. The labor relations activities and decisions tend to be locally determined and highly decentralized. American unions have found that organizing foreign-based MNCs has been just as difficult as organizing U.S.-based companies. In addition, the management of the various plants of foreign-based MNCs uses essentially the same tactics to keep unions out of U.S. plants. These tactics include use of lawyers and management consultants, positive human resources (HR) management, consultation with employees on decisions, delays allowed under National Labor Relations Board (NLRB) procedures, and local politicians making ▪ statements to support the company. Unions use the same organizing tactics, with the addition of negative publicity directed toward the foreign owners and appeals to American patriotism. With these counteractive tactics, the results of representation elections have not been significantly different from other NLRB elections—approximately 50 percent wins for the unions. Whenever American unions have contact with foreign-based unions, these contacts are generally of the information-sharing nature.13 Unions in particular have difficulty dealing with MNCs for the following reasons: 1. If a strike occurs, the union cannot shut down the flow of financial resources to the struck plant. Operations of the MNCs in other countries continue to function and generate profits, which may relieve management of much pressure in negotiations and reduce the costs of the strike. 2. MNCs have an internal source of products from facilities in several countries and use this position as leverage to bargain down wages, benefits, and other conditions of employment (called whipsawing the union). If a strike occurs at one facility, the MNCs increase production at other units, destroying the potency of the strike. Many specific examples of whipsawing can be identified. General Motors (GM) was able to expand the work week from 37.5 hours to 40 hours by convincing the union in Germany that it had to increase hours to retain competitiveness. GM has considered increasing its auto production in Brazil and Mexico as part of its wage concession demands, and when Canadian unions resisted wage concessions, GM considered shifting production back to the United States. 3. MNCs with complex tiers of management do not delegate authority to local management to make labor relations decisions, thereby complicating the negotiation process because unions do not know who is in charge.14 Empirical evidence indicates that most unions have not encountered different behavior between domestic and foreign-owned MNCs, but there seems to be a wider variation in behavior among the MNCs than among single-nation corporations in terms of grievance settlement before arbitration, amount of local autonomy in negotiations, and difficulty in negotiating the first agreement.15 However, because budget and investment decisions are made at the home office, local negotiations are certainly affected. 4. MNCs shift profits to different facilities, manipulate prices on internal transactions, and change marketing emphasis, confusing the unions in negotiations when they seek the facts necessary to address and resolve collective bargaining issues. Further, different national laws have different financial disclosure requirements. Because U.S. unions are accustomed to bargaining on ability to pay and are entitled to wage and financial information that allows them to conduct informed negotiations, they are frustrated when MNCs furnish only information that is required by law. Information about MNCs locating plants in foreign countries and operating data on these plants may be refused by the MNCs with the approval of the NLRB.16 Union Approaches to Multinational Bargaining and Employer Reactions A primary motivator for American and foreign-based unions to seek transnational bargaining and to standardize labor conditions among the MNCs is to lessen competition from lower wage areas and to protect their own standards—in other words, to take wages out of competition. To combat the power of the MNCs and to seek objectives that are mutually beneficial to the unions and their members, union leaders have tried two main approaches: (1) collective bargaining and (2) legislative enactment. Through collective bargaining, unions either have attempted to bargain directly with the MNCs or coordinate their bargaining activities with unions in other countries by sharing information and supporting one another’s activities. Various groups, such as the International Labor Organization (ILO) and the Organization for Economic Cooperation and Development (OECD) have established codes of conduct for MNCs (see the Labor Relations in Action feature on page 707). However, labor standards remain predominately under national laws. To be effective, these labor standards need to be incorporated into national laws. The fact remains that countries are empowered to find violations of labor laws only within their own jurisdiction and consequently have no influence on the decisions made by MNCs when they operate in another country. Without legislation, compliance often depends on public campaigns against the MNCs for alleged violations of human and labor rights at their overseas subsidiaries. One successful campaign caused Nike to improve the working conditions at their foreign subsidiaries.17 Recognizing that colleges and universities spend billions a year on logo clothing, student groups, consumer groups, and unions have pressured universities to require that their brand name products only be produced and sold by firms that adhere to the ILO conventions. In the past few years, the number of global agreements (International Framework Agreements (IFA)) signed by MNCs has increased. These agreements between MNCs and international trade union organizations commit the companies to observing standards and principles throughout their worldwide operations (codes of conduct). These principles generally relate to various aspects of worker rights, employment, and other areas of corporate social responsibility. By 2015, there were 113 global agreements in place. Although the number is small, the companies involved include some of the world’s largest, most high-profile and “internationalized” MNCs. For example, Fiat Chrysler employs 370,000 worldwide; Volkswagen employs 320,000; French retailer Carrefour employs 300,000; and Danish business services organization ISS employs 250,000. In total, the 30 companies including General Motors Europe that have signed the global agreements employ around 2.5 million people.18 Other IFAs include Ford, Siemens, BMW, Volkswagen, Electrolux, Club Med, Bosch, and IKEA.19 LABOR RELATIONS IN ACTION Core Labor Standards The core labor standards are fundamental principles that protect basic human rights in the workforce. The international community, largely through the International Labor Organization (ILO)—a United Nations agency bringing together representatives of governments, employers, and workers—has developed a consensus with respect to the definition of the core labor standards. As stated in the ILO Declaration on Fundamental Principles and Rights at Work (1998) the core labor standards aim to: (1 ) eliminate all forms of forced or compulsory labor, (2) effectively abolish child labor, (3) eliminate discrimination in respect of employment and occupation, and (4) ensure the freedom of association and the right to collective bargaining. Specific definitions of these principles are spelled out in eight ILO core labor standard conventions, also known as the fundamental human rights conventions. These are: ▪ ▪ ▪ ▪ Elimination of forced and compulsory labor (Conventions 29 and 105). Where forced labor is “all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily.” Abolition of child labor (Conventions 138 and 182). Aside from violating children’s basic human rights, sending children to work rather than to school perpetuates poverty and compromises economic growth. Each signatory, regardless of level of economic development, agrees to design and implement a course of action, effectively monitor implementation and apply appropriate sanctions. Elimination of discrimination in respect of employment and occupation(Conventions 100 and 111) is central to achieving greater social justice while also promoting development through a more efficient allocation of resources. Discrimination includes “any distinction, exclusion or preference” made “on the basis of race, colour, sex, religion, political opinion, national extraction or social origin, which has the effect of nullifying or impairing equality of opportunity or treatment in employment or occupation…” Freedom of association and collective bargaining (Conventions 87 and 98). The right for workers and employers to freely create and participate in organizations to promote and protect their interests is a fundamental principle behind the ILO’s work. Signatories must give workers and employees the right freely to establish and join organizations of their choice, without any type of prior authorization. Signatories further agree to establish mechanisms to ensure the right to organize and to encourage the practice of negotiating between employers and workers’ organizations. SOURCE: Unions, as well as some governments, have asserted that collective bargaining on a national basis has considerable limitations in facing MNCs. This assertion is based on the belief that MNCs have adopted global strategies, so a union acting alone within one nation cannot effectively respond. Likewise, some governments are uneasy about the fact that MNCs cannot easily be made accountable to any one country’s economic and social policies. Moreover, there has been persistent fear that if a union or government in one country acted without the support of unions or governments in other countries, it would risk transfer of operations by the MNC to a more hospitable nation.20 The creation of the European Union has led to a resurgence of interests in prospects of transnational collective bargaining. However, initiatives have primarily taken the form of joint consultation and adherence to labor rights principles at a transnational level rather than true collective bargaining. The aim of European trade unions is to achieve European-level collective bargaining. Despite the long-recognized hurdles, there have been positive steps toward this end. First, the European Trade Union Confederation (ETUC) has become an effective voice for trade unions in the political arena and has the potential to become the spokesperson for European trade unions in collective bargaining. Second, new bilateral agreements between trade unions in two countries grant reciprocal memberships to members in both unions and provide for cooperation between these unions in exchanging information, developing closer coordination with respect to European works councils, (labor-management forums where MNCs operating in multiple European countries share information with their unions) harmonization of pay demands, and training. Third, cross-national coordination of collective bargaining strategies is taking place. Trade unions are agreeing on a common bargaining strategy and exchange of information. Trade unions in