Industrial Relations And Human Resource Management Systems Business Essay

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Prior to delving into the detailed history and developments of the Danish industrial relations system, it is important to briefly gain an overview of more general important facts and figures about the country. Denmark has a population of about 5.5 million people and the GDP growth rate was 2.4% between 2004 and 2007 (Jørgensen, 2009a). In 2008, the unemployment rate reached, with 3.1%, its lowest level in the second quarter of the respective year (Jørgensen, 2009a). Even if due to the worldwide financial crisis, the unemployment rate rose up to 5.5 % in April 2009, the unemployment rate in Denmark has been very low, throughout the recent years, compared to other European countries (Jørgensen, 2009a). Despite recessive tendencies in the past years caused by the world economic crisis, the Danish economy is stable and healthy (Brewster et al., 2004). Compared to other European countries, Danish wages are relatively high; however in Denmark employers nearly do not pay any welfare pension or other contribution and thus, total labour costs are on the same level as the EU average (Brewster et al., 2004). Working time is fixed at 37 hours a week, which is amongst the lowest compared to the European average (Jørgensen, 2009a).

Next, the most important social actors in the Danish economy are introduced; these are trade unions and employer organisations. Traditionally, Denmark had a high degree of trade union membership as well as a multiplicity of different trade unions. However, according to Jørgensen, (2009a), the number of trade union members has been in decline steadily since 1996. From 2004 to 2008, trade union density fell from about 80% to 69% (Jørgensen, 2009a). Most of the Danish trade unions are associated to one of the three main trade union confederations, namely Landsorganisationen i Danmark (LO), Akademikernes Centralorganisation (AC) and Funktionoerernes og Tjenestemoendenes Foellesrâd (FTF) (Gill, Gnudsen, Lind, 1997). With 1.22 million members in 2009, LO is the largest and most important trade union confederation in Denmark (Jørgensen, 2009a). Traditionally, LO was closely linked to the Social Democratic Party of Denmark and financially supported the party. Since 2003 however, in response to increased criticism of "forced contributions" by union members, LO officially put an end to the tight relationship (Gill et al. 1997, Scheuer, 2007). Its 24 affiliated unions are primarily craft and general unions, which organise mainly skilled, semi-skilled and unskilled workers from the private and public sector (Gill et al., 1997, Scheuer, 1998). However, in the last decades there has been a decline in LO membership and the confederation has lost some of its influence in collective bargaining (Jørgensen, 2009a). The second largest trade union confederation, with about 360,000 members in 2009, is FTF which is a politically independent confederation that comprises industrial unions, which organise primarily white collar professionals, like school teachers, nurses and police officers from the public sector (Jørgensen, 2009a; Gill et al., 1997, Scheuer, 1998). Ranking third is the union confederation AC, also politically independent, with approximately 130,000 members in 2009. Its associated unions are mainly unions which organise professionals with an academic education both in the private and public sector (Jørgensen, 2009a; Gill et al., 1997, Scheuer, 1998). Even though some competition exists between the three main trade union confederations, the overall relationship between them is relatively good (European Trade Union Institute, 2009a).

Compared to other European countries, Denmark's density of employer organisations is quite high (Jørgensen, 2009a). More than 80 % of Denmark's workforce is working for a company which is a member of an employer organisation (Jørgensen, 2009a). The largest and most influential employer organisation is the "Dansk Arbejdsgiverforening" (DA) (Jørgensen, 2009a). The employer organisations "Finanssektorens Arbejdsgiverforening" (FA) from the financial sector and "Sammenslutningen af Landbrugets Arbejdsgivere" (SALA) from the agricultural sector are the second and third most important organisations (Gill et al., 1997). However, DA covers more than six times as many employees as the other two organisations together (Jørgensen, 2009a). Today, DA represents 13 associated employer organisations and is active within five industries of the private sector (Jørgensen, 2009a). With about 60 % of membership, "Dansk Industri" (DI), is the largest member organisation of DA and has absolute decision power (Jørgensen, 2009a; Gill et al. 1997).

