The servant problem

by John Quiggin on June 29, 2006

Like many countries Australia is experiencing Industrial Relations reform. The reforms are a curious mixture of deregulation and compulsion. On the one hand, all sorts of conditions and requirements are stripped away, but in their place there has been created an array of new criminal and civil offences, prohibited terms in contracts, requirements to offer particular employment forms such as AWAs and so on.

Making sense of this seeming contradiction is not so hard. The deregulation is all for employers, and the regulation is all imposed on workers and, particularly, unions. Lockouts are now almost unrestricted, but strikes are subject to strict regulation. Employers cannot be sued for unfair dismissal, but employees are prohibited from including protection against unfair dismissal in a proposed employment contract and so on.

An obvious interpretation is the Marxist one, that this is class-based legislation, designed to increase profits and reduce wages by driving down workers’ bargaining power. That’s part of the story but not, I think, the most important part.

The real issue, I think, relates to the personal power relationship between employers and employees. The complaints of employers about bad employees and the difficulty of sacking them echo very closely the complaints of a century ago that ‘you can’t get good servants any more’. The changes made in the IR laws make most sense if they are read as an attempt to remove constraints on the day-to-day power of bosses to be bosses, whether these constraints are imposed by law, by collective agreements or by individual contracts with workers.

This also helps to explain some of the class alignments we see in Australian politics. While political alignments continue to be determined to a significant extent by income, there are groups with relatively high incomes, such as academics and other professionsals, who tend to support Labor. On the other side of the fence, managers tend to support the conservative parties more strongly than their incomes alone would suggest. The obvious point is that managers are, by definition, bosses. Professionals, who mostly in hierarchical institutions, can identify either as bosses or workers, but with the rise of managerialism, most professionals find themselves on the workers side of the divide.

{ 19 comments }

1

Sebastian Holsclaw 06.29.06 at 10:25 am

“The complaints of employers about bad employees and the difficulty of sacking them echo very closely the complaints of a century ago that ‘you can’t get good servants any more’.”

It really doesn’t echo very closely. The problem is not the lack of good employees. There are plenty of them out there. The problem is that screening mechanisms are imperfect and you can’t get rid of the bad ones who come through. You can’t afford to take another risk to hire someone to do the work of the person who is a bad employee because you a) can’t afford it and b) really can’t afford the risk of landing yet another bad employee.

Since you can’t fire them, you end up focusing on making the screening mechanism as good as you can. This benefits people who interview well and acts to the detriment of those who don’t (regardless of how they would actually do on the job). Now I’m someone who interviews well so that is great for me, but there are plenty of excellent workers who don’t particularly interview well so that isn’t so great for them or the companies who miss out on them.

This is one of the reasons why credentialism gains power–it is one of the tools that human resources departments can use to try to sort the bad from the good apart from interviewing or directly observing their work. In my experience this works to get a certain type of minimum, but often excludes excellent lower class specialists who have useful experience but no credential. The proliferation of silly credentials wouldn’t be seen as necessary if you could easily try someone out and see what happens. So like many policies there are all sorts of trade-offs. But it isn’t about aristocracy.

2

Kenny Easwaran 06.29.06 at 10:46 am

“You can’t get good servants any more” isn’t actually uttered only in contexts in which one can’t get good servants.

3

otto 06.29.06 at 12:00 pm

I am pleased to hear that in Australia academics are on relatively high incomes.

4

Jim Harrison 06.29.06 at 12:10 pm

The trick is to come up with employment laws that protect the human rights of workers while giving managers the authority they need to run their concerns. What we’re likely to get, I’m afraid, is just the reverse, a situation in which the corporations exert greater and greater control over the private lives and political activities of their workers while losing their effective cooperation. During the decline of the Soviet Union, the workers used to say “we pretend to work. They pretend to pay us.” I expect we’ll see a capitalist version of this situation as business increases the level of exploitation to maintain profits in the face of economic stagnation brought on by the environmental and demographic transition already well underway.

5

Z 06.29.06 at 12:15 pm

Since you can’t fire them etc.

I don’t know where this idea comes from. In France, rather well-known for the difficulty of firing employees, you have a three-month trial period at least, and in many cases, it can be extended to six months (and it is). I’d say the manager who has not asserted the value of his employee after six months is not very perceptive.