Germany, Netherlands, Belgium, and Luxembourg agreed to make pay demands reflect inflation and productivity gains and agreed to bargain on reducing the hours of work. The ETUC has established bargaining committees comprised of officials from European-level federations who are responsible for collective bargaining. The intent is to achieve some consistency in collective bargaining across national boundaries.21 One of the promising developments for transnational collective bargaining is occurring in Europe under the European Company Statute under the European Union (EU). Under this legislation, companies that operate in more than one EU member country can work under the umbrella of a single legal framework, thereby reducing the internal costs of operating in several countries. Not only is this an attempt to develop an appropriate corporate governance but to develop well-developed and well-functioning industrial relations, which gives workers a significant influence over company decisions.22 Most MNCs generally consider transnational labor relations a distant prospect and one that will not be lightly entertained by management. Part of management’s opposition stems from the unions’ potential for shutting down production internationally. Furthermore, transnational bargaining would introduce a tri-level structure of bargaining that would include multinational negotiations, followed by national, industry-wide bargaining (common in some European countries), and then local negotiations. This additional level would increase the complexity of negotiations, as well as companies’ vulnerability to strikes at the international level without a comparable reduction in vulnerability at the national and local levels. In some cases, countries themselves are now encouraging investments by MNCs by using taxation policies, building limitations, requirements for local partners, the possibility of nationalization and expropriation of facilities, and the risks of political uncertainties to deter MNC investments. Less-developed countries seek additional investments by MNCs for economic stimulus to the countries’ development, income, and other employment programs. MNCs find these countries attractive because of the low-wage structure, tax incentives, little regulation and political guarantees. Such advantages are particularly appealing to the MNC that must operate in a very competitive product market. However, when unions press via transnational bargaining for improved wages, benefits, and working conditions—all socially desirable goals for the populace— they become a force running counter to the short-run national economic goals of the country. The economic boost MNCs can give a developing nation will not occur if firms fail to locate there. MNCs might well decide to avoid countries with the high wages and benefits that transnational bargaining has instituted.23 Obstacles for Unions in Bargaining with Multinational Corporations American and foreign unions face formidable tasks in their efforts to arrange transnational bargaining because they must be successful in mediating and balancing the conflicting interests of different groups encompassed by the MNCs’ employees, labor leaders, companies, and governments. In fact, unions themselves provide some of the more important obstacles to transnational bargaining; however, these obstacles are not insurmountable. Only when these obstacles are overcome can attention be turned to external factors. Differences in Labor Relations Laws Legal systems for labor relations vary widely among countries. There are different methods for determining union representation, different union jurisdictions and structure, and differences in the scope of bargaining.24 Absence of a Central Authority Unions lack strong, centralized decision-making authority on transnational affairs, and most national union leaders are reluctant to allow a transnational body to make decisions that affect their unions and members. Cultural Differences Cultures differ in numerous ways, including individualism-collectivism, common responses to powel, and indulgence-restraint; unions, like other institutions, reflect scuch cultural tendencies. Among complicating factors are differences in ideological and religious beliefs several, for example, free trade unions and socialist- or communist-linked unions. Such differences have made joint undertakings between unions in the free world and elsewhere almost impossible. Lack of Coordination of Activities Unions have not been very successful in coordinating their transnational bargaining, boycott, and strike activities. An excellent example occurred in the last major rubber strike of Goodyear, Uniroyal, B. F. Goodrich, and Firestone. Each had extensive overseas operations. Support for the U.S. strikers came from the International Federation of Chemical, Energy, Mining, and General Workers Unions (ICEM), which has affiliates in Europe, North America, and Japan. The ICEM Rubber Division approved a ban on overtime by employees of nonstruck companies and a system of monitoring and preventing shipments to the United States. At the end of the strike—the longest rubber strike in U.S. history—the ICEM claimed that its efforts had had a significant effect on the bargaining outcome; however, the facts seemed to contradict this claim. Researchers could not identify a single instance of interference with tire shipments from Europe, Japan, or North America during the U.S. rubber workers’ strike. In fact, they found that imports jumped substantially in anticipation of the strike and never fell below the prestrike level. Furthermore, even Canadian imports were significantly increased during the strike, reversing what had occurred several years before, when U.S. rubber workers refused to support a strike by Canadian rubber workers.25 Differing National Priorities The economic, social, legal, and political differences among countries serve as yet another obstacle to transnational bargaining. Few, if any, countries would subvert their national needs to the interest of developing an international system of labor relations. Employer Resistance Employer resistance is less obvious than other obstacles at this time, mostly because of the inability of the unions to overcome the other hurdles that they face. Once the initial hurdles are overcome, employers’ opinions and attitudes concerning transnational collective bargaining will no doubt emerge, but in the meantime, MNCs may sit idly by until the unions are able to eliminate the initial hurdles. Effects of Unions on Multinational Corporations Research has indicated that unions have had little direct effect on investment and production allocation policies of MNCs in European countries. However, a recent study reported evidence that industrial relations systems affected the foreign direct investments by private companies in New Zealand and Great Britain. When the industrial relations systems of those two countries became less restrictive, the foreign direct investments were greater than in neighboring countries. The MNCs tend to be somewhat sensitive to the industrial relations climate and prefer to invest where management has a greater amount of leeway in allocating labor and reducing employee voice at work.26 MNCs rarely have been able to afford to switch production to other countries as a bargaining or union intimidation tactic because of the costs involved. MNCs no doubt would shift production to another country in cases where a labor dispute stops production and the move is economically and practically possible. However, such decisions are considerably limited because companies must have the necessary excess production capacity available, and management must expect the labor dispute to last sufficiently long enough to justify a shift in production before it would be feasible. Overall, little evidence exists of substantial negative effects of MNCs on labor relations in countries in which they operate. MNCs usually offer prevailing or superior wage standards and provide comparable working conditions for several reasons. The strengths of unions in the respective countries, the highly integrated and institutionalized nature of labor relations systems, and the socioeconomic and political climates of the countries have clearly constrained the potential for direct adverse effect.27 Conclusions and Predictions on Transnational Bargaining Systematic investigations of transnational collective bargaining reveal that it does not yet exist broadly in any realistic form and is not likely to occur in the immediate future. MNCs are generally opposed to it, and trade unions are not of a single mind on its desirability. Although there have been several cases of information exchange between multinational unions and a few instances of union-management agreements, only in the unique U.S.-Canadian and European Union environments do many transnational activities occur. There has been no identifiable trend toward transnational collective bargaining by companies and unions in the United States, Europe, or Japan. Some believe that no effective transnational collective bargaining will occur in the near future. However, others believe that such collective bargaining is inevitable. If it occurs, it will probably develop first in the European Union, North America, or Central America and deal initially with general topics such as employment protection, investment policies, and codes of fair practices, before broadening into other bargaining topics. Globalization and Concerns about Free Trade In 1947, the General Agreement on Tariffs and Trade (GATT), a multilateral agreement which regulates international trade, was signed by 23 countries (now 123). Its purpose was to reduce tariffs and trade barriers on a reciprocal and mutually advantageous basis. The net effect of free trade—globalization—has been gains to consumers in lower prices, greater efficiency in the overall economy, and reduced poverty in developing nations. However, the distribution of the net benefits of free trade and globalization has been uneven. American jobs have been lost in major industries, such as the automobile, steel, textile, footwear, and consumer electronics, whereas jobs in the aircraft, computers, entertainment, and finance industries have increased. There is concern in the United States, the European Union, and Australia that Ireland, South Africa, Russia, and India (where there are two million college graduates per year and 80 percent of the college graduates in India speak English) may do for the service sector what China has already done for manufacturing. (Japan has similar concerns about northern China, where Japanese is spoken.) In the near future, competition will come from Malaysia and the Philippines, where there are 300,000 college graduates each year who speak English. Also, any product can be manufactured in China less expensively than in the richer, high-wage countries. Now, it is just a matter of time before any service that can be electronically transmitted will be produced in India more cheaply. Cheaper communications allow companies to move back-office tasks such as data entry, call centers, and payroll processing to poorer countries, such as India, which has three huge advantages for