Industrial Relations Systems and US Foreign Direct Investment Abroad
| Date | 01 December 1998 |
| Author | Deborah S. Noble,William N. Cooke |
| DOI | http://doi.org/10.1111/1467-8543.00109 |
| Published date | 01 December 1998 |
British Journal of IndustrialRelations
36:4 December 1998 0007–1080 pp. 581–609
Industrial Relations Systems and US
Foreign Direct Investment Abroad
William N. Cooke and Deborah S. Noble
Abstract
Five readily distinguishable industrial relations systems are identified based
on differences in education levels, hourly compensation costs and various
government and collective bargaining constraints placed on management’s
freedom to set the terms and conditions of employment. A model of foreign
direct investment (FDI) that incorporates these key industrial relations
variables is then specified and tested against US FDI acrosy a sample of nine
industries and 33 industrialized and developing countries. The industrial
relations system variables significantly influence US FDI abroad. In particu-
lar, education is negatively related to FDI across low skill–low wage countries
but is positively related to FDI across high skill–high wage countries. Higher
hourly compensation costs (apparently capturing higher productivity) are
associated with greater FDI. Whereas government restrictions on layoffs,
union penetration andcentralized negotiation structures are negatively related
to US FDI, the ratification of ILO standards and works council policies are
positively related to US FDI. Based on these findings, the FDI attractiveness
of industrial relations systems are compared and policy implications discus-
sed.
1. Introduction
Faced by an increasingly competitive global market-place in a context of
substantial political and social change, government, business and union
leaders continue to critically reassess the competitiveness of their own
industrial relations (IR) systems. Central to these reassessments, nations
throughout the world are being challenged to enhance the opportunities of
domestic business to compete effectively in the world market-place while
simultaneously enhancing the employment and income opportunities of
their labour forces. Of special concern is the movement, or ‘social dumping’,
of capital and jobs away from higher-labour-cost, more regulated IR
William Cooke is a professor and Director of the Douglas A. Fraser Center for Workplace
Issues. Deborah Noble is a doctoral student in the College of Urban, Labor and Metropolitan
Affairs, Wayne State University.
¥ Blackwell Publishers Ltd/London School of Economics 1998. Published by Blackwell Publishers Ltd,
108 Cowley Road,Oxford, OX4 1JF, and 350 Main Street, Malden, MA 02148, USA.
582 British Journal of Industrial Relations
systems to lower-labour-cost, less regul ated IR systems. This concern applies
notonlytothewidegulfinlabourcosts between industrialized and developing
countries (e.g. between Eastern or Central Europe and the EU or between
Mexico or Latin America and the USA), but also to differences inlabour costs
among industrialized countries (e.g. between the UK and Germany).
With the aim of shedding light on the effects of labour costs and labour
regulation on the competitive attractiveness of IR systems, this article
examines the influence of key IR system variables on US foreign direct
investment (FDI) abroad. Based on differences in labour force attributes and
various government and collective bargaining constraints placed on manage-
ment’s freedom to set the terms and conditions of employment, a typolog y of
IR systems is first constructed. A model of FDI that incorpor ates these key IR
factors is then specified and tested against the distribution of US FDI across a
sample of 33 industrialized and developing countries. Using the results of this
estimation, the FDI attractiveness of IR systems is then assessed.
2. A typology of national IR systems
Assuming that companies are forced to act in an economically rational
manner in the face of competitive market forces, it follows that unit labour
costs matter in the pursuit of profitability. In addition to wage and benefit
costs, unit labour costs are a function of labour productivi ty as determined by
the skill and efficient deployment of labour. Consequently, any constraints
imposed on management by government regulation or collective bargaining
that directly or indirectly reduce the efficie nt deployment of the work-force
increase unit labour costs. Constraints that otherwise directly or indirectly
promote a more efficient deployment of labour reduce unit labour costs.
In order to better understand the diversity and similarity of national IR
systems across industrialized and developing economies, we first develop a
typology of national IR systems. Specifically, we constr uct a typology based
on education levels, compensation costs and various government and
collective bargaining constraints. Earlier comparative analyses provide
important guidance in constructing such a typology, but, given the purposes
of these analyses, their treatment of IR factors and regions has been
restricted. Most have focused primarily on either a single salient factor such
as collective bargaining centralization (Calmfors and Driffill 1988; Soskice
1990) or a singular topic such as job security (Bertola 1990; Lazear 1990) and
union configurations (Frenkel, 1993, ch. 11). Other authors have focused on
a broader mix of labour market policies and regulations, but in both cases
their scope has been restricted to either highly industrialized countries
(Emerson 1988; Grubb and Wells 1993) or less developed regions (Rama
1995). None of these latter studies, moreover, attempts to create a typology
per se of IR systems based on the mix of policies and regulations examined.
In contrast to earlier comparative analyses and typologies, our typology
spans a wider array of IR system factors and regions of the world.
¥ Blackwell Publishers Ltd/London School of Economics 1998.
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