COMPARATIVE INDUSTRIAL RELATIONS

Effect of Public Sector Reforms and Restructuring on Public Sector Industrial Relations
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Institution
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COMPARATIVE INDUSTRIAL RELATIONS

Introduction
Industrial Relations has attracted a wide array of definitions, where it was initially
broadly believed to encompass the interactions and relationships between employees and
employers. Arguing from this viewpoint, Industrial Relations includes all aspects of relationships
regarding employment, covering employee relations, personnel management, and labor relations
(union management) (Aucoin, 1990). Over the last few decades, the term has, however, assumed
a narrower perspective, that largely connects it to relationships regarding unionized employment.
In lieu of this, it entails issues of trade unionism, collective bargaining as well as union
management relationships. In this regard, human resource or personnel management is a separate
field that deals with relationships of the non-unionized employment, employer policies and
personnel practices.
Public sector reforms have been championed since the time of their inception. In a bid to
make the operation of this sector better, various governments have facilitated various reforms in
the areas of healthcare, welfare, government administration as well as other sectors where it the
government holds stakes (Aucoin, 1990). Driving reasons behind public sector reforms include
political reasons, budgetary purposes, ideological reasons, and any event that impedes on the
normal operation of the sector. Other forces include fiscal deficits, financial globalization,
democrization, and multilateral agencies adjustment programs. These reforms have over the
decades brought tremendous changes in operations of the public industrial relations, thereby
incorporating the universal rights of all employees, employers, trade unions and the regulations
of the state. The author of this paper proceeds to discuss how these reforms and restructuring
have affected public industrial relations in Germany, France, Britain, Hungary and Sweden over
the last thirty years.
Overview of Industrial Relations in Core Countries
France

COMPARATIVE INDUSTRIAL RELATIONS

In terms of economic grading, France ranks as one of the biggest among the European
countries. It boasts of over 2.5 million companies, and a demographic capacity of 64 million.
Being an ardent capitalist economy, France is popular for its state-interventionism. Thus, its
inflation rate, gross domestic product, growth of productivity as well as its unemployment rate
are comparable to the standard European Union average (Fulton, 2011)s. Various restructuring
programs like the economic integration, international liberalization, and European integration
have altered greatly the socioeconomic system France. In this regard, the French administration
has settled on privatization of many large state corporations, including insurance companies and
banks, due to the irreversible attack that has been leveled on its traditional model of governance.
In spite of these challenges, France still retains its domineering force in the global market,
particularly in sectors of defense, transport, and energy.
The industrial relations sector of France has been mainly comprised of two main players:
the state and the law. The presence of revolutionary socialists and anarchists has greatly
influenced the employment relations segment of the industrial relations. These players, who have
adopted reactionary or paternalistic postures, work within the labor movement to bring the issues
concerning employment into focus. Traditionally, there has been lack of mutual understanding
and recognition between the state interventionist control in the social and industrial matters; and
the social partners who are agents of reforms in the employment sector. Even today, contentions
and fragmentations are still evident in the industrial relations sector, coupled with weakening
movements of trade unionists. It, however, must be acknowledged that French industrial relations
system has changed remarkably over the past few decades.
Germany
Germany, being the largest economy in Europe, has over 7.9 million trade unions, though
this is inclusive of the retired unions as well. About 68% of the employees have worked in the
services sector according to recent statistics, which shows a marked increase in personal