companies: a large pool of well-educated young workers, low wages, and the use of the English language.28 One of the free trade agreements signed by the United States with our major trading countries is the North American Free Trade Agreement (NAFTA). This agreement removed most barriers to trade and investments between these three countries. Many of the tariffs were eliminated immediately, and the others were phased out. Under NAFTA, three countries became a single, giant, integrated market of over 450 million people with a combined GNP of $19.2 trillion. The United States has signed other free trade agreements, with countries such as Australia, Chile, South Korea, and the Dominican Republic/Central America. These agreements are similar to NAFTA whereby tariffs on trade with the United States are eliminated. In addition, discussions began on a Free Trade Area of the Americas that would cover 34 North, Central, and South America countries, extend trade agreements similar to those under NAFTA, and cover a population of over 800 million.29 In 2015, Congress passed the Trans-Pacific Partnership that gives the U.S. president “fasttrack” authority over trade deal negotiations with 11 Pacific Rim countries that have a combined GNP of $28 trillion, about 40 percent of the world’s GNP. The promises of NAFTA included creation of new and better jobs, rising incomes, and economic growth acceleration to underdeveloped countries in Central America. Whereas there would be environmental challenges, extra resources would be made available to address those challenges. Economists have attempted to identify the effects of NAFTA on the economies of the United States, Canada, and Mexico. There has been expansion in trade and foreign investment; in fact, U.S. exports to and imports from Canada and Mexico now account for about one-third of U.S. trade (up from one-fourth in 1990). However, there has been a contraction in manufacturing employment in the United States and economic stagnation in Mexico. In fact, Mexico wages remain low relative to U.S. manufacturing wages (see Exhibit 14.1). In Mexico, productivity rates have improved; however, real wages have risen only slightly. In several areas of the agricultural sector, there has been a near disaster for most farmers, who have to compete with America’s government-subsidized products, such as corn. Up to 90 percent of the heads of families in some communities now spend at least six months per year working in the United States and Canada where they earn in four months the amount they would earn in Mexico in an entire year. Mexican producers of horticultural products, fresh vegetables, and fresh fruits have nearly doubled their exports to the United States. Sadly, successive Mexican governments have failed to deal with structural problems of corruption, poor education, red tape, crumbling infrastructure, lack of credit, and an inadequate tax base.30 Since the 1990s, over 600,000 Mexican farm jobs have been lost due to lower import barriers for beans, apples, grapes, and other crops. In 2010, tariffs on imported corn were eliminated, and loss of jobs increased. These job losses in agriculture have fueled migration into urban areas, where 80 percent of the population now resides. Migration to the cities is much faster than the rate of new job creation. Investments encouraged by NAFTA have produced 300,000 jobs, mostly in the northern cities. However, since a million people enter the labor force each year in Mexico, there is an annual deficit of 700,000 jobs. As a result, 40 percent of the labor force—about 12 million workers—do not have stable employment. Most of them work in the informal sector as street vendors, maids, and short-term workers—jobs that provide no social security protections. As a result, the loss of rural jobs in Mexico has swelled the ranks of undocumented Mexican workers in the United States. While the value of exports was ten times greater than in 1990, the total compensation of these workers in Mexico is 23 percent of what similar workers in the United States earn. Factories continue to use outdated equipment and inefficient work systems, and technological improvements have been concentrated in the export-oriented plants owned by global corporations, particularly in the electronics and automobile industries. Managers realize that they must adapt to new work arrangements and improve the skills of their employees; however, only a few companies, usually foreign-owned, have introduced quality control methods and workplace systems that promote efficiency or provide formal training for employees. Until changes are implemented, Mexican workers will see few gains from free trade.31 Along the border with the United States, the number of maquiladoras plants (assembly plants for export using imported parts and components) rose to 3,655 during the first seven years after NAFTA was enacted in 1993. However since 2000, more than 850 have shut down, and employment is down more than 20 percent from its peak of 1.3 million. Companies are being courted by China, Malaysia, India, and Southeast Asian countries with tax incentives, low wages, worker training, and access to the latest technology.32 There have been a loss of manufacturing jobs from the United States and Canada to Mexico, but most of these jobs were low-skilled manufacturing jobs. There has also been increased competition from low-wage countries, which has adversely affected Mexico. The end result is that NAFTA did not achieve as much as the politicians promised, nor as much negative effect as the critics claimed.33 North American Agreement on Labor Cooperation (NAALC) The NAFTA provided several side agreements that were designed to protect employees and the environment. The North American Agreement on Labor Cooperation (NAALC), one of the two side agreements, commits the United States, Canada, and Mexico to improve working conditions and living standards as NAFTA continues to promote increased trade. Its objectives are to be furthered by intergovernmental cooperation and by a procedure established to resolve complaints based on a monitoring system and a series of steps to resolve unsettled disputes (up to arbitration). In the last ten years, eight complaints have been filed against Mexico for its failure to enforce its labor laws. One is currently under review and these others were denied for review. Complaints included infringements on the right to freedom of association, charges of employment discrimination, and occupational health and safety violations.34 Thus far, the NAALC has failed because the three countries disagree on its aims. Canada and Mexico consider the NAALC a way to achieve greater intergovernmental cooperation; the United States focuses on the dispute resolution mechanisms. As a result, limited success has been achieved on either front because the parties seldom engage in active cooperation and are reluctant to use the conflict-resolution mechanisms.35 Perhaps another reason that the NAALC has not been successful is that some lawmakers in these countries are concerned that these sorts of agreements violate their respective national sovereignties and allow unelected transnational organizations to fashion domestic labor regulations. Exhibit 14.2 Eleven Principles of the North American Agreement on Labor Cooperation 1. Freedom of association and protection of the right to organize 2. Right to bargain collectively 3. Right to strike 4. Prohibition of forced labor 5. Labor protection for children and young persons 6. Minimum employment standards, such as minimum wages and overtime pay 7. Elimination of employment discrimination 8. Equal pay for women and men 9. Prevention of occupational injuries and illnesses 10. Compensation in cases of occupational injuries and illnesses 11. Protection of migrant workers SOURCE: (December 15, 2003). The NAALC has also fallen far short of the expectations of Canadian and U.S. labor organizations. First, it does not offer remedies to workers whose legal rights have been violated. Second, it is procedurally difficult to sanction NAFTA governments that fail to enforce their own labor laws and violate the NAALC’s 11 labor principles (see Exhibit 14.2). Whereas arbitration offers sanctions, the procedures are cumbersome, and only occupational safety and health, child labor, and minimum wage issues may be arbitrated. Core labor rights of freedom of association, bargaining collectively, and striking are not subjects for arbitration. So far, no arbitration panel has been called into service. Although the NAALC has not met expectations, it has provided an important education and research role. Trade unions have publicized abuses for all to see and have brought together cross-border coalitions among unions that would have otherwise not been formed. Four complaints were brought to an equitable resolution after widespread negative publicity or threat of negative publicity. The conclusion of one study is: The labor law side agreement is withering as an effective labor law enforcement and MNC compliance strategy. To sustain as an institution designed in part to motivate labor law enforcement and business compliance with labor policy, the remedy and penalty aspects of the NAALC will need to be revisited. 36 Jon Hiatt, formerly with the AFL-CIO, concluded that the case history of NAALC has indicated that even “when workers win, they still lose.” He concluded that no workers have been reinstated in any NAALC cases, there have been no concrete remedies ordered, and no financial sanctions imposed. In fact, he concluded that corporate or government behavior has changed very little as a result of any cases brought under the NAALC. Hiatt recommends several specific actions: ▪ ▪ ▪ ▪ ▪ The NAALC, instead of being a side agreement, should be made a part of NAFTA, which does not address worker rights. All 11 principles of worker rights covered by NAALC (see Exhibit 14.2) should be subject to final and binding dispute resolution and to possible sanctions. The NAALC should address the need to raise a country’s labor standards where inadequate, not just the obligation to adhere to a country’s existing laws. The time frame for dispute resolution should be shortened. Where a dispute involves an allegation that a company has violated the law, that company should be required to participate in the hearing.37 Another assessment of the NAALC found five general trends. First, most of the alleged violations of the NAALC side agreements have involved lack of or improper enforcement of labor laws in Mexico. Second, labor unions and human rights groups in one of the NAFTA countries are more likely to file the complaint in their own country against another country. Third, most of the complaints allege violations of workers’ rights to organize labor unions in Mexico, where independent unions have tried to organize workers. Fourth, the submission process has resulted only in conferences, seminars, and public reports. While these are not effective remedies, employers’ desire to avoid public attention has facilitated resolution in those cases where the submissions were voluntarily withdrawn. Fifth, the dispute resolution procedure has provided a platform for those parties who want to raise concerns about