These two social actors play a crucial role in the Danish industrial relations system. The origin of Denmark's industrial relations system can be traced back to the so called "September Compromise" of 1899 (Scheuer, 1998). In the 1890s, conflicts between employers and workers in Denmark intensified and were accompanied by massive strikes and lockouts (Jørgensen, 1999). The signing of the "September Compromise" in 1899, ended the "Hundred Days' War", an industrial dispute between the Employer's Association DA and the Union Confederation LO and established a framework of industrial relations (Jørgensen, 1999). This Compromise introduced a collective bargaining system that benefitted both parties and its main principles are still valid today (Jørgensen, 1999). Besides the collective bargaining system, two other major outcomes of the "September Compromise" were achieved: on the one hand, the peace obligation prohibits strikes and lockouts while collective agreements are in force, and on the other hand both parties accepted that the other party has the right to organize (Scheuer, 1998). In the following years, the institutional bargaining system was enhanced through the implementation of Industrial Courts, public arbitrators and proceedings for renegotiation of expiring agreements (Scheuer, 1998, Jørgensen, 1999). Furthermore, the system was incorporated into the legal system (Scheuer, 1998).

Today's industrial relations system - the "Danish Model" - is based on these historical developments. This model is characterized by a high level of centralized collective bargaining and minimal legislation concerning the labour market (Jørgensen, 2009a). This means that essential labour market concerns like working hours, wages, minimum wages and working conditions such as sickness pay, maternity leave and trainings are not regulated by the Danish government but collectively agreed on between representatives of employees and employers (Jørgensen, 2009a, Petersen, 1997). In Denmark the coverage rate of collective agreements is, with 83% in 2008, relatively high compared to other European countries (Jørgensen, 2009a). The collective agreements arranged between employers associations and trade unions are binding and violations can be brought to industrial court (Jørgensen, 2009a).

The "Danish Model" has several unique characteristics, in particular the concepts of "decentralised centralisation" and "flexicurity" merit further description. One of the main features of the Danish collective bargaining system is that negotiations take place on several levels. Framework agreements are settled on national level via negotiations between LO and DA and have longer validity than sectoral level agreements (Jørgensen, 2009a; ETUI, 2009b). As regards framework agreements on national level, the so-called 'general agreement' is the most important one as it defines, amongst others, the right to organise, the peace obligation and the rights on dismissal (Jørgensen, 2009a; ETUI, 2009b). Under framework agreements, more detailed agreements concerning pay, working conditions and working hours then happen at industry level between the respective trade unions and employer organisations (Jørgensen, 2009a). These industry level agreements in turn, lay the basis for negotiations between management and employee representatives at company level (ETUI, 2009b). This relationship between the national, sectoral and company level is often referred to as "centralised decentralisation" (Jørgensen, 2009a).

As stated by Scheuer (1998), another attribute of the "Danish Model" is its welfare system, which is characterised by a high level of unemployment benefits rather than job protection. This combination of flexibility and security is often referred to as "flexicurity". With the emergence of unions, associated Unemployment Insurance Funds (UIFs) have been created which are managed by the respective unions, but are financed by the state. As only union members could benefit from the UIFs, the so-called "Ghent system" has often been criticised as a state-financed recruitment tool of the unions since no unemployment pay could be received from the government if a person was not part of a UIF. To reduce unemployment and the financial burden of the UIF on the state, reforms were introduced in the 1980s, which increased the financial contribution of employees and employers and freezed the level of unemployment benefits (Scheuer, 1998). In addition to UIF, Danish unions provide their members with services, such as vocational training and labour exchange (Scheuer, 1998). These services may also explain the high degree of trade union membership as well as the phenomena that Danish trade unions experience high recruitment in times of high unemployment (Scheuer, 1998).

The overall advantage of the "Danish Model's" collective bargaining system is that it is more flexible than legislation and thus agreements can be adapted to changing environments and demands more rapidly (Scheuer, 1998). In addition, due to the before mentioned peace obligation, industrial action in Denmark is relatively low compared to other European countries (Jørgensen, 2009a).

However, according to Scheuer (1998) there are also disadvantages of the "Danish Model". First, not all employees of the private sector are employed under a collective agreement and therefore do not enjoy the rights and protection arranged in the agreements. Second, despite the relatively low level of industrial action, the settlement of new agreements when old agreements are expiring is often challenging and accompanied by strikes and lock-outs as the peace obligation is only applicable when agreements are in force. Nevertheless, if a mutual consent cannot be found, the Danish parliament has the power to end the conflict and set up a new collective agreement (Scheuer, 1998).