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businesses, with a corresponding decline in state services (Fulton, 2011). The industrial relations
system has changed a lot since the Great World War II, which occurred in the Federal Republic
of Germany, extending further to the east of Germany following the 1990 reunification (EIRR,
1993). This shape-up had a main goal of depoliticizing the industrial relations system, and
uprooting sources of conflicts out of the workplace. The dual system of interest representation,
is a legislative tie which governs employers and trade unions which are key players in works
council and collective bargaining in the sector of employee representation in the workplace
(Bchner, 1993). The Transport and Traffic Union is the largest of all employee unions in
Germany, which collaborates with any of the three central negotiation partners (Land, Federal,
and Municipality) to strike an agreement.
The Collective Agreements Act of 1949 governs collective bargaining in the industrial
sector. It holds that only the trade unions have the jurisdiction to conclude agreements on behalf
of the employees and employers, while the latter act as members in the bargaining bench. In the
private sector, the Works Constitution governs the representation of employees (Bchner, 1993).
Employer organizations and trade unions have been facing challenges of declining membership
as most organizations decide to carry out their bargains at company level. Restructuring as well
public sector reforms thus become inevitable in ensuring adequate employee representation.
In Germany, the dominant section of collective bargaining takes place at the sectorial
level, which is mainly done at the regional levels. Public sector reforms have seen a decline in
agreements being made at the national level. The Ministry of Labor and Social Affairs is
mandated to declare working conditions and wages under certain conditions to be binding
(Bchner, 1993). Recently, there has been a trend towards decentralization of the system of
collective bargaining, as the traditional coverage of collective bargaining in the agreements of

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branch levels decline. Workplace representation, as earlier mentioned, is taken care of by work
councils who have extensive powers including right of veto on particular issues.
Hungary
In the state of Hungary, there has been widespread public management reforms and state
restructuring over the past few decades. After the deep recession which it experienced after the
transition from a state-socialist system, which led to loss of over 1 million jobs, the rate of
unemployment grew rapidly as the Gross Domestic Product contracted by about 17% in the early
1990s (Neumann, 2002). The trade union of Hungary economy is a fragmented one, unlike that
of other European countries. There are six competing confederations, covering a union density of
about 17%. These six trade unions emerged from the unified confederation SZOT, which was
dominant during the 1980s, and later divided into two, LIGA and MOSZ, as a result of
movements of anti-communists and local protests activists (Fulton, 2011). These unions are
affiliated to political parties, where the latter signed an agreement with the socialist party; while
other unions also profess greater alliances with political parties.
The framework collective bargaining in Hungary is such that bargaining takes place at the
organization/company level, despite repeated efforts by the government and the unions to bring
raise the level of bargaining to industry. These negotiations at the company/organization level are
held between the unions and employers associations. The socialist government reversed the right
that had once rested on work councils to participate in the negotiations. The socialist government
brought in several alterations, including the National Interest Reconciliation Council, a tripartite
body that could be used by the unions to influence developments on bargaining (Neumann,
2002). This council had the mandate to agree with other three parties on the minimum wages
nationally, as well as the minimum rates for the skilled personnel. It also proposed pay increases
in line with changing economic aura. It was later replaced by another body called NGIT, which
would no longer have the right to set minimum wages and rates, but would include a wide

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variety of organizations, including churches and chambers of commerce (Koltay, & Neumann,
2006).
The industrial relations of the state of Hungary have been affected by the abolishment of
the National Interest Reconciliation Council, which has worsened the situation for the trade
unions. The minimum wages and rates of low-bargainers are now set by a government decree.
Drawing lessons from Germany, Hungary instituted the work councils in 1992, though they had
fewer powers as compared to those in Germany (Koltay, & Neumann, 2006). They only had
some rights on consultation and information, though they often find it difficult to influence
decisions made by companies/organizations. The work council works alternately with the trade
unions, where the latter have consultation and negotiation rights.
Sweden
Swedens public sector is economically, organizationally and politically divided into three
main sectors: the county councils, municipalities and the state. Of the total number of employees,
only 25% are employed by the state and the county council, while the municipality has a higher
figure of about 50% (Fulton, 2011). Both the county councils and the municipality are
autonomous bodies from the state, and are at liberty to levy their own taxes. The latter is
responsible for emergency services, education, public utilities and transport, while the former
takes care of health care. The total number of employees in the Swedish government is about
four million, with the public sector employing close to one third of the number. Conversely, the
industrial sector employment has dramatically decreased since 1980s, giving way to the
insurgence in the public sector (Bouckaert, 2009).
Swedens industrialization came late but rapidly, and has received credit for having
properly organized employee organizations and trade union movements. The employment system
and the welfare state are still characterized by serious social protection policies, anchored on
solidarity and universal coverage; low unemployment rates; enormous public sector; and