the enforcement procedures in the NAFTA member countries.38 Unions in Other Countries With the growing interdependency among nations, major improvements in communication and travel between countries, and the increasing role of MNCs, learning more about labor relations systems in other countries in the world is imperative. Books have been written about many of the specific topics in this chapter, so no attempt is made to present detailed descriptions or analyses of labor relations systems in the countries mentioned. This section presents unique and interesting features of a variety of countries with the hope of encouraging readers to pursue more thorough investigation further. The chapter’s coverage ranges from the developing countries of Central and South America to the countries nearest our borders—Mexico and Canada—to the major trading partners of the United States, such as Australia, China, Japan, and the Western European countries. The extent of discussion of each country’s labor relations system is determined by its proximity to the United States; its trade, economic, and political relationships with the United States; and its uniqueness among the world’s labor relations systems. Many U.S. residents tend to view the rest of the world in terms of their own patterns of living. The fact is that virtually no country has a labor relations system like ours, and none are the same. One example of the differences between countries is the degree of employee protection against termination without cause. In the United States, only 20 percent of employees have such protection. In other words, the majority of American employees can be terminated from their employment without any justification unless termination is a violation of a contractual agreement, such as a collective bargaining agreement or a law, such as a discrimination law. As shown in Exhibit 14.3, 50 percent of Canadian employees are protected, and 90 percent of employees in Australia and the United Kingdom are protected. In Belgium, France, Germany, Italy, and Spain, 100 percent of employees are protected against termination without cause. As discussed in Chapter 12, there are basic principles for terminating employees for cause.39 Canada has several major departures from typical U.S. labor relations practices. Unions of Europe have much closer ties to political parties; Japanese unions are organized on the enterprise level; and Central American unions are split along ideological lines. By contrast, the U.S. labor relations system is based on majority rule, exclusive representation for bargaining agents, and political independence. Exhibit 14.4presents an overview of distinguishing features of foreign labor relations systems; the following discussion briefly explains these systems. Exhibit 14.3 Percentage of the Labor Force That Is Protected against Termination without Cause Another distinguishing feature between labor relations in the United States and that of other countries of the world is the percentage of employees who are union members. Exhibit 14.5 shows that the United States is listed among the least unionized countries, such as France and Spain. Denmark, Finland, and Sweden are among the most unionized countries, with more than 65 percent of the workforce being unionized.40 Canada The relationship between the United States and Canada is probably the closest and most extensive of any in the world. The staggering volume of trade is $1.8 billion a day in goods and services, about 300,000 U.S. and Canadian citizens cross the border every day, and 28,814 trucks cross daily. Since the North America Free Trade Agreement, trade has increased over 270 percent.41 Canada’s labor relations system is affected by a number of variables: foreign influences, climate, labor relations laws within provinces, natural resources, and two major linguistic and cultural groups. Its economy is subject to cyclical fluctuations resulting from harsh winters, seasonality of its industries, and foreign influences (mostly the United States). In addition, Canada’s geographical spread, labor laws within the provinces, and regional concentration of resources and production have led to decentralized and fragmented collective bargaining. The penetration of U.S. corporations into Canada have had a significant effect on Canadian labor relations because many major corporate decisions still are made in the United States.42 Of the four largest labor unions in Canada, three are in the public sector. Half of the largest 16 unions have their headquarters in the United States. The Canadian Autoworkers and the Canadian Paperworkers are two of the largest unions and were formerly affiliated with U.S.-based unions. Exhibit 14.4 Overview of Distinguishing Features of U.S. and Foreign Labor Relations Systems United States Exclusive bargaining representation Majority rule Political independence Canada Influence by unions and companies from United States Two major linguistic and cultural groups Decentralized and fragmented collective bargaining Legal influence within provinces Central and South America Wide variation in the degree of sophistication in labor relations systems Close connection between trade unions and political parties Voluminous labor codes and government regulations that cover wages and terms of employment Negotiations predominantly at plant level only Western Europe Exclusive bargaining representation nonexistent Much negotiation between employer association and union confederation with individual bargaining under the resulting agreement Many fringe benefits established by law Worker participation mandated in many countries Japan Labor-management consultation/teamwork Lifetime employment in large firms Enterprise unions Wage system with much weight on seniority Higher status of human resource department Australia Decentralized bargaining Nonunion bargaining Unfair dismissal law Eastern Europe Little collective bargaining No labor agreements Although the public-sector unions continue to represent 71 percent of public employees, private-sector unions have begun to recruit members outside their traditional jurisdictions to offset their decline in membership. The Steelworkers now represent many hotel and restaurant employees, and the Canadian Autoworkers represent fishermen on the East Coast of Canada. In addition, some significant mergers have taken place, such as the Canadian Retail, Wholesale Union (formerly part of a U.S. union) with the Canadian Autoworkers.43 In 1956, union membership in Canada and the United States was about one-third of the labor force. Union membership in Canada has remained at about the same strength, whereas the United States has faced serious membership erosion. The union density of 27.2 percent is about two and one-half times the union membership percentage in the United States. The differences between the membership success of Canadian unions and U.S. unions can be attributed to several interrelated factors: favorable Canadian labor laws and court decisions, more aggressive union organizing, less employer opposition, and supportive public policy. Favorable labor laws contribute to union organizing and success. Canadian legal restrictions on employer opposition to unions also contribute to a higher union density. The union certification procedures vary among the provinces in Canada. In Newfoundland, Nova Scotia, and Ontario, mandatory elections (“quick votes”) are held within 5 business days of the application date (“as soon as possible” in Alberta). In Manitoba and British Columbia, the card check procedure is required (since 2002 in British Columbia; since 2000 in Manitoba). Mandatory certification elections reduced the union certification success rates by about 9 percent. In British Columbia, when mandatory elections were in effect prior to 2002, the union certification success rate declined by 20 percent in the private sector, but there was no difference between mandatory elections and the card check procedure in the public sector.44 Three decisions of the Supreme Court of Canada reflect Canadian’s recognition of international standards in interpreting the freedom of association provisions in the Charter of Rights and Freedoms enshrined in the Canadian constitution. First, in 2007, the Supreme Court of Canada decided that collective bargaining was protected under the freedom of association provision of the Canadian Constitution’s Charter of Rights and Freedoms. Second, the high court held that the exclusion of agricultural workers from coverage under the Ontario Labor Relations Act contravened the constitutional guarantee of freedom of association. Third, the Court invalidated a law passed in British Columbia pertaining to health care, which would have overridden provisions in collective bargaining agreement concerning layoffs and bumping rights. The Court ruled that this law to eliminate important provisions in collective bargaining agreements without engaging in good faith bargaining and consultation interfered with freedom of association.45 Differences exist between the United States and Canada in their respective public sectors. All public employees in Canada are covered by collective bargaining laws that provide finality and strikes are permitted except for essential services employees who are primarily regulated by interest arbitration. With such favorable legislation, 71 percent of public-sector employees in Canada are union members, twice that of the United States. There was a significant difference in the provincial governments’ reaction to the budget shortfalls and recession in 2008 to 2010. Instead of blaming the public-sector employees and their unions and passing laws to limit collective bargaining rights, as in Wisconsin and Ohio, the parties were by and large able to negotiate wage restraints without modifying public-sector employee rights.46 In Canada, nonunion representation at the workplace is neither banned nor encouraged. As a result, a representative group of employees without any formal certification can legally negotiate with their nonunion employer over formal conditions of employment including wages and benefits. In the United States, a series of decision and interpretations Section 8(2) of the National Labor Relations Act by the NLRB has limited the scope of representation of nonunion employees. However, like in the United States, nonunion representation reduces the demand for unionization and serves as a substitution for union representation, a traditional union avoidance strategy used in the United States.47 In some provinces, there is arbitration available for the first contract. Analysis of the use of first contract arbitration across Canada reveals that there is no evidence that the parties have relied on arbitration to settle their differences. In fact, it appears that the presence of first contract arbitration provides an incentive for the parties to reach an agreement on their own without resorting to work stoppages or arbitration. Since first contract arbitration is limited to first contracts only, there is no possibility that the parties could become dependent on interest arbitration to resolve future disputes (no narcotic effect). The end result is that the concern that first contract arbitration would undermine the collective bargaining process has no support. Instead, first contract arbitration supports and encourages collective bargaining.48 Other factors that contribute to greater Canadian union density are: ▪ ▪ ▪ ▪ ▪ ▪ Canadian unions have exhibited greater activity in recruiting new members and have assigned a higher priority to organizing than in the United States. Some provinces have laws, granting greater job protection for striking workers; limiting the use of replacement workers during strikes and lockouts. Some Canadian labor boards in the provinces have greater remedial powers, for example, a board may certify the union without a vote or it might order a first collective bargaining agreement. Employer campaigning activities during union representation attempts are more restrictive, for example, more restrictions on the content of employer captive audience speeches. There is no such thing as a right-to-work law in Canada; in fact, 7 of 11 provinces in Canada have made the agency shop (see Chapter 4) the statutory minimum.49 The scope of bargaining is greater because the distinction between mandatory and voluntary subjects for collective bargaining has never been adopted in Canada. Therefore, all subjects except those that are illegal may be negotiated. With regard to labor/employment grievance arbitration, there are commonalities (arbitration proceedings, court deference to the arbitrator’s decision, arbitrators selected by the parties) with the manner in which arbitration is conducted in the United States and Canada; however, there are significant differences. 