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Human Resource Management

Workers Compensation Law Discussion

Human Resource Management

Postby Eric » Thu Nov 24, 2016 11:44 am

1.Describe and compare the different types of labour markets?

2.What are the various methods of dealing in labour markets?

3.Explain the concept of the labour market, making sure to include      it's aspects
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Human Resource Management

Postby caspar99 » Thu Nov 24, 2016 2:38 pm

1. explain the concept of the labour market, making sure to include its various aspects PHASE 1

Labour and labour market      Labour history and labour movement   International Labour Organization   Labour economy and labour market ?   The history of labour protection

?   The history of labour is predominantly about the development of labour movements and the working class. ?   There has been changes in the concept of labour starting from the Industrial Revolution of the 18th century: ?   Division of Labour, Mass production and Fordism in Western Europe and U.S.

?   Labour movement- claims for the rights of workers: Building of workers’ unions and demanding better wages and working conditions.

The history of labour protection

?   During the 20th century, labour protection policies has been applied in many countries with the aims of economic development and social welfare. ?   “Consensus between workers and employers about the protection of workers rights was made and governments also actively involved in the regulation of the labour protection policies after second world war with Keynesian view.”   

Global Labour Flexibility

the Pursuit of flexibility

?   ILO in the history of labour

?   The International Labour Organization was created in 1919, by the Treaty of Versailles that ended World War I.

?   ILO establishment was founded upon the belief that universal and lasting peace can be accomplished only if it is based on social justice. The ILO later became incorporated into the United Nations. ?   The ILO is the principal international organization that promotes International Labour Standards, conventions, treaties and recommendations designed to eliminate unjust and inhumane labour practices.   Rules of Game, ILO

?   ILO mission and objectives   

?   Labour economic

?   “Labour economics looks at the suppliers of labour services(workers), the demanders of labor services(employers), and attempts to understand the functioning of labour markets and the resulting pattern of wages, employment, and income.”   

?   There are micro and macro dimensions in Labour Economics. In macro, the focus is on inflation aggregated unemployment debate. Vise versa, micro focuses on role of individuals and firms in the labour market. ?   Classical labour economic studies about the exchange of labour on markets. This purely-market based features of labour is centered in the “merchandise” of commodities. ?   In Labour Market, what is been exchanged is workers’ ability to offer services and not workers themselves .

?   Labour is not a commodity because of the social and psychological aspect of labour.

The definition of labour market

with neo-classical economics view

?   The classical economics approach to the Labour market;    “Labour is a means of production, ‘factor of production’(with capital and land).”

?   If wages are fully flexible, labour market equilibrium will be attained(i.e. quantity of supply and demand of labour would be matched). Hence there will be the clearing of market effect.   

?   The labour market assumption of neo-classical economics

?   Assumptions   (in simple supply/demand model): –   Demand curve in downward sloping, supply curve in upward, equlibrium(wage) at intersection

–   income-leisure trade off –   Indifference curves

–   Perfect competition(perfect, symmetric information, no transaction costs)

–   Homogeneous workers

?   The ILO definition of labour ?   ILO Constitution and the Philadelphia Declaration of 1944      “Labour is not a commodity.”      Workers should not be subject to ‘market forces’ in the same way as oranges and lemons, and they have the rights and need for security and social protection.   http://www.ilo.org/ilolex/english/iloconst.htm

?   The critics against neo-classical economics view

?   The critics against neo-classical economics view

?   Newer Labour economics tried to figure out the constant problems in labour markets and their variables. ?   Labour markets failures that are often ignored by traditional/classical approach of labour economists.

?   Such as, information asymmetries, heterogeneous workers, transaction costs, monopoly(only one seller), and monopsony(only one buyer), oligopoly, oligopsony(a limited number of the above)

?   Unemployment rate map

?   Labour markets indicators   To understand the functioning and dynamics of the Labour market, there are several key indicators about the labour markets of one specific regions or country. ?   The labour force

?   The participation rate ?   The unemployment level

?   The unemployment rate

?   The employment rate

?   Others…

?   PART  2

The labour market institution      The definition of labour market institution   Examples of labour market institution   Determinants of labour market    institutions ?   The labour market institution

?   What is labour market institutions?

?   The definition of Labour Market institutions could be very broader and obscure to categorize. The phrase “I know it when I saw it” would be very useful appropriation of the definition. ?   The phrase "I know it when I see it" is expression by which the user attempts to categorize an observable fact or event, although the category is subjective or lacks clearly-defined parameters. The phrase notably appeared in Jacobellis v. Ohio(1964), decided by the United States Supreme Court. ?   The labour market institution

?   Labour market institutions reflect on the different level of societies’ norms, values, cultures and legal policies, etc. ?   LMI could be explicit and long-standing as certain labour laws that are considered as universal rights, and also could be the informal and periodic practices that reflect the views of society for certain time phrase.

?   Some examples of labour market institutions

?   Employment  protection

?   Collective bargaining

?   Career placement center ?   The minimum wage

?   Unemployment benefit ?   Wage determination policy

?   Training and skill institutions

?   Social security and income guarantee system

?   Non-discrimination policy and regulation for women and disabled

?   The payroll taxes

?   Determinants of labour market institutions[LMI]

?   Key characteristics of LMI in developing countries

?   Dual labour markets(formal/informal)

?   Lage share of agriculture and rural labour ?   Non-wage labour(self employment and unpaid family workers) more important

?   Labour force growth higher

?   Labour force participation rates among the 15-64 are higher(because of lower school enrollment rates and pervasive poverty)

?   Human capital investments are lower ?   Non-labour poduction inputs per worker are much smaller

?   PART  3

Debates on Labour Market Rigidity and employment   The reason of the high-unemployment?   Is Labour Market Rigidity really to blame?   Flexicurity: Definition, Policy, Approaches of the EU

?   Current debates ?   Is Labour Market Rigidity really to blame for unemployment and lagging economic growth rates?

?   How can one pursue the distributive justice with flexible labour markets and globalisation?

Employment protection measures(EPM) and unemployment

?    : Is rigid labour market institutions to be blame for the high unemployment rates and difficulty of the economic growth?