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regulation of labor market brought about by binding collective agreements. In line with these, the
economy has been on an upward growth up to 2008, when it manifested a downturn. Sweden
became a member of the European Union in 1995, though it is not a partner in the monetary
union, thus, still produces its own currency (Westmark & Lnebildningen, 2009). Since it relies
heavily on exports, the Swedish economy is very sensitive to changes in the international
markets, and regards highly the contribution of its workers to the overall success of the
exportation process.
Employee participation and consultation in the work is regulated by the Codetermination
Act, which is implemented through collective agreements. This Act gives trade unions power to
elect representatives, be consulted in the event of decision making, and receive any information
pertaining to any collective agreements. There is a high density of trade unions in Sweden, due to
the great unionization of the white-collar employees. This density has however been on the
decline since 1990s, due to sufficient reforms instituted in the public sector, particularly the
governments move to amend the unemployment fees (Bouckaert, 2009).
The framework of collective bargaining in the country is defined by the national
agreement made between the parties involved, as well as the regulation that guides them.
Negotiations for pay rise and working time are done at the sectorial levels, which provide more
details of the collective agreements reached by parties (Industrial Relations Developments in the
Telecommunications Industry, p.270). In the last 15 years, the structure of collective bargaining
has become less centralized, where power of negotiation of work time and wages is delegated to
the local level by the social partners (Kjellberg, 1992). Agreements affecting several industries,
like collective insurance and pensions are still concluded by the trade unions and employer
confederations. The Employment Security Council, which deducts a portion of the wage paid to

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employees has become very important in employee transition, as it is used to pay redundant
workers looking for new jobs.
Effects of Public Sector Reforms and Restructuring in Industrial Relations
France
As abovementioned, the industrial relations system in France has undergone tremendous
changes, which has come in the form of restructuring of the public sector. These reforms have
served to positively shift the level of operations in the system, thereby making it better for
employment relationships, trade unionists and state-reservationists to survive more mutually than
the traditional system. For instance, the bargaining system has become decentralized, where
companies have a greater autonomy coming from both collective agreements and labor
legislation. One propelling force to this revolution was the Movement of French Enterprises, relaunched by the employer confederation in 1998 (Fulton, 2011), which energetically promoted
this trend in light of its Social Reforms campaign. Several agenda were further introduced under
this catchphrase, comprising of the employment, wages and production issues. For instance, in
recent years, several agreements have been signed by the French Ministry of Labor which cover
areas like employment of professional and managerial staff, security of professional agreements,
unemployment insurance and complementary pensions. In the year 2011 alone, a total of 1, 195
agreements in the industrial relations sector were concluded, as well as 34000 company
agreements, which can be alluded to the presence of participative sectorial chiefs, who
participate in a dynamic regional social dialogue.
These dialogues and reforms have brought into light the plight of the older workers,
whose agenda have occupied an important place in the restructuring. Currently, beyond the
common themes of salaries, professional classifications and working time, a legal framework
exits which considers the plight of the older workers. In addition, the social partners, in 2009,
reached an agreement to increase the allowances for partial unemployment, so as to strengthen