1. In the United States, grievance arbitration is considered a matter of private contract between the parties; in Canada, arbitration is considered as having both public and private elements. 2. In the United States, individuals other than the parties may attend the hearing only with permission of the parties; in Canada, the issue of whether the hearings are conducted publicly is decided by the arbitrators. 3. In the United States, the arbitrator’s decision will not be published without the consent of the parties; in Canada, arbitration decisions are required by law to be filed with the government, to be accessible to the public, and to be reported to law publishers. 4. In Canada, arbitrators have exclusive jurisdiction to decide matters relating to employmentrelated legislation such as discrimination issues; in the United States, employees who alleged legal violations, such as employment discrimination based on race, gender, age, or disability, still may proceed through the administrative and court system. 5. In Canada, arbitrators can consider and apply external statues in the deliberations; in the United States, arbitrators as a general rule do not consider external statutes unless there is a clear direction from the parties or the contract.50 In 1991 the Supreme Court of Canada rendered a ruling opposite to the Beck decision in the United States (see Chapter 4). Unions can use membership dues for activities not directly related to collective bargaining, including political contributions. If the decision had gone the other way, unions would have seen their political activities thwarted by lack of funds and a restriction on their support for the New Democratic Party (NDP).51 Mexico, Central America, and South America Collective bargaining in Central and South America is less extensive and sophisticated than corresponding activities in the United States; however, the number of labor agreements has been increasing. A higher percentage of employees are covered by labor agreements in Mexico, Venezuela, and Argentina than in the United States. The extent of development of collective bargaining may be illustrated in three categories: 1. The advanced group, as exemplified in parts of Mexico and Argentina. 2. A much larger middle group in which bargaining ranges from advanced collective bargaining with larger firms to very simple or no bargaining in smaller firms, as in Chile and Brazil. 3. A large third group in which collective bargaining is not widespread, as in Costa Rica, Ecuador, and Nicaragua. Labor unions in Central America are relatively weak, especially in the private sector. They usually do not represent workers in the informal labor market where most people work. Where they exist, the unions lobby the inspection agencies to focus on their own sectors rather than pressing for more aggressive enforcement overall. Political parties in Central and South America on the left of the political spectrum are more likely to introduce pro-labor legislation when they are in power to satisfy their constituents and left-oriented governments are more likely to increase enforcement of labor regulations.52 Mexico is the second largest trading partner of the United States and has the twelfth largest economy in the world. Seventy-nine percent of Mexico’s exports are shipped to the United States and 50 percent of its imports are from the United States. Of the total foreign investments in Mexico, about 50 percent is from the United States, whereas only 0.56 percent of the total foreign investments in the United States are from Mexico.53 In Mexico, trade unions remain extremely weak due to the complex legal and administrative controls that regulate wages, contract negotiations, strikes, and union recognition. The labor courts in Mexico have significant decision-making powers over union representation, registration of unions and the legality of strikes. Official unions support the government’s strategy of keeping wages low as a basis for its international comparative advantage. Thus, the institutional constraints prevent any significant power to extend workers and their unions.54 Mexico has paid a high price for its stability in terms of corruption and lack of democratic processes due to seven decades (ended in 2000) of one-party rule by the Institutional Revolutionary Party (PRI). However, Mexico is a model of stability when compared to many Latin American countries. Union membership in Mexico declined from over 30 percent in 1984 to 13.6 percent in 2012. However, because of the variety of unions in Mexico, sometimes it is difficult to determine whether a worker is really a union member. Confounding the determination of the number of union members is the presence of “company unions” (ghost unions) which negotiate protection contracts with employers, whereby the union collects dues from workers but protects the company from organizational campaigns by independent unions. By allowing the less intrusive ghost unions to organize, the company is not subject to organizing campaigns from legitimate unions. The Mexican laws allow ghost unions to be recognized almost immediately; independent unions may be required to wait up to 10 years. Most unions are in confederations that have traditionally been in alliance with the Institutional Revolutionary Party (PRI). The largest is the Confederation of Mexican Workers (CTM), which claims 5.5 million members. The Revolutionary Workers and Peasants Confederation claims between two and four million. Teachers are the most heavily unionized at 65 percent, and the dominant teachers union is the National Union of Education Workers, which is affiliated with the independent Democratic Federation of Unions of Public Servants.55 The traditional labor union central bodies have long sacrificed freedom of action to gain political influence and position. However, the importance of political influence to workers has declined as the economy has decentralized and privatized. Today, unions must obtain more for workers through enterprise collective bargaining and less through influence with the government. Faced with NAFTA and international competition, unions and employers are finding it increasingly necessary to work together to improve productivity, competitiveness, and quality if companies and jobs are to survive and profits and wages are to increase. Mexico has undergone profound changes over the last 40 years. It has changed from a closed, import-substitution economy to become part of the open market economy. It has joined the OECD and entered into the NAFTA. Mexico has experienced a dramatic political change from a system dominated by the Institutional Revolutionary Party (PRI) for more than 70 years with strong worker and peasant sectors and featuring leftist, nationalist, and often anti-American rhetoric, to a more multiparty, democratic system with a closer relationship with the United States. Of the 51 million in the economically active population, less than 50 percent are employed in the formal sector. These jobs are covered by social security and related programs funded through employer and smaller worker contributions (medical care, small pensions, IRA-like compulsory retirement savings plan, and a housing loan fund). The formal sector workers also receive profit sharing. Another 30 percent of the economically active population works in tiny enterprises in the semiformal sector, where few are covered by social security. The remaining are marginally underemployed or self-employed in the informal sector. Mexico has comprehensive, progressive labor laws; however, there are major enforcement deficiencies. Its constitution and laws provide extensive rights and protections for labor and favor union organization. Mexico has ratified 78 International Labor Organization (ILO) Conventions, and 68 are currently in force. The legal protections for union organization also can unintentionally protect and facilitate racketeering, sweetheart protection contracts, and undemocratic practices within unions. These practices have been fairly widespread, but not universal. The CTM has recognized the need to address corrupt practices and has agreed to promote changes that would lead to the elimination of protection contracts. Nevertheless, such contracts are with respected businesses, and more than 50 percent of all labor contracts contain sweetheart protection clauses.56 One of the most important developments in the last century has been the Mexican Supreme Court’s decision on May 11, 1999, which recognized the legitimacy of independent unions that were not affiliated with the CTM. This decision allows employee groups of 20 or more the right to form unions on their own. To obtain protection under the law and to conduct collective bargaining, the unions are required to register with the Secretary of Labor and Social Welfare. However, the government has been willing to deny some new union registrations, and this denial has become a weapon to be used to prevent the more activist independent unions from representing workers. In addition, labor laws in Mexico permit exclusion clauses, which allow for restrictions on hiring (essentially a closed shop [see Chapter 4] that requires potential employees to become members with CTM-affiliated unions before they can be employed).57 The Mexican Constitution and the Federal Labor Law guarantee the right to strike; however, a six to ten days’ notice is required, followed by government mediation. If a strike is ruled nonexistent or illicit, employees must remain at work, return to work within 24 hours, or face dismissal. If the strike is ruled legal, the company must shut down totally, management may