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Human Resource Management

Postby alphonsus63 » Fri Nov 25, 2016 6:08 pm

1 : Yes!

?   The excessively strict EPM : important contributor to the persistently higher and long-duration unemployment experienced in many countries since the early 1980s. ?   Reduce scope for flexibility for gaining competitive edge in markets

?   Increase costs to the employers, make difficult dismissals of workers ,makes industries hesitate to hire new workers, hence, less incentive for job creation.      

?   EPM and unemployment -
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Human Resource Management

Postby Fallamhain » Sat Nov 26, 2016 12:36 am

2 : NO!

?   “The OECD has been previously reviewed this issues several times [OECD(1993, 1994a, 1997a)]. Robust estimates of the impact of EPL(Employment protection legislation) on employment and unemployment have proven elusive, but the international comparisons presented in these and related studies have documented statistical associations between stricter EPL and several measures of labour market performance, including greater prevalence of long-duration unemployment and temporary jobs. … but an overall assessment of the resulting shifts in EPL strictness and their impact on labour market performance has been lacking to date.”         

?   EPM and unemployment -
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Human Resource Management

Postby demarco » Sat Nov 26, 2016 6:12 am

2 : No! there is no strong relationship or any statistical data proving the linkage between EPM and high unemployment rates or any other less-efficiency in the markets.

?   EPM and unemployment -
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Human Resource Management

Postby Lorimar » Sat Nov 26, 2016 8:08 am

1 : Yes! ?   “Labour market policies like minimum wages, job security regulation, and social security are usually intended to raise welfare, or reduce exploitation. But they actually work to raise the cost of labour in the formal sector and reduce labour demand… increase the supply of labour to the rural and urban informal sectors, and thus depress labour incomes where most of the poor are found…”   

?   EPM and unemployment -
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Human Resource Management

Postby Glaedwine » Tue Nov 29, 2016 1:55 am

1 : Yes! The strong employment protection measures and other social policy protecting workers create difficulty for the employers to deal in highly competitive market. ?   
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Postby jung-hee » Tue Nov 29, 2016 5:55 am

2 : NO!

?   “There is only weak evidence for the negative impacts of labour market regulations. Moreover, labour laws and labour market policies are needed to ensure social justice for workers in developing countries. In labour markets where labour is in surplus, there must be a minimum statutory protection for workers.”      

?   The case of Latin America

?   Reform of labour market regulation: the labour policy which has been undergone the neo-liberal reformation in the 1980s and 1990s didn’t produce big success in improving employment or other type of performance in labour market in case of 6 countries – Argentina, Bolivia, Brazil, Chile, Mexico and Uruguay.   

?   This shows that flexible labour market institutions are not panacea for labour market problems. ?   The case of Latin America

?   The flexicurity debate

?   The concept refers to combining labour market flexibility with security for workers.

?   The beginning of flexicurity : The concept of flexicurity has been initiated and formulated within the European Union related to discussions on globalization and employment.

?   The concept shows the need for delicate balance between the need for sufficiently flexible labour market and the need for protecting labour market security.

?   EU focusing on Flexicurity

?   ‘The key issue for employees, management, the social partners and policy makers alike is to strike the right balance between flexibility and security” ?   The European commission is the main political promoter of flexicurity.  Although it has been mentioned mainly at the European level, the concept to flexicurity has to be developed into concrete policies and regulations in the level of the member state. ?   Danish Flexicurity Model

?   Danish labour market recorded the lowest unemployment rate since 1975 and highest employment rate in European Union.(3.8% unemployment rate,2006)

?   OECD has pointed out the Danish combination of a flexible labour market and high social security is an ideal model for other European ?   Flexicurity policy

?   Flexible and reliable contractual arrangements through the modern labour law, collective agreements with workers organization.

?   Comprehensive lifelong learning(LLL):   Continual training opportunity for adaptability and employability of workers and specially for the most vulnerable.

?   Effective active labour market policy(ALMP):   Helps people to cope with rapid changes. Reduce the unemployment duration and ease difficulty of transition to new jobs

?   Modern social security system:   Provides adequate income support, encourages employment, and facilitates labour market mobility and broad coverage of social protection provision.

?   Reflection points

?   The recent trends in Labour market policy in your countries?

?   Do you think the model of flexicurity is ideal for your country?

?   What do you think are priority areas of intervention for  improving labour market institutions in your country?

?   How persuasive are labour market failures in your country?


. 2. Describe and compare the different types of labour market. Flexibility  is defined as  

employers  and employees’ ease in adapting to changes  in external conditions. LABOUR  MARKET FLEXIBITY  

is represented  by the labour market adaptability to the  varying market conditions and technologies. TYPES  OF LABOUR MARKET FLEXIBIITY:  


is the  ability to adapt the number of workers  to the changing economic circumstances, particularly  those affecting production, wages, productivity  and profitability. A higher flexibility of  employment means that numbers of workers  in enterprises are more sensitive to variations  in factors determining the demand for  labour.



is expressed  in the departure from regular, standard  working time solutions defined by fulltime  employment, even distribution of the working  time and inadmissibility of work in „asocial”  hours. FLEXIBILITY  OF WAGES

indicates  their responsiveness to changes in wage  determinants, and particularly to the labour  market conditions, profitability of enterprises  and productivity of labour. FLEXIBILITY  OF LABOUR SUPPLY

is represented  by the labour force mobility, i.e. its  adaptability to determinants of the labour  demand. Several types of mobility can  be distinguished, such as occupational mobility,  mobility of qualifications, spatial mobility  and inter-enterprise mobility.

A TYPICAL  EMPLOYMENT is one that is different from traditional employment, the latter being defined as offered for an unfixed term, with eight hour working day and fixed working day start and end time. TYPICAL  FORMS OF EMPLOYMENT •   Part-time  work •   Fixed-term contracts •   Temporary work •   On-call jobs •   Working from home and telecommuting •   Self-employment PART-TIME  WORK

where  the working time is shorter than that  worked by a comparable full-time worker.  In addition, special forms of part-time  employment, such as job sharing, weekend  work, etc., are included here.