The "Danish Model" has been facing several threats challenging its existence in recent years. After Denmark had entered the European Union, the needs for transposing EU Directives into the national labour market - and the arising questions of whether to implement them via collective bargaining or legislation - posed challenges on the traditional Danish system of industrial relations (Jørgensen, 2009a, Scheuer, 1998). Eventually, Denmark managed to utilise its well-established collective bargaining system supported by legislation (in order to include even those employees not covered by framework agreements) to introduce most of the relevant EU Directives. Furthermore, since the 1990s, the trend towards a decentralization of collective bargaining posed yet another challenge to the traditional system (Scheuer, 1998). Collective bargaining of general terms and conditions has now been shifted from the national and multi-industry bargaining level to a single-industry bargaining approach; similarly, pay bargaining has been transferred from national and industry-wide bargaining to single workplace bargaining (Scheuer, 1998).

In order to really gain a full picture of the country's industrial relations system, it is also crucial to briefly explore some of the particular features of the Danish human resource management (HRM) system. Danish culture has been shaping employment relations and the human resource management approach of the country. For example, compared to other European countries, few heads of HRM sit on the Board of Directors in Denmark. This could indicate a relatively low importance and involvement of HR issues in the strategic planning of a company (Brewster, Mayrhofer, Morley, 2004). However, this conclusion might be misleading, as the low participation of HR on the Board of Directors can be explained by two special features of the Danish labour market. First, it is characterised by a low degree of hierarchical structure and power distance, which means that the head of HRM can still have a high influence on strategic planning even though he or she is not sitting on the Board of Directors (Brewster et al., 2004). Second, the Danish labour market is dominated by small and medium sized enterprises (SMEs) which are in general less structured and formalised than large corporations and thus determining the influence of HR by its representation on the Board of Directors might not be an appropriate measure (Brewster et al., 2004).

As previously mentioned, traditionally, in Denmark wages have been determined by collective agreements on industry levels. However, according to Brewster et al. (2004), in recent years, there has been an increase of companies that apply individual performance-based pay systems, which could indicate a decrease of union influence. In fact, this trend could also reflect that first, more and more employees demand wages according to their competence and individual performance and second, there is a closer cooperation between unions and HRM.

The general trend of company expansion and growth during the late nineties fostered a change in Danish recruitment patterns for managerial personnel from internal recruitment mechanisms to external ones (Brewster et al., 2004). As stated by Brewster et al. (2004), in the employee selection process, Danish companies most frequently use reference checks, application forms, psychometric testing and one-to-one interviews. Assessment Centres are relatively rarely used as a method for selection in Denmark. Due to the high cost implications, Assessment Centres are often only used by multinational companies, which are only sparsely represented in the Danish economy (Brewster et al., 2004).

Concerning employee participation and representation, the Danish single-channel workplace representation structure assigns the responsibility to represent employees at the workplace to the trade unions (Jørgensen, 2009a). Cooperation committees can be set up in companies employing more than 35 employees and are the main channels of employee representation at workplace level (ETUI, 2009c). Even though there are some basic differences, cooperation committees can be compared to work councils which are somehow alike. One fundamental difference is for example that the cooperation committee has only information and consultation rights but not veto rights like work councils have (ETUI, 2009c). Furthermore, the committee consists of an equal number of trade union representatives as well as of company management (Jørgensen, 2009a). Cooperation committees are also used to settle collective agreements concerning, among other things, human resource policies, use of personal data and equal treatment of men and women (ETUI, 2009c).

As outlined by ETUI (2009d), Denmark has a two-tier board structure for public limited companies; private limited companies can choose between one-tier or two-tier board. Employees of Danish companies employing more than 35 employees have the right to elect a certain number of representatives to the Board of Directors which have the same rights and duties as the other members of the board. Employee representatives on the board are relatively rarely found in small companies but frequently in large companies, as only 12% of companies with less than 100 employees have a representative on the Board of Directors but 81% of companies employing more than 500 employees have representatives (ETUI, 2009d).

As there is only little legislation concerning employee financial participation, Denmark lags behind most other European countries in the field of financial participation schemes and employee' profit-sharing (ETUI, 2009e).

Having established the core characteristics and historic development of both Denmark's industrial relations and human resource management systems, several recent trends are analysed in the remainder of this paper. The first interesting trend in the Danish system is the gender pay gap. Despite their equal or even higher educational level and qualifications, women tend to be paid less than men all across Europe (Larsen, 2007). According to Larsen (2007), Denmark is, with about 17 % in 2007, even among those countries with the highest gender pay gap in Europe. This pay gap contradicts with the fact that Denmark has one of the highest female employment rates in Europe and that Danish women are compared to women in other European countries among those with the highest educational qualifications (Larsen, 2007). This contradiction may be ascribed to different causes. On the one hand, women are still underrepresented in corporate Boards of Directors as well as in top management positions (Larsen, 2007, Jørgensen, Pedersen, 2010). On the other hand, women are mainly working in those industries where wages are typically relatively low, like the health care and child education sectors (Jørgensen, Pedersen, 2010). The Danish government and social actors are increasingly focusing on this issue; however their current initiatives seem not to address the pay gap directly (Jørgensen, Pedersen, 2010).