not enter the premises until the strike is over and striker replacements may not be hired. In the administration of these laws, unions have accused government authorities of stretching the legal requirements to rule that strikes are nonexistent or illicit so that they can prevent potentially damaging strikes. Under Mexican law, closed shops are allowed in collective bargaining agreements, as are exclusion clauses, which allow union leaders to veto new hires and force the firing of anyone the union expels. Under Mexican law, several mandatory benefits and protections are provided. Work shifts are eight hours for the day shift, seven hours for the night shift, and seven and one-half hours for a mixed shift. The work week is 48 hours with a full day of rest. Workers are paid double for overtime and triple for more than nine hours. Overtime is voluntary and often refused. A Christmas bonus equal to at least two weeks’ wages must be paid to employees in December of each year. Mexican workers are guaranteed seven holidays per year and are paid double time for work on holidays. Employees are entitled to six working days of paid vacation after one year of service, with more days added as the years of service increase. Employees are entitled to a vacation bonus equal to 25 percent of the weekly salary. Employees are also entitled to severance pay when termination is without “just cause”; however, this money is usually paid any way rather than the employer trying to prove just cause to the labor board.58 The Conciliation and Arbitration (JCA) boards help workers and employers resolve labor disputes. If an employer violates a worker’s rights, the worker can file a claim with the local or federal JCA. Also, if the employer fails to comply with the collective bargaining agreement, the union can file a claim with the local JCA.59 Under Mexico’s constitution, workers are entitled to participate in the profits of the enterprise. Employees participate in the profits at a percentage rate fixed by the National Committee for Workers’ Profit-Sharing in Enterprises. This committee is required to consider the general condition of the Mexican economy, the promotion of industrial development, the right to obtain reasonable interest on capital, and the necessity of reinvestment of capital. Fifty percent of the profit shared is distributed equally among employees in accordance with the number of days worked during the year. The remaining 50 percent is distributed among eligible workers in proportion to the earnings for the year.60 The opening of the Mexican markets to NAFTA and international trade, the devaluation of the peso, plant closings, and corporate downsizing to become more competitive have created an economic challenge for the entire country. Free collective bargaining in the last few years has been limited voluntarily and replaced by annual national pacts negotiated by the government, the major trade unions, and employers with the major goal of controlling inflation. Many efforts have been made by employers, unions, and the government to create greater flexibility and labormanagement cooperation to improve productivity, quality, and employee remuneration.61 Since NAFTA was enacted, there have been numerous alliances and exchanges between Mexican, U.S., and Canadian unions. AFL-CIO officials have agreed to exchange visits of union officials and labor lawyers. The United Auto Workers and Canadian Auto Workers have conducted safety and health training in Mexico. The Steel-workers have provided financial assistance to Mexican unions to assist their organizing efforts. There have been worker-to-worker exchanges that help to erase stereotypes of both U.S. and Mexican workers by providing workers on both sides with opportunities to cross the borders and tour plants, attend union meetings, work on organizing drives, and walk picket lines. As an example, union organizers from Mexico went to Milwaukee to meet with Mexican workers to speak of their own experience in telling them that the U.S.-based United Electrical Workers was a democratic union, unlike some unions (ghost unions) in Mexico.62 Beginning in the later 1980s, most countries in Central and South America reformed their regulations of labor relations. In 1988, after two decades of military dictatorship, the Brazilian government reinstated collective labor rights and expanded unionization rights to public employees. Four countries—Chile, El Salvador, Nicaragua, and Panama—reduced the number of workers required to form a union. On average, 20 workers are needed to form a union in the region. Countries eased their strike regulations. The Dominican Republic, Nicaragua, and Peru now require a simple majority of workers in a work center to call a strike. Argentina and Peru gave unions the legal right to obtain financial information from the employer to facilitate collective bargaining. Guatemala simplified the procedures for forming unions and increased employer fines for violating labor laws. Although laws have been passed to enable union organizing, the number of union members has declined. As well, although requirements for calling strikes have eased, fewer strikes have occurred throughout Central and South America. In some countries, strikes are rare. For example, in Costa Rica, there have been only two legal strikes in the last 60 years. Another problem is the lack of adequate enforcement and the failure to fund the enforcement agencies. For example, in Bolivia, there are only 18 workplace inspectors in La Paz, a city with over one million people. In Brazil, three million worker complaints lingered in the labor courts in 2003, and some cases took five to ten years to resolve.63 With the outsourcing of manufacturing jobs to Central America, primarily from the United States, it is theorized that manufacturing workers would achieve greater economic benefits through higher wages and improved working conditions and this economic growth would enhance unionorganizing power. To the contrary, MNCs have restructured their operations by increasing their outsourcing or subcontracting of parts of the production process to independent rival firms located in developing regions, thereby forcing small firms to compete for a limited number of contracts and putting pressure to lower costs and remain nonunion.64 Negotiations between unions and employers in Central and South America take place primarily at the plant level. Only Argentina, Venezuela, and Mexico have widespread industry- wide bargaining. The principal reason for this arrangement is that legislation in the various countries typically does not require employers to bargain except at the plant level. In the more industrialized countries of the world, people interpret labor-management relations to mean the wide range of relationships between employers and employees. However, people of Central American countries tend to define labor relations in terms of the voluminous labor codes and government regulations. Labor relations vary widely among the countries in Central America, but they have one common feature: a close connection between trade unions and political parties. For example, in Mexico, unions constitute a large section of a political party and therefore are assigned a quota of candidates on the party’s ticket for office. Thus, unions have some assurance of having a voice in the party’s program and on its council. Some unions have been very effective in gaining relatively high wages for members. For example, the electrical workers in Mexico earn two to three times more than the urban working class.65 Likewise, unions have been criticized because they have made gains for their own members while neglecting the interests of the great mass of people, including the peasants, who are terribly poor. Labor agreements vary in content both within countries and among countries. In Argentina, labor agreements include provisions that set forth in some detail the employment conditions and establish a highly developed shop steward system to administer grievances and ensure that employers abide by the agreements. In Chile, labor agreements are more general, but they do establish certain minimum rules and include a grievance mechanism to enforce the agreement. In Brazil, where unions have struggled since 1945 to have a greater say in determining employment rules and conditions for their members, they have achieved more through labor legislation than by engaging in collective bargaining. In Central American countries, political parties maintain close ties with unions for their support, votes, and influence. Likewise, trade unions depend on the politicians for laws to protect their members, to legalize their organizations, and to regulate their relations with employers. On the other hand, political parties have appealed to organized labor to favor their own policies, and in some cases, they have accommodated organized labor in hopes that it will remain satisfied and continue to support the existing economic and political system.66 The United States has signed a free trade agreement, the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), with the countries of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic. Eighty percent of U.S. exports of consumer and industrial goods from Central America and the Dominican Republic will become duty free immediately with the remaining tariffs phased out over ten years. U.S. exports that will benefit are information technology, agriculture, construction equipment, paper, pharmaceuticals, and medical and scientific equipment. Tariffs on U.S. autos and auto parts will be phased out within five years. DR-CAFTA addresses worker rights protections with a three-part strategy intended to ensure effective enforcement of domestic laws, establish a cooperative program to improve labor laws and enforcement, and build the capacity of Central America and the Dominican Republic to monitor and enforce labor rights.67 Cuba Although not a major trading partner of the United States, Cuba, which is the largest island nation in the Caribbean Sea, is on the brink of social, economic, and political change. For years, Cuba received about $6 billion in annual subsidies from abroad, including the Soviet Union and Venezuela. With the economic decline of the former Soviet Union and Venezuela, China remains Cuba’s major external supporter. Cuba is the largest island in the Caribbean Sea and its shore is 93 miles from the United States. During the presidency of Raul Castro, Cuba has been slowly moving toward more privatization of its economy although the government plays the major role in its direction. As example, in 1982, only 8 percent of the workforce worked in the private economy, today 22 percent works in the private economy. Tourists find out very quickly that a black market exists in Cuba wherein taxi drivers, tour guides, hotel employees, and others welcome cash especially U.S. dollars. On April 14, 2015, President Obama announced that the United States had taken Cuba off the list on countries that support terrorism. This act was welcomed by the Cuban government and the two countries negotiated the avenue to reinstating formal diplomatic relations. The United States eliminated many of the restrictions on travel