FIXED-TERM  CONTRACTS, subdivided into three types: trial period contracts, contracts for a period needed to complete a job or a task and apprenticeship contracts. In Poland a trial period contract may not run for longer than three months and a fixed term contract is only allowed to be renewed twice in successive periods. Apprenticeship contracts are frequently tied up with obligatory school education. TEMPORARY  WORK is rendered by workers in enterprises(or other workplaces) they have been referred to by a temporary employment agency. The legal basis for this type of employment is a subcontract signed among the intended employer, the employee and the agency. As regards its duration, the work is fixed-term, i.e. after the “lending period” a worker is back on standby. ON-CALL  JOBS – in this case an employer may demand a worker to do a job at any time. The underlying contract may specify the terms of employment or describe the minimum and maximum inputs and responsibilities resting on the worker and employer being parties to it. Workers holding the contracts have to be available to their employers(e.g. to be on standby at home) and do a job when called. WORKING  FROM HOME and TELECOMMUTING are forms of work rendered not on the enterprises’ premises, but in a place named by the worker who does the requested piece of work and is accountable for his or her performance to the employer, while staying outside the latter’s supervision. Telecommuting is the most recent form of distance working that utilises computers and telephone lines, i.e. modern information and telecommunication technologies. It may take place at any distance from where it is subject to traditional assessment. SELF-EMPLOYMENT of workers instead of paid employment. Under the approach persons working on their own account can do either simple or very specialised jobs that do not need supervision. In this system some jobs in enterprises(e.g. cleaning, simple repairs and similar jobs that do not require high skills, but also designing or consulting services that involve high qualifications) are set apart to be done by workers who work on their own account(and who frequently have the same responsibilities under their regular contracts of employment). Consequently, such workers continue to do the same jobs for the same employer.  

ADVANTAGES  OF A TYPICAL EMPLOYMENT ?   A tool for adjusting labour supply and demand to the labour market developments;

?  A tool for restoring the labour market equilibrium, especially in the case of structural unemployment and unemployment arising from the business cycle;

?    A measure allowing occupational activation of persons that for various reasons might have problems with taking steady, full-time and unfixed-term jobs;

•   Atypical employment enables workers to perform their family and occupational roles. MAJOR  BARRIERS TO A TYPICAL  FORMS OF EMPLOYMENT  

?      Workers’ reluctance to take such jobs;

?      Workers associate atypical forms of employment with the secondary, inferior labour market;

?      Workers covered by atypical forms of employment are less willing to identify themselves with the enterprise;

?      High employment costs discourage employers to offer part-time jobs;

•   Inability to exercise direct supervision of the working processes and technological barriers in the case of teleworking. ########################

3. Summarise the various methods of dealing in labour markets DEALING  WITH  LABOUR  MARKETS  INVOLVE  RISKS.

The nature of labour market risk is dramatically changing in the new world of work Factors Altering Nature Of Labour Market Risk Demand shocks emanating from technological change, trade liberalization, industrial restructuring from manufacturing to services, the dot.com bust, deregulation and privatization

have led to substantial adjustment consequences that have exposed workers to the risk of job displacement, skill obsolescence and wage polarization. Recent cohorts of immigrants are also at risk of not fully assimilating into the labour market as did previous cohorts.

Within the internal labour markets of firms, there has been risk shifting from employers to employees via contingent or non-standard work in such forms as limited-term contracts, self-

employment, sub-contracting and part-time work. Such work is often not covered by conventional labour regulation, and when it is, the regulations are more difficult to enforce.

There is increasing segmentation or bifurcation of jobs into a protected core of “insiders” who have little risk of wage or job loss on the one hand, and a more peripheral group of “outsiders”

who are often exposed to more risk and uncertainty associated with contingent employment, on the other hand. The core of “insiders”, however, may be subject to more stress-related risk

associated with the increasing job pressures and long hours expected of core workers, especially when firms undertake a downsizing of jobs which often does not occur with a corresponding downsizing of the work. Compensation is also increasingly “at risk” through pay-for-performance, stock options, shifts from defined benefit to defined contribution pensions, breakdowns of old pattern bargaining, increased emphasis on ability-to-pay in public sector arbitration, and the greater pay flexibility associated with many forms of non-standard employment. Ironically, however, the shift to non-standard employment is in part a response to

the increased regulation of standard employment.

Health and safety risks have changed dramatically from observable, physical injuries from a specific accident to non-traditional injuries, syndromes and diseases. While the overall

level of risk has declined, the new risks create policy challenges because of multicausality, long latency periods, complex interactions and difficulties in diagnosing and determining if they originated from the workplace. The ageing workforce with a longer life expectancy is creating a new risk associated with the pay-as-you go nature of plans such as the CPP and workers’ compensation as well as health

care. Either younger workers will be at risk of an increasing tax burden or older workers will be at risk that the implicit contract whereby they will be paid will be broken. The old implicit

contract where large firms provided job security may also be breaking down under pressures of globalization, the reduced threat of unionization and the decline of large vertically integrated firms.

The human capital investments of workers may also be increasingly at risk given the greater uncertainty and lack of control over their returns. This is particularly problematic

because of capital market imperfections for investing in human capital and because of the difficulties for workers to diversify that risk since it is often linked to their earnings, pension

wealth, and the value of their home and social and community capital four dimensions of managing labour market risk -- predicting, controlling, diversifying and

insuring against such risk. Predicting Risk

With respect to predicting risk, improved labour market information systems to predict shortages and surpluses would go a long way in providing vital information for existing and

perspective employees, employers, educational and training institutions to make decisions with respect to job search, careers, education, training and mobility. Continued vigilance in informing the parties of the changing nature of workplace health and safety risk would also go a long way in enabling the parties to make informed choices. Such information on various forms of labour market risk could be targeted to the must vulnerable, for equity reasons discussed previously, and because they may face the most barriers in otherwise accessing such information. Creating a degree of certainty in how governments will respond would also help in predicting risk. Uncertainty as to whether governments will bail out failing firms, for example, can encourage excessive risk taking and discourage the continuous marginal adjustments that are likely to involve less risk.