The second recent trend is the phenomenon of work-sharing. As a way to avoid mass redundancies resulting from the world economic crisis, the use of work-sharing has grown tremendously in Denmark during the last two years (Jørgensen, 2009b). According to Jørgensen (2009b), the number of companies using work-sharing has risen from 27 in 2007 to 500 in the first two months of 2009. The principle terms and conditions for work-sharing are determined by collective agreements; the period without work is regulated by law and the unemployment benefits are financed by the Danish state. These already existing rules are however not flexible enough and thus, driven by the urgency of the economic crisis and the increasing pressure of the social actors and companies, the government introduced initiatives to foster work-sharing. Even though most of these initiatives are appreciated by the social actors and companies the latter criticise that the measures are not radical enough and that only significant changes of the work-sharing rules could improve the situation and safeguard the labour market from massive redundancies and the companies from closures (Jørgensen, 2009b).

Even though these relatively recent trends are important issues in Denmark, they do not directly threaten the Danish industrial relations system as such. The decrease in trade union membership as observed during the last decades, on the contrary, could pose a threat to the continued existence of the "Danish Model". Therefore, the following section will take a closer look at the changes in trade union membership and aims at analysing the causes and consequences of this development to the Danish industrial relations system.

As mentioned before, compared to other European countries, Denmark has a relatively high trade union density and a fairly low level of competition among the different trade unions due to traditionally strict demarcations between the different professions and sectors (Scheuer, 2007). According to Lind (2007), this high trade union membership was mainly owed to the special unemployment scheme in Denmark, called the "Ghent system". In this system, the unemployment insurance is not mandatory like in many other European countries. Employees who want to have unemployment insurance have to join the UIF. The liberalisation of legislation concerning the recruitment of members by UIFs in the beginning of the twenty-first century allowed for the emergence of non-union controlled UIFs (Lind, 2007). Since then, membership in UIFs is no longer tied to trade union membership and thus acts as a potential contributor to decreased trade union membership figures. Trade union membership reached its peak with about 82.7% in 1995 (Mailand, 2006). Since then, membership rates slowly but gradually declined and continue to decline in Denmark (see Table 1). In 2009, this decline reached 69% (Jørgensen, 2009a). Nevertheless, this decline is not only due to the before mentioned restructuring of the UIFs; according to Scheuer (2007), this decline is rather due to an increase in the total number of employed people than to an aggregate decline in trade union membership: while the Danish workforce augmented by 136,000 employees, aggregate union membership decreased by 50,000 (Scheuer, 2007).

Over recent years, a shift in trade union density among the Danish trade union confederations can be observed. Primarily trade unions organised by the confederation LO are suffering from declining membership figures. Since the peak in 1995, trade union membership of the largest Danish trade union confederation, namely LO, has been steadily declining (Mailand, 2006). While the trade unions affiliated to LO demonstrated a total membership of about 1.5 million active members in 1995, they only organised about 1.22 million members in 2009 (Jørgensen, 2010a, Scheuer, 2007). The other two main trade union confederations (AC and FTF), as well as independent "yellow" trade unions, on the contrary, have achieved to increase their membership rates slightly (Mailand, 2006). According to Scheuer (2007), this development mirrors two main trends in Denmark. First, the competition from the so-called "yellow" unions has increased; these unions mainly lure away members from LO (Scheuer, 2007). "Yellow" unions are trade unions that are not part of the traditional trade union movement and which operate independent of the large union confederations (Jørgensen, 2005, 2010b). Even though the "yellow" unions cannot deliver collective agreements to their members, their membership rates are steadily increasing, which is mainly due to low membership fees which especially attract employees with low incomes and thus principally LO members. In 2005, the thirteen "yellow" trade unions together organised about 150,000 active members and thus equalling the size of AC. The most important "yellow" union is the so-called "Christian Trade Union Movement" (Kristelig Fagbevægelse, Krifa) (Jørgensen, 2005, 2010b). The second explanation for the shift trade union membership is the fact that the educational level of the Danish workforce has risen over the past years. The increase in the number of people with university degrees entails a decrease in the number of those workers that would traditionally be organised in LO, the union for unskilled, semi-skilled and skilled workers. This also explains the increase in membership rates of the union confederations AC and FTF, which mainly organise higher skilled employees. To counteract the migration of members from the traditional to the "yellow" trade unions, the president of the largest trade union affiliated to LO, namely the "United Federation of Danish Workers" (Fagligt Faelles Forbund, 3F), Mr Skov Christensen proposed a merger of all trade unions organised by LO to one large LO-union (Jørgensen, 2010a). In this way, so Christensen, the new large trade union could benefit from economies of scale and thus compete with the low membership fees of "yellow" unions (Jørgensen, 2010a). This is not the only advantage of one large trade union. Traditionally the demarcation of the existing trade unions was based on occupational categories, but this system does no longer fit today's labour market. According to Jørgensen (2010a), the labour market in Denmark has become more flexible. Employees tend to change their jobs more often than in the past. Additionally, they do not only change their job but they also increasingly change across industries and types of jobs. One large union, without distinct demarcations between occupations and sectors would thus be more flexible to handle this new mode of labour market without 'requiring' people to change union membership when switching jobs or industries (Jørgensen, 2010a). Furthermore, one united trade union would avert LO internal conflicts between the different trade unions and thus strengthen LO to the outside (Jørgensen, 2010a).

