Deregulation, labour market, industrial relations, HRM.
In attempting to answer the questions of how deregulation of the labour market influences the power balance between firms and employees and what consequences may this have on human resource management practices we will broadly consider the environmental factors affecting this power balance and some of the practices firms and employees may adopt in expressing power. The expectation that deregulation of the labour market would lead to liberal market economies with a competitive labour market where firms adopt high performance practices failed to materialise and instead led to conflict between firms and employees as they exert their power both within the labour market and within the working environment through HRM practices, social relationship, skills, and wages.
The deregulation of the labour market began in the 1980’s as an attempt to decrease unemployment and increase national productivity. With regulation of the labour market regarded as constraining productivity, and the effects of globalisation and the opportunity to increase productivity through export, countries saw pursuing the approach of deregulating the labour market as a means to introduce flexibility and achieve greater competitive success. The deregulation of the labour market then, is a response to the “problem of declining competitiveness in Western economies” (Heery, 2014).
It is within this historic context that the deregulation of the labour market became closely associated with firm commercial performance. However, in retrospect it has been difficult for academic research to uncover a causal connection between the deregulation of the labour market within national economies and an increase in productivity and performance for firms within those economies. It seems more likely that if there is any connection between the deregulation of the labour market and firm productivity and performance, it is at most an indirect relationship. In European countries at least, Labour regulations play a considerably smaller role in economic performance than product markets (Koedijk & Kremers, 2014).
Labour markets with comparatively higher regulation and institutional control over HRM activities can be associated with coordinated market economies (CMEs), whilst lower levels of regulation and a greater reliance on market forces to control the labour market are more closely connected with liberal market economies (LMEs) (Hall & Soskice 2001). The range of HRM practices which firms are able to utilise in CMEs involve greater coordinated control than in LMEs (Farndale et al, 2008) whereas firms operating in LMEs have an increased freedom to select HRM practices that ensure they have a position of power over employees to meet their strategic needs.
The relational view of the firm taken by Soskice and Hall sees “firms as actors seeking to develop and exploit core competencies or dynamic capabilities (Teece & Pisano, 1998)” in order to resolve coordination issues in five ‘spheres’ that are essential to the firm's core competencies (Hall & Soskice 2001):
This relational view is useful for considering how the firm expresses its power relationships as each of the spheres represents other ‘actors’ which in order to coordinate to the maximum benefit for the firm must have control of all spheres.
In seeking to understand how these coordination issues might be resolved satisfactorily it is important to recognise that the relationships between these actors, particularly internal actors, are problematic (Hall & Soskice 2001), and that this is central to our question about the balance of power between firms and employees. Firms within liberal market economies such as the UK and US approach coordination issues such as those in the sphere of inter-firm relations through formal contracts and competitive tendering whereas firms operating in a coordinated market economy such as France and Germany will approach coordination of a sphere such as vocational training and education through national schemes. Firms will undertake their coordination activities in whichever mode is institutional supported (Hall & Soskice 2001) and seek to operate within it in ways that increase performance.
The expected outcome of operating in an LME with less regulation leading to greater competitiveness in the labour market through providing incentives to “adopt ‘high-performance’ practices as a means of improving their productivity” (Askenazy and Forth, 2016) proved incorrect in an analysis of network industries in Britain (less regulated) and France (more regulated), showing instead that Britain had low adoption of management practices, and that consequently the relationship between operating in a market economy that allows for the adoption of management practices and the adoption of such practices is not straightforward (Askenazy and Forth, 2016).
Applying a conventional Marxist criticism of Liberal Market Economies in which conflict is key and the economic system is regarded as being inherently unstable because it is “founded on the opposing interests of different social classes” (Frege, Kelly & McGovern 2011), we can consider that those coordination issues can never be resolved and are instead necessary in order to maintain a dynamic balance of continually shifting power between the firm and the employees, suggesting that regulated CME’s or re-regulated LME’s are more conducive to stable economic outcomes for firms and nations as a result of more stable power relationships between firms and employees..