Controlling Risk

With respect to controlling labour market risk, governments should focus on providing a stable and predictable macro-economic environment given its crucial implications for labour

market stability. Turning back the clock on globalisation and trade liberalisation is not likely to be feasible or desirable – it would simply postpone adjustments that would involve more risk when they inevitably occur. More attention should also be paid to allowing the private parties to opt-out of “protective” legislation when they have their own individual or collective bargaining power and are well-informed about their decisions. Individuals in many of the new information

technology jobs or those covered by a collective agreement could be allowed to opt out of hours of work restrictions. Persons covered by a bone fide collective agreement or retirement plan could be allowed to opt out of a ban on mandatory retirement .

Diversifying Risk

With respect to diversifying risk, policy initiatives should focus on encouraging broad- based, generic education and training that is usable in a wide range of ever changing

circumstances. In contrast, encouraging employee ownership of failing firms encourages

employees to have an undiversified portfolio in terms of their wages, human capital, social capital, home assets, pension and savings tied up in the fate of that organisation. The decision of

employees or their union to bail out failing firms through employee ownership should be based on its own merits involving the private decisions of those parties. It may well be a sensible strategy, given the alternatives. But governments should not distort those decision margins

through subsidies that would expose workers to even more undiversified risk. Insuring Against Risk

With respect to insuring against risk, governments have a continued role in areas like employment insurance and workers’ compensation. The empirical evidence indicates, however,

that high benefit replacement rates do create adverse work incentive effects that in turn raise costs and lead to stringent administrative procedures to offset these adverse effects. As well, the provision of insurance against risk fosters additional risk. Unemployment insurance can foster the risk of being unemployed, workers’ compensation can exacerbate health and safety risks, and employment regulations in general can foster shifts to non-standard employment. This does not

mean that such policies should not be in place. They do alleviate the negative consequences of such risk, but in so doing they can actually increase the degree of risk that prevails in the labour


In such circumstances, reduced income-replacement or benefit rates can still facilitate insuring against catastrophic risk and preserve incentives and fiscal solvency. Reduced benefits

accompanied by expanded coverage may be a reasonable trade-off to protect the otherwise unprotected. In general, governments should focus on the real purpose of insurance -- insuring

against catastrophic risk as opposed to smaller and less significant risks. Experience rating in areas like workers’ compensation and employment insurance can provide a reasonable balance between providing insurance and preserving incentives to reduce the risk of injury or



In the previous discussion, most, but not all, of the labour market changes were associated with greater labour market risk for employees. This often occurred as risk was shifted

from employers to employees. There are changes, however, working in the other direction that may mitigate labour markets risks.

The rapid growth of multiple-earner families means that the loss of earnings from one worker may be offset by work activity of other family members. That is, the family may be a

more important institution for risk bearing and risk diversification in the labour market. This can

be the case for multiple earner families as well as single-earner families where the non- labour market participant could easily return to the labour market if necessary. This is especially the

case given the growth of non-standard employment. While contingent work arrangements may shift risk from employers to employees, many non-standard work arrangements can also involve vehicles for families to absorb or diversify risk of other family members.

The impending labour shortages that are expected to occur from the retirement of baby-boomers also should improve the job opportunities for youths in the near future. That is, while

youths may be under pressure from the burden of pay-as-you-go schemes, this risk should be mitigated somewhat by the job opportunities associated with the very elements that are creating

that burden – the impending retirement of an ageing population.


The previous discussion highlighted a number of ways in which market mechanisms deal with risk in the labour market. This section deals with those market mechanisms more

systematically, with an emphasis on the conditions under which markets work and do not work to yield what could be considered a socially optimal amount of risk in the labour market.

Compensating Wage Premiums for Various Risks

The primary market mechanism for dealing with workplace risk is the payment of compensating wage premiums for various types of labour market risk – evidence of which has

been documented for injury, unemployment  pension underfunding and low pension

benefits. Importantly, there is also evidence that when the risk is partially offset by government provided insurance, the compensating wage premium for the residual uninsured

portion of the risk is much smaller – alternatively stated, the compensating wage premium is larger when the risk is not somewhat offset by insurance.In perfectly competitive labour markets with perfect information, compensating wage

premiums would ensure the socially optimal amount of risk. Employees would sort themselves into jobs of varying degrees of risk on the basis of their aversion to and ability to deal with such risk. Employers would be required to pay for the risk they impose and thereby would have an

incentive to reduce such risks in the most cost-effective fashion, perhaps by incurring costs in risk prevention. Firms would not survive if they could not compete because of the high-cost of

such risk prevention or of the compensating wage premium for the remaining risk – but that is a desirable outcome if their survival otherwise depended upon such risky working conditions. Firms that survived would pass the cost increase to customers in the form of higher prices – an appropriate response to ensure that consumers pay for the health, safety and other risks

embedded in the goods and services they consume, and that they curtail their consumption of goods whose price is high because of such risks.

Unfortunately, markets are not perfect This is especially the case(as in the health and safety

area) where risks are complex and employers are likely to have better information than do workers about the true nature of risks and they have an incentive to understate those risks to

avoid having to pay the compensating wage premium. Even if the information is not asymmetrically possessed by one party, information has public good characteristics(it is equally

available to all once provided, and it is not easy to exclude non-payers) and hence a suboptimal amount may be provided in private markets. In many cases there is uncertainty about the risks, especially with respect to syndromes and diseases with long latency periods, complex

interactions and uncertain exposure effects. Furthermore, when health care systems are publicly supported, an externality is created in that the private parties do not pay for the full costs of their injury or disease – it is paid in part out of public funds. Even if health care and disability

programs are not publicly provided, governments likely will still “bail out” and provide support to individuals who irresponsibly did not take proper precautions or buy insurance against risk. As well, markets may be sufficiently “thin” or incomplete in this area such that workers may not

have many options for sorting themselves into their preferred wage-risk combination. Even if markets were complete and worked perfectly, socially unacceptable distributional consequences may occur, if, for example, vulnerable or disadvantaged groups may have little choice but to

accept risky work environments. Even if they receive a compensating wage premium, others in

society may find it offensive that the vulnerable groups have to eke out a living by “selling” their safety.

