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Unstable labor relationship will harm the social harmony in China --Some thoughts about the current labor relationship management of China Li jie School of Management, South-Central University for Nationalities, P.R.China, Hubei Wuhan 430074 Abstract Since the reform and opening up of China, we substantially adjusted the labor relationship [1] in traditional system, featured as ‘communal pot’ and ‘iron rice bowl’. The new labor relationship in socialistic market economy has been established primarily. How to understand the current situation of the labor relationship in China, especially how to correctly regard the continuously emerging new situation and new problems in the field of labor relationship of China, and adjust it according to the need of establishing socialistic harmonious society, have become a new intriguing topic, and will be discussed in this article. Keywords Labor relationship, institutional change, harmonious society, adjustment 1. Introduction Since the reform and opening up, guided by the principle of managing the resource distribution with market mechanism, we made deepening and substantial reform on the traditional labor relationship featured as ‘communal pot’ and ‘iron rice bowl’. Fundamentally speaking, we are building the new labor relationship featured as market mechanism, by introducing competition to suit the establishment of socialistic market economy. Now in China, the labor relationship has gone through deep changes. Compared with the labor relationship in traditional system, the new labor relationship has new features in property, structure and content, also new problems. According to the domestic research, the continuous rapid economic growth in China does not improve the employment or the labor relationship. On the contrary, they demonstrate increasingly unstable characters especially in the following three aspects: the worsening employment situation, dramatic increase in industrial accidents without effective control and the dramatically increasing cases of industrial disputes. [2] They will seriously influence the development of economy and society of China. In recent years, people are considering a problem ‘the benefit and dignity of common labors can’t be sacrificed for the fast development of economy’. The significant social value of the recent labor relationship variance in China and its long term impact to the society need to bring more attention and be studied thoroughly. Therefore, the study of the current labor relationship problem in China from economics, management and sociology point of view has significant theoretical and practical value, which is also the basic background and starting point of the study of this article. Regarding the current situation of the domestic and international research on labor relationship, western developed countries have passed the stage of simply socially criticizing the labor relationship. Either the supply demand analyse in traditional neo classical economics paradigm or the recently emerging new system economics paradigm has reached a relatively more mature research stage on labor relationship, especially the research on employment relationship (search theory, internal labor market, efficiency salary, recessive bond) with the firm theory of new institutional economics has provided new angles and continuous inspiration for viewing and analyzing the labor relationship problem. In the mean time, some western economics and management theory, especially the economics of the labor market needs to be enriched and testified with the practical cases in the marketing reform of China. In China, the research on the labor relationship variance and institutional change during the process of the reform is still at the beginning stage, and still in need of systematic research results. Now there are two evident trends in the research: On one hand, many research were merely based on the collection of practical materials of the labor relationship variance since the reform and the simple description of them 614 (also not systematic), on the other hand there is a unsuitable application of the western theory, and the selection of theory and research object are premature and partial. For example, the non-labor factor price balance mechanism is indiscriminately applied in labor factor market. This is the deep cause of the short term and temporary labor relationship application in many enterprises. Another example is that management incentives rather than labor incentives are considered by many researchers on the incentive problem. These are all evidences to prove that the research on labor relationship problem in China needs to be improved and deepened. Based on the particularity of human capital (or particular property right character), the employment relationship is in fact a market relationship very different from non-labor factor market relationship. Therefore, special institutional arrangement in labor relationship is necessary to ensure enough incentive inside the economic organization. Currently, various research results all indicate that keeping a long term stable labor relationship is the infrastructural and systematic guarantee for continuous economic development and long term social harmony. Simply apply the non labor factor market price balance mechanism into labor factor market and regard the market reform of labor relationship in China as the massive application of short term and temporary labor contract relationship, are the causes for the weakening of labor factor market, lack of incentive for common labors and the outstanding social problem in labor relationship. It will seriously harm the continuous economic development and long term social harmony. This article will make first step discussion to the regarding problems. It’s not mature in some aspects, even only intuitions and senses in some parts, and will be further enriched. 2 Instability is the primary current situation in the labor relationship of China What’s the current situation of the labor relationship in China? The official opinion is: a new labor relationship to fit the socialistic market economy has been established. [3]Someone said it’s marketization, and summarized the basic connotation of it: Because of the co-existence of various economic and management form, the from of labor relationship is also various and complicated, The main body of the labor relationship is clear, the employer and employee are in equal position The establishment of labor relationship has been institutionalized, which means employment contract will be signed by both freewill parties to confirm the labor relationship. The dynamic balance of the labor relationship, which means the labor system reform gives legal pledge to both parties, reduce uncertainty and create a rational flow mechanism and environment.