John, I am no expert in Marxist reasonning, but the idea that one’s political choices reflect the balance of power one has within the society does not seem alien to Marx. But maybe I misunderstood you.

6

Scott Martens 06.29.06 at 12:33 pm

Yeah, the Belgian system seems quite straightforward in this respect too. You get a six month trial period when you can be fired without financial consequences, and after that period you receive a sizable but negotiable package, usually equal to six months to a year of salary depending on seniority, if you are fired after that. My understanding is that union contracts here don’t usually ask for more than that as protection for individual workers.

While that makes it expensive to fire people, it is a pretty uniform rule so it has no effect on the competitiveness of individual firms. In Belgium, it’s legal to get rid of workers at any time for any reason other than specifically forbidden discrimination.

Any rule designed to protect the rights of workers will have costs for employers. Any reduction of rights for workers will raise worker’s costs and risks. If the rule is uniform and set up in a way that doesn’t discriminate between firms, I don’t see the problem. Firms should bear costs for poor hiring decisions and bad human resource planning. You could make a case that the costs born by employers is too high – that the balance between employer risk and employee risk is off – but then you have to make the complementary argument that workers should therefore bear more costs.

7

Lukas 06.29.06 at 12:55 pm

“I’d say the manager who has not asserted the value of his employee after six months is not very perceptive.”

That’s a rather glib generalization. What if the needs of the business change? What if the behavior of the employee changes, for whatever reason?

8

Z 06.29.06 at 1:37 pm

Lukas, you are right, of course. I was answering to Sebastian’s point that difficulty in laying off employees induce overemphasize on screening process. While it may be true that there is an exagerated emphasize on interviews, I can’t accept at face value the claim that it is because that’s the manager’s only chance to evaluate the employee. He gets a good six month period afterwards.

9

Lukas 06.29.06 at 1:58 pm

Ah, that makes sense. However I still believe a limited trial period is insufficient, so I will argue with Scott for a bit…

“Firms should bear costs for poor hiring decisions and bad human resource planning.”

Why should firms bear all and employees none? (I’d argue that a year’s salary effectively removes all risk of a downturn in business from the employee.)

What this will mean in practice, given the unpredictability of operating a large business and the speed of competition, is that businesses will become extremely risk-averse. They will hire rarely and fire rarely. They will look for industries in which they can entrench themselves – through government preference, or by owning some asset, such as intellectual property.

It’s hard to argue about this without arguing about the entire European model for capitalism – close alliance between industry and government, national champion firms, etc. If that’s your starting point, these regulations won’t seem so terrible. But if you think the strength of capitalism lies in creative destruction, as I do, well…

10

Scott Martens 06.29.06 at 2:48 pm

Lukas, the employer is the one that makes poor hiring decisions and bad human resource plans, not the employee. Normally, we consider it more just for those responsible for decisions to bear their consequences.

However, employees already bear considerable risk from employers mistakes. They have no guarantee of finding work with the same pay, or at all. Older employees here are routinely unable to obtain comparable work. Giving employees a significant sum up front does not guarantee that they will not face financial losses due to losing their jobs, regardless of the state of the business cycle.

In Belgium, I’ve worked for one high tech start up in a research position, and will probably soon be starting work in a second – so it’s not like there are no innovating businesses here. It seems to me the Flemish government is claiming SME’s are the primary employers, rather than large risk-averse firms with connections. Creative workers are usually the ones that a firm trying to get ahead through innovation is the least likely to fire. So your claims about European capitalism strike me as unfounded.

11

w 06.29.06 at 3:17 pm

John was right when he put aside Marx, whose portrait of industrial society was of fragmented capitalists vs. cohesive laborers.

A sociological perspective can be applied to the situation – the actors are looking at one another in the same class, as much as the counterpart over the class division.

John’s observation of the blurred class division actually indicates the differentiation within each of the classes, which generally conditions the class conflict.

Contending differentiation within a class can bring about outcomes against the interest of the class. A striking historical example was studied by Neil Smelser.

A greater part of factory workers in 19th century London was from rural area where a unit of workplace was family. Status differentiation in the farm had been of husbands over wives, or fathers over children. When the Factory Law was legislated, and child labor was banned, it outraged the father-workers as well as the factory owners. The former-peasant workers were not ready to get demoted by removing their subordinates in the workplace – their own children.

