Labour Market Policy - Coursework Example

What role does HRM play in developing internal labor markets Does it inculcate a culture of commitment that sub-serves organizational goals Introduction The role of the 'development' of 'internal labor markets' in improving organizational effectiveness in terms of increased productivity and profitability is a plausible assumption. However, viewed in a wider perspective, it has a profound effect in improving the nation's economy. The improvement in the productivity and profitability of an organization will have a corresponding effect in increases in levels of employment or wages (or both) and the spending power of labor. This, in turn, increases demand for goods and services, the demand for more work, and the need to employ more people. The understanding of "labor market" or more appropriately, "labor markets" involves the study of the dynamics of the market vis--vis the demand and supply of various kinds of labor. A 'labor market' may be defined as the number of people employed plus the number of unemployed but seeking work. The supply of labor depends upon variables such as natural population growth, new entrants, immigrants, retirements, increased female participation, de-industrialization, skills shortage and surpluses, education and training, flexibility, and wage determination. The 'level of employment' is the proportion of such employed in the total labor market. The levels of supply and demand in the 'labor market', just as in 'markets' for any other goods depend on the availability of work, the availability of labor and their skill compatibility. However the main difference between the two is the function of supply and demand in setting the price and quantity. Whereas in the case of goods, increases in prices result in increased production for the demand to be satisfied, this does not happen in the case of labor for there are limitations of time available for labor and increased wages may result in less supply of labor as workers may tend to utilize increased earnings to indulge in leisure activities. Some economists believe that the laws of supply and demand apply more to certain segments of the markets only where workers change job types corresponding to changing wage rates. Segmenting labor markets The 'agency theory' of labor management purports that the principals (owners or managers) have to develop ways to monitor and control the activities of their agents (staff); that the principals may have problems in ensuring that work is carried out according to instructions and that therefore it is necessary to clear up ambiguities by setting objectives and monitoring performance. (Armstrong 2003, p. 281). However Armstrong suggests that the theory "looks at the employment relationship purely from management's point of view and regards employees as objects to be motivated by the carrot and stick." He calls it a "dismal theory, which suggests that people cannot be trusted." (Armstrong 1996, cited in 2003, p.281). The neoclassical theory of labor markets assumes that firms aim to maximize their profits with minimal costs; the number of buyers (firms) and sellers (workers) is high; there is no collective bargaining that there is no monopsony of power (exploitation of labor because of large supply and low demand) and that the firm is a wage taker. In a perfect world, with no bargaining forums like trade unions, labor markets may be 'competitive'. This means that the workers and employers have information about each other and that there are no transaction costs. On the other hand, job search, training and the need to gain experience to switch jobs are variables that determine supply and demand in a normal labor market. However the glaring lacuna of this theory is that it assumes that labor is homogeneous which means that all workers turn out equal amount of work and that there are no differences in skills and experience of workers. This is demonstrated by the study of Hipple and Stewart (1996), which highlights the wide variations in the median earnings of contingent and non-contingent workers and their economic value to employers. The endogenous growth theory attempts to correct the imbalances to a certain extent and emphasizes on the importance of human capital and productivity. Some economists like Ralph Landau emphasized on the importance of technology, while others believe that the education system may have a bearing on the economy of the labor markets. (The chemistry of growth, 1996). The following grid helps us in segmenting and modeling labor markets: Adapted from Downward and Dawson, 2000 The segmenting of labor markets takes the following into consideration: different jobs require different levels of job skills; the restrictions of entry imposed by professional bodies; the prevention of access to certain groups because of discrimination; the power of trade unions to exclude others and that some markets such as the public utilities may not be competitive at all. Contract of employment The contract of employment forms the basis of relationship between the employer and the employee and includes such vital information as the pay and method of calculating it and payment interval, terms and conditions of work, job title and brief description of work, entitlement of holidays and specified terms among other things. In addition the employee must have access to information regarding health and safety measures reflecting employer's duty, terms and conditions relating to sickness, injury and sick pay, pension plans, duration of employment, rules and procedures regarding disciplinary action applicable to employees and any implied terms of employment and employee obligations. (Pettinger 1999, p. 26) Internal Labor Markets In the internal labor markets, wages are determined by administrative rules jointly arrived at between the employer and employees' unions and external benchmarks are used only in case of unskilled vacancies, such as noncontingent workers mentioned