[4] Our opinion is that the above summaries are generally too standardized and optimal, far from the real situation and lack of real sense. According to the current environment and condition in China, some obvious facts show that the summaries are far from reality, except the part about the variety and complexity of the labor relationship. Currently, the employer and employee are not in the so called equal position, their position are seriously unbalanced. Generally the employers are in strong position, and employees are in weak position, whether they are in national enterprise, private enterprise or foreign enterprise; This situation seriously compromises the freewill signing of labor contract in the implementation of labor contract system. It’s very popular that in real situation, the labor contract is not standard or not signed at all. The situation for national enterprises or for the highly skilled labors with stronger negotiating power is relatively better, and it’s worse for private and foreign enterprises or for the ordinary labors; Finally, the so called dynamic balance of labor relationship, bi-directional selection and rational flow are more optimistically estimated. The real situation is that many employers can easily revoke labor contracts, violate the common labor’s legal rights, and the ‘high end’ labors choose ‘job hopping’ frequently, break contract and violate the employer’s legal rights. These two situations are obvious in some enterprises, and the first situation is more often. Now it is obvious that the standardized and marketized labor relationship fitting the socialistic market economy is not established yet. After the collapse of the relatively more stable labor relationship (life employment) in traditional system, represented by the whole people ownership and collective ownership, the current existing labor relationship is a unstable relationship featured as short term, temporary and ① ④ 615 ② ③ flowing. This unstable labor relationship should be understood from the following two aspects: First, the unbalance of labor relationship is extensive in various industries and fields It can be summarized as ‘four trends’ that is the succession in traditional fields, the generalization in non public sector, the expanding in national enterprises and the uptrend in non-business organizations. The succession in traditional fields means that in traditional fields such as construction, service industry, the short term and temporary employment is a long time tradition, and not changed much since the reform; The generalization in non public sector means that in private and foreign enterprises, the pervasive labor relationship is short term and very weakly maintained; The expanding in state-owned enterprises means that along with the system reform of the national enterprises in China, to fit the property right reform, most state-owned enterprises have massively adjusted the original labor relationship, cease the original labor contract and replace it with ‘length of service buyout’. It is a expanding process in state-owned enterprises; The uptrend in non-business organizations means that the responsible national bureaus are discussing the labor reform in non-business organization. From the tentative plan of the reform, we can see that the whole staff retain and contract system will be the primary solution. It can be expected that the evolution trend of the labor relationship in non-business organizations will be from long term and stable to relatively flexible and short term. Second, the unbalance of labor relationship is for all individuals The short term and temporary labor relationship has moved from non-city and semi city population to the universal population. The short term and temporary labor relationship has moved from primary labors to higher class labors, management level employees and non-business organization crews. Therefore, we argue that the whole society level unstable labor relationship is the basic status quo of China. The instability is not only far away from standardized and marketized labor relationship, but also a serious hidden trouble for the stability of China society and continuous social and economic development. It’s an important cause for the increasing and deepening conflict in labor aspect. [5] 3 The main problems and their impacts in the labor relationship in China Currently, the instability of labor relationship has caused a series of serious problems in China economy and society and needs to attract serious attention. In non state-owned sector, based on the fact of the unlimited supply of primary labors in China, there is strong unbalance in most private and foreign enterprises. The labors have no negotiation power and are controlled by the employers. From labors’ point of view, the maintenance of the labor relationship is very weak and the serious problem is that the basic rights of the weak labor group are often seriously infringed. It’s demonstrated in the following aspects: 1, Overtime working is very serious. In private and small foreign enterprises, it’s very common for workers to work 12-13 hours a day and it seriously harm the health of workers by exceeding their endurance limit; 2, Outstanding payment and skimp of salary by the employers and it has been a seriously concerned problem of the society; 3, The working condition is very bad. Workers have to work in high temperature, poisonous and harmful environment all the year and industrial accidents are frequent; 4, The employers wantonly infringe other legal rights even human rights of the labors. They refuse to sign labor contracts, pay the medical fees for the industrial accidents, or pay the legally prescribed compensation for industrial accidents. They fire labors at will, charge deposit and refuse to establish female workers protection provision. They even infringe workers’ human rights by ‘close management’, personality humiliating frisk and abuse. They brutally enforce labors to work and manage them in violent ways. [6] The main problem in state-owned economy is that some local governments and enterprises did not pay enough attention to the change of labor relationship in the process of system transform. Some State-owned enterprises only conducted the property right reform while leave the labor relationship untouched. The result is many problems in the process of retiring employees and ceasing labor contracts. On the