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the purchasing power of employees under this category. The effect of this is that unemployment
redundancies have been avoided, which has been critical in mitigating the effects brought by
economic crisis on employment. As the four main global issues proceed to drive public sector
reforms, i.e. fiscal deficits, financial globalization, democrization, and multilateral agencies
adjustment programs, effects on industrial relations continue to be felt positively across the
board. Finally, the reforms have seen the hierarchical, interventionist, nationalist and
redistributive character of the French state which is believed to be responsible for the poor
service delivery decrease in its autonomous capacity, to pave way for a lean, friendly, customeroriented and decentralized system.
Germany
The various public sector reforms and restructuring that have been adopted in Germany
are geared towards adapting to the economic environment, which is in constant, rapid change.
The main reasons behind these reforms are three: in the year 2000, the administrative reform of
international development had been sanctioned and German government had not gone along with
it, due to the adverse effects of unification and Europeanization on its economy, which made it
had for the government to adapt to the reforms; revenues became stagnant coupled with
increased fiscal resistance and economic pressure; and unique social and technical challenges
were emerging, as political situations became more unstable, thereby worsening the employment
rate and conditions in the economy (Lindqvist, 2012).
The German government thus took remedial actions to reform the public sector, one
major area of concern being the model of federalism (EIRR, 1993). Though initially successful,
this model could not bring an end to the several disparities experienced in the process of
territorial reforms. It was thus taken as a cyclical development procedure that was aimed at
providing better working relationships between the employers, employees and trade unionists.
Reforms relating to the civil servants technical capacities in policy implementation and analysis;

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10

restructuring of pays to motivate staff; and ensuring sustainability of projects by means of

efficient management of costs which are recurring these were considered as important, and all
proved to better the industrial relations in the economy of Germany.
In retrospect, the German public sector reforms have been incremental rather than being
characterized by fundamental change. In the early 1900s, the agenda for public management was
largely led by the Unification process as well other related polices regarding public sector
restructuring, which imposed principles and the structure of West German new Laender public
administration (Fulton, 2011). From then, the fiscal crisis brought increased interest in brand
public management strategies within the public sector of the German economy. Due to these
reforms, the average level of strikes in Germany is lower compared to other European countries,
where the relative weight of industrial action per every 1000 employees was 4.6 days each year,
since 2000-2007 (Fulton, 2011). Currently, the most common form of strikes practiced by union
member is the warning strike, which serves the purpose of demonstrating the unions
determination and its power over the employee mass.
In addition to the above mentioned effects, the industrial relations sector in Germany has
also experienced changes in the nature of collective bargaining autonomy. The public sector,
apart from civil servants, is all entitled to strike collective agreements without authentication
from the parliament, covering both white- and blue-collar employees (Bchner, 1993). In case a
collective agreement is not concluded at the basic levels, reforms have provided for a legal
arbitration which is aimed at balancing conflict of interest, and avoiding impending industrial
strikes. Through this process, a collective agreement can be concluded without a strike, thus
maintaining good industrial relations.
Hungary
The wake of 1980s saw an increase in employment magnitudes in Hungary public sector,
with the rates rising from 16 to 22% (Fulton, 2011). The role of the public sector thus increased

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11

in the socialist system, where there was a transition in the private sector labor demands. Among
the European countries, Hungary has the largest public sector, form the viewpoints of both output
and input. Salaries and earnings of the public servants and employees had been steady been
steady up to 1995, when reforms brought more employees such the wages and salaries have
decreased tremendously with the end of the socialist tenure (Koltay, & Neumann, 2006). Thus,
most employees have lost their positions, and the gap between public-private salaries has also
increased from 25 to 58%, taking maximum figures (Lindqvist, 2012). The increasing gap
between the public and private sector earnings has two major effects: increasing the number of
unqualified personnel in the public sector; and increase in illegal benefits in compensation of
workers.
In addition to the employer relations existing in Hungarian industrial relations, economic
chambers also exist, with voluntary membership. Though not allowed to conclude collective
agreements, they have been reformed to participate more heavily in consultations regarding
macroeconomic issues, as well other important forums (Neumann, 2002). These chambers have
brought effect on the nature of collective bargaining in the economy, advocating for more pay
increases and employment rates, thus avoiding possible strikes which would result from lack of
failed agreements between trade unions and employers associations and the state. These
employer organizations have also been mandated to act as business associations, assuming the
role of business service providers and lobbyist groups. Together, they ensure that negotiating
parties enter binding collective agreements, which serve to better the welfare of employees in the
industry.
The establishment of the Sectorial Social Dialogue Committees has led to the
confederations members strengthening their industrial relations. Financial participation of the
employees, which comes in the forms of profit sharing, cooperatives and employee ownership