“At the same time, there was widespread apprehension that a limitation of the hours of child labour would occasion the complete dismissal of children. Such a consequence not only would subtract from the family income, but also would break the traditional ties between adult and children. The fear of these consequences, moreover, was not simple propaganda from capitalists; the operative class itself was ‘largely committed to the system of child labour and long hours'” (Smelser, 1959: 269).

Smelser, Neil J.1959.Social Change in the Industrial Revolution: An Application of Theory to the British Cotton Industry, Chicago: The University of Chicago Press.

12

JRoth 06.29.06 at 4:21 pm

Shifting focus a bit towards the political point about managers and professionals, that was one of my favorite insights from Judis + Texeira’s “Coming Democratic Majority.” They recognized that, where professionals such as architects were thoroughly Republican 4 decades ago, they are now as reliably Democratic. The reason for this, as JQ suggests, has to do with their shifting role in society. While the plurality of architects are still owners/partners or on that track, they are also witness to many of the bad features of Republican rule, while they benefit from few of the better ones – we don’t earn nearly enough to get Bush’s tax cuts, and firms aren’t worth much once their principals die….

13

Steven Poole 06.29.06 at 6:30 pm

Somewhat at a tangent, I’ve noticed that people in England tend to treat waiting staff in restaurants as servants, whereas in France they treat them like human beings. I’ve wondered if this has anything to do with the economics of the situation. In France waiters/resses are decently paid, and a good tip is around 5%. In England they are terribly paid, and rely much more on much larger tips. Does holding out the promise of a large tip lead some customers to act as though they have bought a servant for the evening?

14

Andrew 06.29.06 at 7:27 pm

Lukas wrote:

” “Firms should bear costs for poor hiring decisions and bad human resource planning.”

Why should firms bear all and employees none?”

I beg your pardon? How is this supposed to work?

I can see it now: “I’m sorry, but your decision to allow us to hire you was inexcusable, given our lack of need for the services we advertised for and our subsequent inability to pay you. We consider it only fair to us, in view of your irresponsibility in accepting our offer of employment, that you cease that employment immediately.”

15

Lukas 06.29.06 at 8:56 pm

Employees assuming some of the risk works as follows:

“If I join the new division of fast-moving internet firm X, my salary could double in the next five years, or I could be fired if expected sales don’t materialize. If I join boring old blue-chip firm Y, my salary will simply grow with the cost of living, but at least I know I’ll have a job.”

If employees bear none of the risk of their decision to seek employment at a particular firm, incentives get distorted. Also, because they _cannot_ bear the risk (in a model I can’t help seeing as paternalistic) they are likely not to share in the rewards. If California had laws similar to Belgium, you would see many fewer stock options as compensation.

I suppose this is the divide – if you think that managers’ hoarding of profits is a structural feature of capitalism, and that profit-sharing is a freakish exception, then yes, since employees can’t share the rewards, they shouldn’t share the risks. However acting on this view turns it into a self-fulfilling prophecy, by destroying the labor market mechanisms that might incentivize employers to share profits.

16

Lukas 06.29.06 at 8:58 pm

Of course if Belgium has provisions that allow for layoffs due to poor financial results for the firm, all my arguments collapse.

17

Scott Martens 06.30.06 at 3:54 am

Lukas, in Belgium a firm can get rid of an employee at any time for any reason at all, other than forbidden reasons like racial discrimination. The lay-off papers I got from my last job said they got rid of me due to “corporate restructuring”.

And as for stock options, I got loads in California, most for a reliable Fortune 500 firm. They all turned out to be worthless.

18

Lukas 06.30.06 at 1:56 pm

Well, yes, they can get rid of people any time, but a fat lot of good it’ll do them if they’re still paying everyone for a year. In essence then there’s no way for a company to change the biggest component of its cost structure in the short term.

Again, if you think companies should be stable and oriented towards the long term, great. But if you think long -term planning is rubbish and most enterprises function by trial and error, the year-long timeframe is sort of scary.

19

Lukas 06.30.06 at 1:58 pm

erm … ignore the strikethrough. textile didn’t seem to like my dashes.

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