While markets may not work perfectly in this area, it is important to emphasise that they can work to reduce risk if the parties are reasonably informed. Furthermore, they can create

appropriate incentives: for employers to use cost effective risk reduction strategies; for consumers to curb their consumption of goods and services that embody risk; and for workers to

sort into jobs in part on their willingness and ability to deal with such risks. Most importantly, it is important to emphasise that an imperfect market solution must be compared to what is likely

to be an imperfect government solution .

This also highlights an important role for governments in the provision of information on workplace health and safety risks, such as occurs through the Workplace Hazardous Materials

Information System(WHMIS) as well as requirements to post health and safety information at the workplace. Such information can facilitate the payment of compensating wages as well as sorting on the bases of risk aversion.

Wage Concessions to Reduce Risk of Layoffs or Plant Closings

One of the puzzles in labour economics is why risk-averse workers do not appear to engage in wage concessions(where small costs are spread across a large number of workers) to

reduce the risk of layoffs or plant closings(where large costs are concentrated in the hands of a few). Although wage concessions do occur(especially in the form of wage freezes which imply

real wage declines in times of inflation) they do not appear to offset the need for layoffs, so that adjustments in labour markets frequently occur in the form of quantities(layoffs) rather than

prices(wages) even though small price adjustments would appear less costly than all-or-nothing quantity adjustments.

Layoffs may be more prominent than wage adjustments for a number of reasons. First, the cost of layoffs may be offset in large part by unemployment insurance, while the costs characterizes this as a pre-commitment problem “when the government itself has a hard time

committing not to compensate victims”  reflecting “the governments inability to say no.” wage concessions are not so offse(another unintended by-product of legislative initiatives). Second, “insiders” may be protected from layoffs(e.g., by seniority provisions in collective agreements) and hence not be at risk of layoff unless there is a threat of mass layoffs or plant

closings, which is when wage concessions tend to occur. Third, in a declining industry, employees may rationally engage in an end-game strategy of refusing to engage in concession

bargaining because they know that there is not the threat of new firms entering to make profits

by displacing the incumbent high-wage, high-cost producers. Employees may rationally “milk a dead cow” and extract the most since the end is inevitable. Fourth, running the risk of layoffs by not engaging in concession bargaining may be necessary to deter bluffing on the part of

employers. In situations where employers have better information on their true market situation,

they always have an incentive to argue that they do not have the ability to pay, so as to win wage concessions. In such circumstances, employees may rationally require employers to engage in layoffs because layoffs are also costly to employers while wage concessions are not costly. In

essence, to elicit truth telling in situations of asymmetric information, employees may confront employers with the requirement to absorb negative demand shocks via employment rather than wage reductions. If employers were not bluffing about their inability to pay, however, they will

engage in the layoffs since they are not so costly to them at those times.

In all of these situations, risk averse employees appear to be engaging in risky behavior by not collectively accepting small wage concessions to reduce the risk of costly layoffs for

some. Wage concessions would appear to be a small insurance premium that would be worthwhile to reduce the more catastrophic risk of layoff. Yet there are rational reasons for this

apparent risky behaviour, although some of the reasons may involve risk shifting to more vulnerable employees(i.e., “outsiders”) or to governments(via employment insurance).

Wage Losses of Displaced Workers

The reluctance to engage in wage concessions is related to another puzzle pertaining to the risk of job loss: why do displaced workers who experience a job loss have such large wage reductions when they are displaced to their next-best alternative employment? Alternatively

stated, why are wages not negotiated downwards in the initial job to reduce the risk of costly displacement? Some of the answer was given previously, with respect to the rational reluctance to engage in concession bargaining to reduce the risk of costly layoffs. But there are additional

reasons for large wage losses of displaced workers.

First, some may be a loss of deferred compensation on the part of older workers who are

receiving deferred compensation. In their next-best alternative job, they are paid more in line

with their current productivity and hence experience a wage reduction. Second, if a

The exception is the small worksharing component of Employment Insurance, where EI is potentially available to

workers in an organization that agree to temporarily reduce their workweek by, say, 20%(i.e., one day) to avoid layoffs that would otherwise fall on 20% of the workforce. In this case, EI does not cover wage concessions, but it does cover weekly earnings reductions as part of a negotiated worksharing arrangement.

Deferred compensation involves implicit or explicit contractual arrangements of wages in excess of productivity

when workers are older in return for having been “underpaid” relative to productivity when younger, with such

compensation schemes having other positive incentive effects with respect to work effort, bonding, matching,

commitment and reduced turnover. compensating wage premium was paid ex ante for the risk of unemployment, then the wage loss may simply reflect the ex post coming to fruition of that risk. Third, some of the wage loss may be a loss of rents, for example, if union members lose their union wage premium if displaced to a non-union job. In fact, the rents may have fostered the displacement in the first place. Fourth, some of the wage loss may reflect the loss of industry-specific human capital that is usable only in that industry but that does not have a transfer value to other industries.

All of these examples suggest that there are substantial risks associated with job displacement and wage loss, but there are also rational reasons for that risk to exist, and there are

risks associated with the alternatives to reducing the risk of wage losses from job displacement. Some risks may be shifted to the employment insurance system and some to “outsiders” – and the pros and cons of such risk shifting merit consideration from a policy perspective. Some may reflect rational risk taking to deter bluffing in situations where employers have asymmetric information and will always demand wage concessions, and some may reflect a rational end-

game strategy to get the most out of a bad situation. Some may reflect a loss of deferred compensation or of compensating wage premiums for the risk of unemployment or of rents or of

the loss of industry specific human capital.

The appropriate policy response may well depend upon the reason for the large wage loss at displacement, albeit disentangling those reasons may be difficult if not impossible. Minimal responses may be merited if the wage loss reflected a reluctance to engage in wage concessions

since such reluctance may have been rational to avoid other risks as discussed previously. The same applies if the wage loss reflects the loss of an ex ante compensating wage premium for the risk of unemployment that now has come to fruition, or the loss of rents that may have induced the displacement in the first place.