above. The employer offers benefits based on work category but no to the whole work force. In case of downsizing the last-in-first-out policy is applied. However, identified internal labor was promoted to high skill jobs, their seniority and pay lead to increased tenure and long service was protected against redundancy. The employer invests in high degree of training, pays higher wages to ensure less job losses. When labor supply increases during a recession, the firm increases its level of qualification and requirements at each job level, which entails in workers losing wages if they opt for a change. The role of HRM in inculcating a culture of commitment: Holbeche quotes Purcell (1996) to suggest that there are six common elements as a package in HRM policy goals: Careful recruitment and selection Extensive use of systems of communication Teamworking with flexible job design Emphasis on training and learning Involvement in decision making Performance appraisal with tight links to contingent pay (Purcell 1996, cited in Holbeche 2001, p.13) The central theme of human resource management is to enhance employee performance through employee commitment (Armstrong 1987, and Storey 1995, cited in McGunnigle 2000). The right human resource management system attracts and retains the right talent, develops workforce skills, resolves or avoids conflicts and motivates workforce into a culture of commitment to achieve organizational goals (Storey 1995, cited in McGunnigle 2000). Watson et al. suggest that a culture of commitment may be induced by the application of specific practices within HRM areas such as recruitment and selection, training and development, reward systems, employee participation, involvement and empowerment (Watson et al. 1996, cited in McGunnigle 2000). According to Frohman, 'participative management' is a "practical approach to solving problems and achieving performance targets by utilizing people as resources." As against the human resource approach which "aims to generate compliance and employee morale" participative management is a "quest for improved performance and quality." (Frohman, 1988) How to rate and reward performance Douglas McGregor proposed two theories about work motivation. These are famously known as Theory 'X' and Theory 'Y' on how managers view workers' attitudes. Theory 'X' emphasizes control, discipline, conformity, obedience and dependence with little or no respect for individuals. On the other hand Theory 'Y' calls for decentralization, delegation, participation and consultation. According to the theory allowing workers to use their abilities and skills motivates them to perform better as it helps them feel involved as an integral part of the organization. Theory X assumes most workers are lazy, need constant supervision and reprimand for non-performance. The theory is applicable in case of mass production industries. The assumptions for Theory Y are, as some workers are motivated by the need for self-esteem and achievement, threats are inappropriate. According to the theory allowing workers to use their abilities and skills motivates them to perform better as it helps them feel involved as an integral part of the organization. (Evans 1990, cited in. Hume 1995, p. 17). The theory is more applicable in case of flexible working environments involving creative output, for e.g. project management and computer software industry. Conclusion As has been seen, the core objective of HRM practices in the context of 'Labor Management Policy' is performance enhancement by inculcating a culture of commitment. (Armstrong 1987, and Storey 1995, cited in McGunnigle 2000). The application of HRM policies which include systems for recruitment and selection, communication, promoting team working, flexible job designs, emphasis on training and learning, involvement in decision making, performance appraisal with tight links to contingent pay etc. enhance employee performance through employee commitment. The right human resource management systems attract and retain the right talent, develop workforce skills, resolve or avoid conflicts and motivate workforce into a culture of commitment to achieve organizational goals (Storey 1995, cited in McGunnigle 2000). Participative management may be seen as a further refinement of the HRM approach as the essence of participative management is in "utilizing people as resources" and to inculcate a culture of commitment in them with a practical approach to solving problems and achieving performance targets. This is because, as Frohman (1988) opined, whereas the human resource approach "aims to generate compliance and employee morale" participative management is a "quest for improved performance and quality." Bibliographic References: Armstrong, Michael, 2003, A Handbook of Human Resource Management Practice. 9th edn, Kogan Page, London. Frohman, Mark,1988, "A profile of participative managers: what they really do. (includes related article on what participative management is not). In"Industry Week" 237. N3 (August 1, 1988):51(4).British Council Journals Database.Thomson Gale.Viewed 26 Nov. 2007 . Hipple, Steven,andJay Stewart,1996, "Earnings and benefits of contingent and noncontingent workers." In Monthly Labor Review,vol.119, no. 10, (Oct 1996):22(9).British Council Journals Database.Gale.British Council.Viewed 26 Nov. 2007, . Holbeche, Linda, 2001, Aligning Human Resources and Business Strategy. Butterworth Heinemann, Oxford. Hume, David A., 1995, Reward Management - Employee Performance, Motivation and Pay. Blackwell Publishers Ltd., Oxford. McGunnigle, Peter J., 2000, HRM in UK hotels: a focus on commitment. In Employee Relations; 2000, Vol. 22 Issue 4/5. pp 403-421. Pettinger, Richard, 1999, Effective Employee Relations. A Guide to Policy and Practice in the Workplace. Kogan Page, London. "The chemistry of growth", 1996, In The Economist (UK)(March 6, 1999):108(1).British Council Journals Database.Gale.British Council. Viewed26 Nov. 2007, . Read More