Germany Offers a Model to Corporate America on Labor Relations

The following blog post discusses this article published by the Wall Street Journal.

The article discusses Germany’s consideration of employees in labor reduction decisions. In Germany, employees expect to be involved in important decision making, a certain level of job stability, and high labor protections. This is particularly evident in the way that German companies approach mass lay-offs and staffing reductions. There are ways that companies reduce their number of employees either voluntarily or without completely eliminating their positions including short-time work, early retirement, or buyouts.

Chapter 6 discusses the extent of a host country’s environment on human resources practices. There are two concepts discussed in the chapter that I found particularly relevant. The chapter talks about the differences between “Fordism” and “Toyotaism” in the production of their respective automobiles. By minimizing employee decision making, Ford reflected the United States’ focus on short-term employment. Toyota, on the other hand, drove its production based on human knowledge and therefore fit the Japanese expectation of long-term, lifelong employment. This parallels the situation in Germany where companies are taking a long-term, lifelong employment approach to their employees. German employers would rather retain the employees at a part-time level rather than eliminate their position, signifying an employment contract that expands past what the employee was initially hired for. This contracts the mass-layoff approach that is unfortunately common among American corporations.

Chapter 6 also discusses the differences of industrial relations systems in various countries. The article mentions how sometimes the government will subsidize the salaries of workers when companies are needing to downsize. Variations in government participation with the corporate sector, legal arrangements, and the role of unions also play an important role in creating these differences between employment practices in the United States and in Germany.

I was intrigued by how the article tied fluctuations in economic demand to the different ways of dismissing employees. I thought it was interesting how dismissing employees in a mass-layoff during a recession was initially cost effective, but then made the company less flexible in production capacity when demand started to increase (especially in a short-term recession). On the other hand, providing short-term staffing or subsidized staffing options when reducing a company’s workforce is beneficial in short economic downturns, but costly in long economic slumps as the company retains excess employees during the course of the recession. I think that this explanation really helped me realize how understanding international human resources concepts not only promotes positive employee relations, but it also improves the bottom line.

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