Another reason for the decline in trade union membership among the trade unions affiliated to LO is the ageing of existing members and the low level of recruitment of new members, especially young people who do not seek membership themselves (Jørgensen, 2010b). An explanation for this low level of recruitment of young employees might be the shift form a former collectivist toward a more individualist labour market culture. This trend is reflected in the increased decentralisation of collective bargaining, where the company level increasingly gains importance over broader agreements, as well as in the increased employee demand for individual and performance based treatment (Brewster et al., 2004). As a consequence to counteract this trend, particularly large LO-affiliated trade unions such as the "Union of Commercial and Clerical Employees in Denmark" (Handels- og Kontorfunktionaerernes Forbund, HK) and 3F are very actively trying to recruit new members by recruitment and advertisement campaigns (Jørgensen, 2010b).

One might think that the decline in union membership of LO-affiliated unions is only a problem for LO. However, this trend within this most important Danish union could lead to major changes in the entire collective bargaining system and even become a threat to the "Danish Model" as a whole. As already mentioned before, the principle collective agreements are set between the most powerful trade union confederation, LO and the most influential employer organisation, DA. At the moment, LO still is the most powerful trade union confederation and there is no power imbalance between the two bargaining parties (Mailand, 2006). However, if LO continues to gradually loose power and influence through the decline in membership, this might threaten the "Danish Model" of collective bargaining. One could argue that eventually one of the other trade union confederations might take over the role of LO. However, it is not as easy as this as the other two main confederations, FTF and AC are - as already mentioned before -, with about 360,000 and 130,000 members respectively in 2009, by far not as powerful as LO, which despite declining membership still has about 1.22 million members, and thus there would be a power imbalance favouring the employer organisation DA. FTF and AC, despite slight increases in membership, are also not likely to gain significantly more members in the future as trends indicate that the majority of migrating members from LO are not joining the other big and traditional trade union confederations such as AC or FTF but either they are not joining a union at all or they choose a "yellow" union. This is reflected in the increased membership figures of the thirteen trade unions operating outside the traditional three confederations (Jørgensen, 2005).

In sum, there are numerous causes for the decline in trade union membership of the LO-affiliated trade unions. Many of these are complex and interlinked issues and thus hard to tackle. As this trend has been steadily continuing since the mid of 1990s, it is very likely that sooner or later, LO will lose its influence in the collective bargaining system at some point in the future. It is questionable if the other trade union confederations will be able to balance this loss. This development could in the long-run have dramatic consequences for the "Danish Model" - and even the Danish society as a whole - due to the emerging imbalances of the two major social actors. One solution to this dilemma might be, as suggested by the president of LO, Hans Jensen, a close cooperation between the three main trade union confederations LO, FTF and AC (Mailand, 2006). To safeguard the "Danish Model" it might even be a possibility to have a merger between these three large trade union confederations in order to maintain the balance of power between trade unions and employer associations.

As there is currently only little to no legislation concerning the labour market in Denmark, a demise of the collective bargaining system or even only an imbalance in power proportions between trade unions and employer organisations would trigger fundamental changes in the functioning and interactions of the Danish economy and society.