More active policy responses may be merited when the wage loss represents a loss of deferred compensation or industry specific human capital. Even though employees may well

know the risks they enter into in deferred compensation systems and they are normally protected by such factors as employer reputation(crucial for sustaining the willingness of employees to

enter such arrangements) the importance of maintaining that reputation may be dissipating under globalisation when employers can open plants in other localities. As well, the loss of industry specific human capital may have resulted from technological change or trade liberalisation that leads to efficiency gains for the economy as a whole, in which case assistance may be merited

either on equity grounds(to compensate the losers) or on efficiency grounds(to reduce their resistance to such efficient changes).

The market perspective, however, would also emphasise that government policies to compensate for the negative consequences of such risk coming to fruition could also foster more of such risk taking on the part of the private parties. For example, it could encourage deferred

compensation systems as well as continued investment in industry specific human capital. Human Capital as a Hedge Against Risk

It is now almost a given that investment in human capital is the best hedge against labour market risks. If the economy is increasingly a knowledge economy, then knowledge is at a

premium. It can protect against the possibility of being trapped at the lower end of the increasingly polarised wage distribution as well as the risk of job loss and the associated earnings

loss of displaced workers. The question then is not so much whether human capital is a good hedge against risk, but rather what type of human capital formation provides the best hedge? Portfolio theory would suggest that it is best to hold a diversified portfolio of human capital, just as it is best to hold a diversified portfolio of financial investments. Ideally, the

different components of human capital investments would be negatively correlated with each

other, for an individual or within a family, so that a decline in the return of one component would

be offset by an increase in the return of another component. This is extremely difficult. It would imply, for example, that if an individual were to undertake some training in skill A, they should also diversify their risk by taking some training in skill B if skill B were one that were likely to

displace skill A. This is extremely difficult for a given individual and even across different family members.

What is feasible, however, is to take training and education that provides generic, broad-based skills that are generally usable in a variety of ever changing environments and that provide

the basics for subsequent lifelong learning. This could include critical thinking skills and

“people skills.” For Information Technology(IT) workers, for example, these generic skills have been emphasised as more critical than the specific IT skills, and the more basic skills may be critically important in diversifying risk to survive a dot.com bust. While it may be difficult to diversify within human capital investments, it is not so difficult to diversify between human capital investments and financial investments. A strong

argument against employee ownership of companies or even stock options is that they can lead to an undiversified portfolio. In such circumstances, employees may have all of their eggs in one basket, with their earnings, human capital, value of their home, their pension and perhaps even

their social and community capital all tied up in the economic health of their organisation. In such circumstances, adding their financial capital or savings to that mix through employee

ownership or stock options does not facilitate a diversified portfolio.

It can be the case that employees may be reluctant to invest in human capital if they feel it is an investment over which they have little control because so much of the value of their

investment depends upon the actions of employers(e.g., technological change) or governments

(e.g., trade liberalisation, privatisation, de-regulation, immigration). We tend to think of human capital investments as hedges against such risks, and this is likely to be the case. But when there is considerable uncertainty about what other agents may do that may affect the return on that

investment, then the investment itself may be more risky. The private market response to such uncertainty, however, is to require a risk premium to compensate for the greater uncertainty. This is akin to the notion of “sovereign risk” in the area of privatisation, when investment  requires a risk premium to compensate for the uncertainty of what governments may do,

especially with respect to regulating prices.

Market Responses to Risk Associated with New Workplace Practices As discussed previously, workplace and human resource practices within the internal labour markets of firms have changed to alter the nature of risk faced by many employees. In

many cases, they have involved risk shifting to employees through contingent or non-standard work in such forms as limited-term contracts, self-employment and sub-contracting. Employee compensation may also be more “at risk”. “Outsiders” may be subject to more wage and

employment risk, while “insiders” may be more exposed to stress related risks. Other changes in internal workplace practices, however, have reduced employee exposure to risk. This is the case with broader based job classifications, multi-tasking, multi-

skilling, job rotation, team production and pay for knowledge. Others involve trade-offs amongst alternative forms of risk as when flexible compensation can reduce the risk of layoffs or

the shift towards defined contribution plans expose pension benefits to the risk of stock market

fluctuations but reduces the risk of pension loss from job change.

The market mechanism deals with this changing nature of risk by treating the risk of internal labour market adjustment as one of many elements of the job that gets traded off against

other elements including wages. As well, while the internal labour market adjustments may expose workers to some additional risks(e.g., flexible compensation), these may reduce the risks associated with possible external labour market adjustments(e.g., layoffs or plant closings). The

changing nature of risk associated with new workplace and human resource practices would simply be one of the many changes that are occurring and that are dealt with through normal market mechanisms such as compensating wages, with no obvious market failures.

Volunteer Activity, Social Capital and Micro-Finance as a Private Market Responses Although market responses to risk are usually thought of in terms of market mechanisms like compensating wages and the purchase of private insurance, it is also the case that voluntary

activity and community or social capital building are increasingly emphasized as private mechanisms for dealing with risk. Ironically, this represents a return to the extended family and to the community as sources of support – sources that had been supplemented by the state and formal institutional arrangements during industrialization and urbanization. Ironically, such activity often has appeal to both the left and the right of the political spectrum, albeit for different

reasons. The left tends to regard it as another source of support for vulnerable, disadvantaged

groups. The right tends to regard it as a possible alternative to government action and a return to family and community responsibility.

Regardless of the perspective, such activity does represent a viable private ordering response to risk and it can be a “win-win” situation for both donors(who volunteer their time

and money) as well as for recipients(who receive the volunteer time and money). Recipients

obviously benefit from the support. But donors also can benefit for the very reasons that they

volunteer – altruism leading to a “warm glow” or feeling of doing good; the possibility of  reciprocal “gift giving”; résumé building; voluntary internships as a step in obtaining a more

permanent job; or even the assuaging of guilt. Volunteer activity can also occur in the form of money or time, enabling people to contribute on the basis of their comparative advantage in each

form. Social capital building in community networks can be done for similar reasons – the phrase “capital” implies it is an investment in future returns. Whatever the reasons, such

volunteering can benefit both donors and recipients – market exchanges do not have to involve positive prices(i.e., wages in exchange for labour services).