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12

have diminished overtime, becoming insignificant with new changes in the system. The only
type of ownership still evident up to today is Hungarian Employee Share Ownership Program.
Employee ownership was introduced initially during the revolution in 1956, as workers councils
(Crouch, 1993). Later in 1968, the New Economic Mechanism reforms saw a number of new
financial incentives being introduced, such as profit sharing. This became part of the unilaterally
controlled systems of payroll controlled in the companies owned by the state. In 1982, another
initiative was introduced, termed the Enterprise Business Partnership, which was an
entrepreneurial business organized with a few workers and enjoyed greater autonomy in the
market (Neumann, 2002). They had the power to retain any extra earnings made by workers.
Later, self-government of companies was introduced, that gave mandate to state enterprises to be
governed by Enterprise Assemblies or Councils put in office by the workers themselves. This
move increased company autonomy and through it, the privatization exercise started in 1989,
allowing big state corporations to be transformed into joint-stock and limited liability companies,
thus commencing the transition from the older type of economy to market economy.
Sweden
There have been a lot of reforms in the public sector of the Swedish government that
have affected its industrial relations. A remarkable example is that before the year 1975, social
partners and local parties had very little bargaining scope. In the wake of 1980s, the partners
resorted to sectorial system of bargaining, thereby abandoning the central model (Kjellberg,
1992). This changed a lot later in the subsequent years, with the enactment of the Industrial
Agreement, which had a normative role in the central bargaining system for pay rises and
working time. Several other reforms have taken place in Sweden, including: decentralization of
industrial responsibilities to various agencies dealing with issues of personnel, thus slimming
down the operations and role of central government; reduction in public expenditure through

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13

emphasis on long-term efficiency by the center-right coalition of 1991; making municipalities

more autonomous, by reducing regulations of the central state; moving to decentralize systems of
pay determination; management strengthening by evaluation and objectives systems; and
opening privatization policies to completion even by the local partners (Kjellberg, 1992).
These reforms and restructuring have over the decades brought significant changes in the
nature of industrial relations in the Swedish economy. For example, lately, there has been a rise
in the number of court verdicts being made in favor of the employees in the Swedish Labor
Court (Matei, & Lazr, 2011, p.70). This follows a move by the employee organizations to settle
their grievances in the law courts, rather than out in the streets and failed negotiation forums.
Because of increased autonomy among the trade unions and employer organizations, collective
agreements on pay rise and work time matters are easily concluded, thus avoiding strikes and
mass industrial action. Furthermore, negotiations between the employers, unions and the
government have seen a marked increase in employment opportunities creation, especially for
the youth. The unions have also set to put to an end to the surge of unemployment redundancies
in Sweden, after this trend became alarming (Bouckaert, 2009).
The industrial relations in Sweden can be said to be the most efficient among the
European Union countries, with fewer strikes and better remuneration and working conditions
for employees (Westmark & Lnebildningen, 2009). This is because of the autonomy of the trade
unions, and the decentralization of the bargaining mandate to local levels.
Conclusion
There are basically four main driving forces to public sector reforms in most economies:
financial globalization, democrization, multilateral agencies adjustment programs and fiscal
deficits. Other local forces include efforts by the trade unions to better the lives of both private
and public sector employees, and to increase the number of people employed, thereby reducing
trends of redundancy. Main issues surrounding industrial relations include economic status of a

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14

country, workplace representation of employees, trade unions, collective bargaining, and other
levels of representation, comprising of board and European levels. Comparatively, among the
four core countries discussed, Sweden has better industrial relations, due to the nature of reforms
initiated within its central and local systems. From the arguments presented herein, it can be
concluded that the public sector of the core countries still need more reforms and restructuring to
completely better their industrial relations situation. It must, however, be acknowledged that all
the economies have made tremendous efforts towards having an inclusive system of governance,
which takes into account the plight of both public and private sector employees.

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