to Cuba and 600,000 U.S. citizens are projected to visit Cuba each year.68 Obtaining a true picture of labor relations in Cuba is presently difficult because of the absence of a free press. Propagandists from the government describe a free and independent trade union that promotes the interests of the government and the Cuban people. From the opposite site is a description that trade unions are subservient to the government and has a role of enforcing the government’s policies. See the Labor Relations in Action on page 725. In fact, it appears that the further one looks back, the more accurate the picture becomes. For Cuba to be successful, trade unions in Cuba must become part of the system and contribute to it. However, currently there are no independent and autonomous trade unions. In fact, independent trade unions are prohibited by law, and the law does not provide for the right to form unions, the right of collective bargaining, or the right to strike. In 2011, Cuban Premier Raul Castro (who replaced Fidel Castro in 2008) announced a plan to gradually cut as many as one million jobs from the public sector, 20 percent of Cuba’s workforce. Some experts view this move as a step toward transformation of Cuba’s communist economic model to a more market-oriented one. It is predicted that over the next five years, several hundred thousand workers will move from the public to the private sector. This government plan has failed to provoke any protest or criticism from the Workers’ Central Union of Cuba (CTC). To the contrary, the CTC helps implement the cuts, which will generate widespread insecurity and anxiety. Salvador Valdes Mesa, the CTC’s chief, was appointed by the ruling Communist party rather than being selected by union members as is the norm for independent unions. The laid-off workers can seek compensation for one month’s salary for every ten years on the job.69 LABOR RELATIONS IN ACTION Two Views of Trade Unions in Cuba On the Web page, it shows that there are 17 different national unions with workers organized by industrial sectors. A federation of these unions is the Central de Trabajadores de Cuba (CTC) is organized and meets every five years to discuss and propose plans to improve the economic and social conditions of workers in Cuba. The CTC is fully involved in the legislative process and government policy making and every employment law and regulation are discussed and must be approved by the trade unions. Membership in trade unions is voluntary and independent of the Communist party and state. There are few disputes between unions and management because conflicts are resolved through negotiations and collective bargaining. Every month, an assembly of workers meets and reviews production plans and discusses problems with the administrators of their workplaces. On the web page,, a quite contrasting point of view is presented. Here, it is described that, when Fidel Castro took power in 1959, he promised to fulfill labor’s goals. His regime sought to bring the CTC under the control of the Communists. Over time, Castro purged the CTC leadership and replaced them with his supporters. By 1981, the CTC was under the control of the Communist party and many labor laws and provisions of collective bargaining agreements were made null and void. In other words, the trade unions became instruments of the Castro regime. Today, the Communist party selects the leaders of the CTC and the CTC’s principal responsibility is to ensure that the government’s production goals are met. The CTC does not promote worker rights, observe the existing labor laws, or protect the right to strike. The CTC is under the control of the state and Communist party, which also manages the enterprises for which the laborers are employed. The Cuban government prohibits independent unions and none are recognized. Workers who engage in union activities face government harassment and possible prosecution. The International Labor Organization, a highly respected international organization, has found violations of conventions on employment discrimination and employees’ rights to unionize and to engage in collective bargaining. As countries in Eastern Europe have moved toward more democratic and pluralistic economies, so shall Cuba in time. The future choices will then be the various forms of labor participation programs, such as work councils, employee collectives, and greater reliance on collective bargaining at the enterprise level. Unions have become the primary means by which workers are represented. Unions represent a broader segment than their membership; they represent retired pensioners, the unemployed, and other interest groups. Unions in Eastern Europe have become political partners within the framework of tripartite arrangements (government, labor, and management). Whether these approaches are suitable for Cuba’s transition is open for debate. What is certain is that the economic globalization trend will continue, posing the question as to what extent Cuba will participate in that process. Western Europe In Western Europe, union density is significantly greater than in the United States, with the exception of France. Of the largest countries, the range is from less than 10 percent in France to over 60 percent in Denmark, Finland, and Sweden. Unions have been able to use this membership strength to accumulate political influence at the national level. Furthermore, they have been able to coordinate their efforts with large, well-established labor parties in government to achieve their goals. As in the United States, union membership in Western Europe as a percentage of the labor force has declined. Nationwide and industry-wide bargaining is less frequent, and employers are winning more concessions for efficient work rules and wages. Also, as in the United States, unions are trying to sign up new members in growing industries, such as leisure and finance, where technological change has fueled worries about job security.70 Unions have achieved significantly greater worker participation in the operation of the firm—many times through legislative mandate and sometimes through management reaction to wildcat strikes and worker dissatisfaction. In addition, public opinion in these countries strongly supports the idea that worker participation enhances production, fosters harmony, and enriches the workers personally. The labor relations system in Western Europe can be contrasted with that of the United States in a number of ways.71 1. In the United States, unions are selected by the majority of the appropriate bargaining unit and certified as the exclusive bargaining representative, whereas in Western Europe, exclusive representation is not a common concept. 2. In the United States, the exclusive bargaining representative has a monopoly over all employee bargaining, and the employer is required to bargain only with the legally certified union. In Western Europe, the employer often bargains with a number of unions in addition to worker councils elected by the employees. 3. In Western Europe, negotiations take place between representatives of employer associations and those representing a confederation of unions; in the United States, this type of bargaining arrangement is adopted only in a few industries, primarily construction. 4. In North America, the focus of union-management interaction is the shop floor, whereas in Europe, bargaining at national levels is the major focus of most unions.72 5. More fringe benefits are established by law in Western Europe than in the United States; therefore, trade unions have found that they can obtain benefits more quickly through the political process and have tied themselves more closely to political parties. 6. Western European countries have a greater commitment to employee training. For example, German firms spend twice as much on this activity as U.S. firms, or nearly 17 times as much per apprentice. In Germany, two-thirds of all young adults enter apprenticeship training programs. In contrast, 57 percent of high school graduates in the United States enroll in postsecondary education, and the majority drop out before graduation. The apprentice signs a formal contract with the firm and receives a predetermined wage rate, which is a fraction of the regular rate over the entire training period. The duration of the apprenticeship is typically 2 to 3.5 years, during which the apprentice spends two days of the working week in vocational school and the rest of the week at the firm learning how to become a skilled worker. At the end of the training the apprentice takes an external exam and the degree is recognized by employers throughout Germany.73 One major reason for the disparity in support for employee training between Germany and the United States is the role of unions and employer associations. German companies band together in employer associations to negotiate with unions over wages and other personnel matters, such as training. Because unions are stronger in Germany, the labor agreements require investments in training, and collective bargaining provides the mechanism for collecting union dues and fees. This approach is similar to the high-quality apprenticeship programs financed by contracts between craft unions and employer associations in the U.S. construction industry.74 European Union By 1992 the economies of 12 countries in Western Europe (Belgium, Denmark, Germany, Greece, France, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, and the United Kingdom) were joined together as the European Union (see Exhibit 14.6). In 1995, Austria, Finland, and Sweden joined the EU. By 2007, the EU had a membership of 28 countries with a combined population of over 507 million (7 percent of the world’s population) and an economy of over $18 trillion, the largest in the world (see Exhibit 14.6). Exhibit 14.7 Employment-Related Elements of the Charter of Fundamental Rights Prohibition of slavery and forced labor Protection of personal data Freedom of assembly and association, including trade union matters Freedom to choose an occupation and the right to engage in work Equality in employment matters including prohibition against employment discrimination based on sex, race, color, ethnic or social origin, nationality, genetic features, language, religion, disability, age, or sexual orientation Information and consultation Right of collective bargaining and action Right of access to placement services Unjustified dismissal Fair and just working conditions, including health, safety, and dignity Child labor and protection Family and professional life, including protection against dismissal connected to maternity and the right to paid maternity leave and parental leave following birth or adoption of a child Social security and assistance in cases such as maternity, illness, industrial accidents, dependency or old age, and loss of employment SOURCE: European Union: 2003(Washington, D.C.: U.S. Printing Office, 2003), pp. 17–19. The EU’s goal is the gradual elimination of economic barriers among member countries and removal of restrictions on the movement of goods, capital, and labor across national borders. The EU constitution includes employment and social issues (see Exhibit 14.7 for the