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Press Release - 13 April 2008

Good industrial relations keep unemployment down, study shows

Cooperative industrial relations between employers and their employees lead to lower national unemployment figures, a study of 69 countries has shown.

The findings, published in the journal Economics Letters, suggest that by encouraging better industrial relations, some countries could cut their unemployment rate substantially.

The study, by economist Horst Feldmann from the University of Bath (UK), used data collected through the World Economic Forum’s annual Executive Opinion Survey.

As part of these surveys, senior business executives were asked to rate the quality of industrial relations in their country.

Dr Feldmann analysed the statistical effects of the ratings on unemployment, controlling for a wide range of economic factors, such as labour market regulations, as well as for further factors such as demographics and geographical conditions.

The analysis showed that more cooperative industrial relations are likely to reduce the unemployment rate among the total labour force as well as among women and young workers. It also showed that good relations can help reduce the share of long-term unemployed in the total number of unemployed.

“Cooperative industrial relations mean that employers and employees do not easily resort to strikes, lockouts or other confrontational strategies,” said Dr Horst Feldmann from the Department of Economics & International Development at the University of Bath.

“Instead they try their best to find solutions and sort out their potentially conflicting interests peacefully.”

Examples of cooperative industrial relations include collective bargaining over pay and constructive engagement of both management and workers in solving problems at the workplace, such as when new technologies that make some jobs redundant are being introduced.

The study showed that Jamaica has some of the most confrontational industrial relations from those countries surveyed, and Singapore had the most cooperative industrial relations.

According to estimates, if industrial relations in Jamaica were as cooperative as in Singapore, Jamaica’s unemployment rate would be 1.3 percentage points lower among the total labor force, 0.7 percentage points lower among women and 2.7 percentage points lower among youths. Jamaica’s long-term unemployment would also be 4.3 percentage points lower.

“Cooperative industrial relations are likely to lower unemployment in several different ways,” said Dr Feldmann.

“If industrial relations at a business are cooperative, there is less labour turnover and the enterprise has to look for and train new personnel less often. It is also more inclined to invest in the human capital of its employees.

“The employees are also more willing to invest in their own human capital if a greater length of service is to be expected and are more likely to make proposals for the improvement of working methods and production techniques if industrial relations are cooperative.

“This is important because employees frequently have more detailed knowledge of the relevant critical points than their employer.”

Dr Feldmann also highlights the fact that employees are more likely to make concessions to help when businesses hit problems, for example by accepting temporary wage reductions.

“The same is true for the collective bargaining of trades unions which are probably more willing to take into account the difficult economic environment enterprises may face,” said Dr Feldmann.

“Cooperative industrial relations are thus likely to lead to general wage moderation in difficult times.

“These advantages are likely to lead to more labour-intensive modes of production, higher domestic investment or higher foreign direct investment inflows, eventually reducing unemployment.

“Indeed, as far as foreign direct investment is concerned, in surveys of US and UK multinational companies, managers viewed industrial relations as one of the most important considerations in deciding where to invest.

“Similarly, studies found that the amount of US foreign direct investment a country receives is significantly affected by the characteristics of its industrial relations system.”

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