Micro-financing can also be a form of risk-pooling for self-employed persons who are credit constrained and who have problems raising capital in conventional capital markets. Micro-finance arrangements often go to groups of clients, with default on the part of one member having negative effects for the whole group. For this reason the group has an incentive to reject bad risks(thus mitigating the adverse selection problem) and they can impose peer pressure to

ensure repayment(thus mitigating the moral hazard problem).

While such voluntary exchanges can clearly be “win-win” there are also potential problems with extensive reliance on them to deal with labour market and social risk. They

cannot be relied upon to generate sufficient activity in this area given the free-rider problem that other potential donors(who do not donate time or money) also benefit from the actions of those

who do contribute.(We don’t rely on voluntary taxes to generate the revenue for public goods). Conflict can also arise over whether everyone is doing their “fair share.” Peer pressure against free riders can also have negative effects, if those who do not contribute genuinely do not believe

in the cause and yet are pressured to contribute. Requiring or rewarding volunteer activity as part of schooling can defeat much of the purpose of “volunteering.” Issues can also arise over whether volunteers are covered by legislation such as workers compensation when done at the

workplace. Unions can also be concerned that they displace union labour. More generally, concern can arise that volunteering reduces the pressure on governments to carry out those activities. COLLECTIVE BARGAINING MECHANISM FOR DEALING WITH RISK

Collective bargaining is an alternative mechanism for dealing with labour market and workplace risk. In fact, a rallying cry of the trade union movement is to “take labour out of the

labour market” and that “labour is not a commodity”(both implying that labour should not be subject to the risks and vicissitudes of markets).

Mechanisms Whereby Collective Bargaining Deals with Risk

Within collective bargaining, there are a variety of mechanisms that deal with labour market and workplace risk.

Collective agreement provisions can deal directly with risk. For example, unions can negotiate risk premiums or “hazard pay” to compensate for risk such as when a premium is negotiated for underground mining as opposed to above ground mining. Union can be particularly effective in this area since they can have better information on the risks than do

individual employees – a particularly important issue when there is otherwise complex and possibly asymmetric information and employers have an incentive to hide the risk. Collective

agreement provisions can also deal with the risk of layoff, as when it is to be based on seniority, and advance notice or severance pay is required. Unions can also provide supplementary unemployment insurance in the case of layoffs. They can also try to prevent the risk of layoff by

procedures such as restrictions on subcontracting.

Unions can also negotiate “fringe” benefits many of which deal with mitigating risk. This is the case with health and disability benefits, supplementary unemployment insurance

benefits and pension benefits. Of course, such benefits exist in non-union workplaces, but they may be more effective in union workplaces given the complexities of monitoring the worth of

such benefits as well as ensuring their payouts.

The grievance procedure also provides a mechanism for dealing with workplace risk in that it provides for a degree of due process in interpreting the clauses of the collective agreement. This is especially the case for the most common type of grievance that reaches arbitration –discipline and discharge. Employers are required to show “just cause” to protect against an unjust dismissal charge.

Unions can also play an important role in enforcing legislative initiatives and in protecting workers against reprisals by management if complaints are lodged. The union role can be particularly important in complex areas like health and safety legislation, again because of

the asymmetric information possessed by employers. It can also be important in the area of pay equity given the complexities involved in every step: defining the gender dominance of the job;

using job evaluation procedures to evaluate the “worth” of the jobs; relating job evaluation points to the pay in male-dominated and female-dominated jobs; and adjusting the pay in undervalued female-dominated jobs to the pay of male-dominated jobs.

Even in areas where legislation already exists, unions may repeat the legislative requirements in the collective agreement. This adds additional security for a number of reasons:

the legislation is now subject to the grievance procedure; the requirement remains in the collective agreement if the legislation is rescinded; and workers are made more aware of the

legislative requirements.

Broader Sectoral and National Initiatives With respect to labour market and social risk, unions also play a broader role at the sectoral as well as provincial and national levels. They obviously lobby for legislative initiatives

in these areas but they also play a more direct role. New Initiatives in Providing Benefit Plans

Most “fringe” benefit plans in a unionized workplace are employer controlled with unions simply negotiating the cost-sharing arrangement and the level of benefits. Occasionally,

however, unions have taken the initiative in directly providing benefit plans in such areas as health, disability, medical and dental services, and pensions as well as life insurance, credit

provision and substance abuse. Such union sponsored plans have arisen especially in areas where the multiplicity of small employers(e.g., construction) or small bargaining units make

employer plans less common. They are often geared to a specific union or sector, but sometimes allow membership to other union workers.

Worker Buyouts of Failing Firms

Plant closings from bankruptcy represent one of the most severe forms of risk to workers  for a number of reasons. Workers generally experience not only a period of

unemployment but also a wage loss when displaced. In their job search process, there may be

“congestion” effects as they compete with a large pool of displaced co-workers, especially if the

plant is a large employer in the community. This can also lead to a reduction in the value of their home. Pension benefits could be at risk, and their wage claims may be low on the spectrum of

creditor claims. If the plant closing is in a declining industry(as is commonly the case) they may lose industry-specific human capital. If they have to leave the community, they may lose their

network of social capital.

Under such circumstances, workers may try to mitigate those risks by engaging in an  employee buyout of the failing firm. Employee ownership could facilitate the continuation of

the firm for a number of reasons. It may facilitate concession bargaining since there is no longer

an asymmetric information problem – employees are essentially bargaining with themselves. Labour-management conflict may no longer be an issue, and employees may be motivated by the empowerment of their ownership and place peer pressure on fellow employees who shirk.

Employee buyouts, however, may have disadvantages as a mechanism for dealing with the risk of plant closing. As indicated previously, it is a poor form of risk diversification since employees are now adding some of their savings to an already undiversified portfolio that

includes their wages, human capital, pensions, and possibly home and community capital. As well, it is not clear that their individual motivation and effort would be enhanced since they only get 1/n of the returns from that enhanced individual effort(where n is the number of employees). Also, there may be a bias towards more immediate “dividends” in the form of wage increases or no layoffs rather than capital investments that may be necessary for the long-run viability of the firm. They may have trouble raising investment capital since the capital market may perceive such funds as going into wages and job security as opposed to investments. When unions are

involved, legal issues can also arise over conflicts of interest and the duty of fair representation  of employees on the part of the union.