employmentrelated issues). The Charter of Fundamental Social Rights (called the Social Charter) was approved by all EU countries except Great Britain. This arrangement establishes certain standards for working conditions throughout the EU so that some countries cannot attract industry merely because their pay and working conditions are below those of other countries. The charter stipulates statements of principles on fundamental rights that include freedom of association and encourages collective bargaining; vocational training; equal treatment for men and women; health and safety; child protection; and rights of information, consultation, and participation for workers.75 Critics of the Social Charter have argued that the EU has returned Western Europe to a reregulation phase that will raise labor costs, inhibit employment growth, and disproportionately affect the poorer employees. Critics contend the end result of mandated benefits in the Social Charter will lead to higher costs and an erosion of their external competitive position.76 Companies have experienced the effects of the EU, which could include increased mobility of employees among operations in the various countries, more recruiting from overseas, more active monitoring of pay and benefits developments in other countries, and increased language training, as well as a premium placed on language skills. These areas and others will provide much opportunity for trade unions to be involved at the bargaining table. At the EU level the European Works Council (EWC) Directive was adopted in 1995 to provide a legal right for workers and their representatives to be consulted and informed about MNCs operating in more than one country. Any MNC employing more than 1,000 workers in the European Economic Area (EEA includes the EU countries plus Norway, Iceland, and Liechtenstein) and with 150 workers in at least two member states have to establish a procedure for informing and consulting employees when the workers asked for it. The European Trade Union Institute estimates that 2400 MNCs are covered by the directive. By 2012, 1,214 MNCs had negotiated voluntary agreements. Although these agreements are indeed transnational, their effect on worker representation, unions, economic performance, and labor markets has yet to be determined.77 Under the Works Constitution Act, the staff in every firm with five or more employees has the right to elect a works council. Despite the right to establish works councils, only 10 percent of the firms with five or more employees in the private sector have a works council. However, the probability of having a works council rises in direct proportion with the size of the firm with well over 40 percent of all employees working for a firm with a works council. The elected members of the works council are exempt from their regular duties without pay cuts during the council activities. The members of the works council may formally object to hiring and firing decisions taken by management in the event that social criteria, such as age, tenure, financial obligations, and disability, are not respected. Work councils also monitor safety standards and are responsible for implementing and monitoring collective bargaining agreements at the plant level. Trade unions support the works council system, and many of the works council members are also members of unions. In fact, collective bargaining agreements amplify the effectiveness of the works council voice at the workplace in several ways. Works councils can draw on the information obtained by the union during collective bargaining. Collective bargaining reduces the potential conflicts between the works council and the management of the firm because several sensitive issues, such as wages, working time, and safety, have already been resolved in collective bargaining. As a result, collective bargaining may improve the cooperation between the works council and management. Also collective bargaining reduces the burden for a works council to deal with several issues, such as wage negotiations, safety issues, which are addressed in collective bargaining agreements.78 Each of these EWCs meets at least once a year to discuss the firm’s changes, its business environment, employment issues, and future plans. Senior managers present information to employee representatives who are asked to respond, and consultation takes place over corporate decisions that affect workers in more than one country. Most EWCs allow employee representatives to hold their own meetings before and after the main sessions, and some EWCs are developing new forms of communication between the annual events. Although EWC activities are separate from trade union activities and European trade unions are not actively involved, the EWC provides a mechanism for promulgating industrial relations policy initiatives across national boundaries and implementing new regulatory measures in industrial relations within the European Union.79 The European Works Council provided an avenue for trade unions that dealt with General Motors Europe (GME) during the early 2000s. When GME was deciding to close some plants and shift production during the economic recession and GME attempted to whipsaw (pit one group of employees and their unions against another group of employees and their union) by threatening to close plants and shift production unless the unions granted bargaining concessions, the EWC provided a mechanism for the unions in multiple countries to coordinate their efforts to save jobs and postpone wage cuts.80 The euro, the common currency of the EU, replaced the separate national currencies in 2002. The single EU currency (currently adopted by 19 of the 28 member countries) has encouraged the formation of a single European economy as the corollary of a single European market. A single currency was expected to make European markets for goods and services more integrated and efficient. Therefore, European firms needed to become more integrated and efficient to compete against each other and foreign competitors, who were attracted to the EU as the internal barriers disappeared. A wave of consolidations that were expected among businesses had already begun in banking, retailing, and manufacturing. The mergers and consolidations evoked cost-cutting and major layoffs. Unions and governments had to become attentive to the problems that coincided with these events.81 In Western Europe, aggressive opposition to bargaining is relatively uncommon; therefore, many countries do not have specific legislation that addresses these subjects. However statutory or constitution provisions on freedom of association in some countries are interpreted as entailing the right to bargain.82 Great Britain Like membership in trade unions in other countries, the number of union members in Great Britain has declined since their overall peak in 1980 of over 13 million members and 56 percent of the workforce. The decline in membership to 25.4 percent of the workforce after 1980 can be attributed to industrial change, particularly manufacturing, and government policies established particularly during the term of Prime Minister Margaret Thatcher. In recent years, there have been promising signs of a resurgence, due to the passage of the Employment Relations Act (ERA) of 1999 and the recent growth in trade union recognition, particularly in professional unions (teachers, nurses, and doctors). Continued success will depend on unions’ abilities in identifying, mentoring, and developing new representatives who can provide a trusting relationship between the members and their respective unions.83 Membership in unions in Great Britain’s public sector (about 70 percent) is greater than the private sector (about 20 percent). The Trade Union Congress (TUC) continues to be the largest labor organization, and the TUC has 11 unions with each having over 100,000 members. Two other unions with over 100,000 members, the British Medical Association (doctors) and the Royal College of Nurses (nurses), are not in the TUC.84 In Great Britain, unions gain legal recognition in companies with more than 20 employees if (1) the union wins a majority support in a secret ballot where at least 40 percent of the eligible voters actually vote or (2) 50 percent plus 1 of the eligible workers in the bargaining unit are union members.85 After Britain introduced its new union recognition law, one U.S. union avoidance consultant firm notified employers in Britain of its 65 years of assisting employers on how to stay union free. In fact, one U.S.-based firm promoted itself as having a successful record in Canada, Mexico, South America, the United Kingdom, Belgium, France, and Germany. Labor agreements are negotiated by a large number of multiunion-multiemployer negotiating committees. The United Kingdom has nearly 600 labor unions, over three times the number in the United States, and a single manufacturing firm typically negotiates with about seven unions. One of the most important negotiations involves the Engineering Employers’ Federation, representing 5,000 companies, and the Confederation of Shipbuilding and Engineering Unions, representing 34 unions and over two million employees. This general agreement sets forth guidelines that establish the floor for additional bargaining at the plants. Labor agreements are negotiated and administered at the plant level; however, they are not enforceable by law, and grievances are not subject to private arbitration. Shop stewards are volunteers who serve without pay. Unlike their U.S. counterparts, they cannot be removed by union executives. Often, shop stewards accumulate much authority and influence at the plant and have more control over local union affairs than any national union official. Steward councils composed of union stewards from various unions and work councils representing members of the various departments are important in the labor relations system. Labor agreements at the plant level are often negotiated by representatives of the national union, steward councils, and work councils. These agreements usually have no fixed term and include letters of understanding, minutes of meetings, and oral understandings. Although there is no legal obligation to negotiate, unions have gained extensive power and control over jobs by refusing to work wi...
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Surname 1

Student’s Name
Professor’s Name
Labor Relations
This paper serves to review the course on Labor Relations and the four textbook parts
that make up the chapters in the book. It outlines the level of understanding pertaining the four
parts of; Recognizing Rights and Responsibilities of Unions and Management, The Bargaining
Process and Outcomes, Administering the Labor Agreement and Applying the Labor Relations
Process to Different Labor Relations Systems. The paper also reflects on the Labor Relations
course as a whole, looking at the areas that the author desires to read about, the areas that seem
to be lacking and those warranting more learning and exploration for future scholastic career.
Recognizing Rights and Responsibilities of Unions and Management
This part deals with the rights held ...

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