Overall, employee buyouts reduce some risk but increase others and certainly do not lead to a diversified portfolio with respect to workers risk. As stated by the auto workers in

explaining their reluctance to go down the road of employee buyouts: “It simply does not make sense for workers with limited savings, to risk an investment in operations which businesses find too risky and which the market has already rejected.” From the perspective of public policy, it likely makes the most sense for governments to be relatively neutral in this area thereby allowing buyouts to occur when the private parties and

markets decree that the previously discussed advantages of the buyouts outweigh their disadvantages. Large scale government assistance in this area likely runs the risk that the parties

themselves will “game against” the assistance and not feel compelled to engage in the fundamental restructuring that is necessary. While this may postpone the inevitable adjustment,

it may make it even more costly once it occurs because the private parties themselves have not

continually adjusted at the margin(e.g., attrition, wage concessions) leading to infra marginal

adjustments(eventual plant closing) that are likely to be more costly .

Changing Role of Unions in Dealing with Workplace and Labour Market Risk To the extent that unions are in decline, they may be less able to play their role in mitigating workplace and labour market risk. As well, if they decline below some critical level,

they may not be a credible threat that would pressure employers to provide similar protections to workers to avoid being unionised.

It is also the case, however, that the protection of “insiders” or union members from labour market and workplace risk may come partially at the expense of exposing “outsiders” to

greater risk as discussed previously. The union response, of course, is to convert “outsiders” to

“insiders” to protect all workers from such risks. In the absence of this unlikely scenario, unions will continue to have a complicated effect on the level and distribution of workplace and labour market risk. They will reduce risk for “insiders” but likely at the expense of increased risk for

“outsiders” although this may be mitigated by the threat effect and by union support for legislative initiatives designed to extend protection to non-union “outsiders.” As such, the

overall effect of unions and collective bargaining on labour market and workplace risk is theoretically indeterminate. It is likely that they have reduced the overall exposure of all workers

to workplace and labour market risk, but possibly at the expense of increasing the dispersion of that risk between “insiders” and “outsiders”.

Unions may be on the defensive given the general decline in unionization in most developed countries and the greater threat of capital to “move” to non-union environments under

globalisation and trade liberalisation. While this may mitigate their ability to reduce labour market and workplace risk, it may also pressure them to re-orient their emphasis away from their

“monopoly face”(with its emphasis on wage and benefit gains) and towards their “voice

function”(with its emphasis on due process at the workplace). Their role in wage gains may be increasingly circumscribed by the imperatives of global competition – wage premiums of 15 to

20 percent may not be sustainable in an increasingly competitive environment characterised by freer trade, mobile capital and flexible factories that can easily be located in “Greenfield” sites

and linked by advanced communications systems and just-in-time delivery. In such circumstances, unions may rationally emphasise their “voice” function to appeal to workers by

providing due process – a function that is less costly to employers and hence that can survive in

more competitive markets.

This voice function can take many forms as discussed previously. These include: increased emphasis on the grievance procedure for legitimate grievances; articulating the

preferences of workers for different fringe benefit provisions; direct sponsorship of such benefits; involvement in joint labour-management committees; monitoring legislative initiatives

like health and safety that may also be in the interest of employers(e.g., for reducing workplace

accidents); and being involved in sector council or other initiatives that may foster training, skills

development and credential recognition. Many of these initiatives are directed towards reducing various forms of workplace and labour market risk for workers. In that vein, the increased competitive pressures on unions can pressure them to reallocate their emphasis from a rent-seeking monopoly face towards a voice oriented face that focuses more on protecting workers from various forms of risk. Their reduced ability to garner wage gains need not translate into a

reduce ability to protect workers from various forms of risk; in fact, it may lead to a strategic reallocation of efforts in that direction. While management may not resist this voice face as much as the more costly monopoly union face, they may prefer to provide such risk protection themselves, in part so that credit goes

to the employer rather than to the union, and in part as a proactive response to deter unionisation. They may do so in various forms of non-union employee representation including peer-review  grievance procedures; joint labour-management committees and councils; employee involvement programs; and professional employee associations. Overall Pros and Cons of Collective Bargaining as a Mechanism for Dealing with Risk  Unions and collective bargaining can be a viable mechanism for dealing with workplace

risk for a number of reasons. Unions can:

• Provide information on the nature of the risks(important given the asymmetric information that may exist)

• Determine the internal preferences of the workforce and articulate those to management

• Facilitate enforcing legislative initiatives in this area

• Protect workers who complain against reprisals by management

• Codify some of the legislative provisions in the collective agreement, and bargain for

other risk reducing provisions in the agreement

• Provide a neutral dispute resolution procedure(grievance procedure) for interpreting those provisions

• Sponsor some benefit plans of their own.

On the other hand, there are disadvantages of the collective bargaining procedure for dealing

with the various forms of workplace risk. These include:

• Unions are political institutions and hence likely respond to the preferences of the median

union voter, possibly providing extensive protection to such “insiders” perhaps at the

expense of exposing “outsiders” to greater risk • The collective bargaining process can be(but need not be) adversarial and confrontational, and while this may be viable for distributive bargaining issues such as

wages(that were prominent in the old world of work) it may be less viable for the more integrative issues pertaining to risk reduction in the new world of work where there may

be more commonality of interests and potential for “win-win”.

• The grievance procedure may be used strategically as a harassment device in the build-up to bargaining.

Current pressures on unions can reduce their power and hence effectiveness in mitigating risk, but they may also involve a strategic reallocation of union efforts from their monopoly face

with its emphasis on wage gains, to their voice face which could involve more emphasis on mitigating various forms of workplace and labour market risk.

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Human Resource Management

Postby Edoardo » Wed Nov 30, 2016 12:20 am

1.Describe and compare the different types of labour markets?

2.What are the various methods of dealing in labour markets?

3.Explain the concept of the labour market, making sure to include      it's aspects
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