other hand, there is no overall plan in the process of the reform of state-owned enterprises and it caused the following problems: The first is that many small-scale state-owned enterprises are in a very 616 troubled situation with serious financial crisis and heavy employee burdens. Without the overall planning of the government, these enterprises can not conduct the transform by themselves. The enterprises that should go bankrupt linger on for too long, and some of them become indebted in the long waiting process. In this case, the government has to pay great cost to keep the workers while leave the original economic structure and employment mechanism unchanged; The second is when some troubled enterprises is not able to pay all debts and compensation to the employees, they will cease the labor relationship unilaterally and conduct ‘length of service buyout’. Some enterprises only pay 2000 to 3000 yuan to each employee and send them away. It will surely arouse strong complaints of the employees and will cause serious social problems; The third is while most transforming enterprises is unable to pay compensation to the employees, some enterprises with good profits and asset tend to ‘split everything’. For example, some enterprises pay tens of thousands yuan of compensation to the employees. It causes the lapse of state asset and jealousy from employees in other enterprises, a cause of social instability. The above problems caused by the instability of labor relationship will impact the future development of China’s economy and society in the following three aspects: First, it is not good for the long term optimal expectation of whole society economic development. From the labor’s point of view, the instability of labor relationship means lack of guarantee on their basic living conditions, instability of their income and will affect labor’s expectation for future consumption. Plus the worries for the reforming house, medic and annuity policy and increasing fee for children’s education, the consumption of common labors will be further restrained. It will harm the continuous healthy development of the macro economy of China in long term. On the other hand, from the employer’s point of view, the instability of labor relationship means that the enterprise can’t effectively find suitable employees, hence they can’t have good expectation of the continuous fast development. Many ‘high end’ labors with special skills or resources do not sign labor contracts or only sign short term ones to make it easy for them to ‘job hopping’. It’s harmful to the long term development of the enterprises hence many enterprises are reluctant to invest in long term training for their employees with the worry for the uncertainty. It’s a bi-directional harm to both enterprises and employees. What’s more, the frequent renege and ‘job hopping’ by the ‘high end’ employees will cost great losses in business by leaking of business secrets and the employers will get more cautious. In this condition, it’s hard for the enterprises to form optimistic long term expectation. Second, it will lead to the lack of positive incentive to common society members. The research results of the modern economics and management have shown that, the incentive to common society members is the deep driving force of the continuous development of modern economy and society. How to let the incentive function? First it’s system, second it’s culture. Objectively speaking, for more than 20 years, the reform to establish new labor relationship is a major social project and system change for new labor incentive system. To a large extent, it has changed the ‘iron rice bowl’ and ‘communal pot’, destroyed the hotbed for laziness. However, the actual problem is that, the old system has collapsed while the new system is not established yet. The positive incentive from the unstable labor relationship featured as short term, temporary and fluidity will be twisted under certain social conditions such as the serious strength unbalance between the two parties. Imagine! When moderate concern for hardship become unsureness in everyone, when independent job selection, bi-directional selection and rational flow become the pervasive trend of temporary employment, can we still give high expectation to the committed cooperation of the two parties of the labor relationship? Can we still hope that common labors will show their sense of responsibility and commitment to the enterprise? The history of the western industrialization process shows that the harmonious labor relationship is the social foundation for the development of modern enterprises. The relationship featured as humanism and respect for human is the result of hundreds of years of labor movement and also the reason for long term stability in western society. Look back to China, the labor relationship has features of the original accumulations in the early stage of capitalism. Some people say, as the nation has too much low level population, powerful enforcement of incentive is only resort and it’s the necessary stage and cost for the 617 development of market economy. We can’t agree with this bare ‘X incentive theory’ type of argument (assuming human are born lazy and lack of independence). We don’t deny the effect of system incentive; we can’t deny the effect of cultural incentive too. In fact, many countries and enterprises have noticed the harm of unstable labor relationship and tried many ways to establish long term incentive system for labors. For example, Japan created the well known Japanese enterprise management culture featured as life employment and service of length related incentive. It is an important reference for China with similar cultural background. Third, the unstable labor relationship has been a serious hidden trouble for the long term stability of China. It strengthens the social polarization and cause serious social conflicts. In recent years, major labor conflicts happen frequently. It’s often reported that labors from different parts of the country demonstrate on the street, go on strike and appeal to higher authorities. It shows that the social conflicts caused by labor relationship have gone from underground to open and need to attract serious attention. Labor relationship is related to millions of common labor’s ultimate benefits, and an important part of the socialistic relations of production. Every measure taken regarding labor relationship must reflect the ultimate benefits of common labors with the majority of population. The economic development and efficiency enhancement in modern world can’t be achieved by sacrificing common labor’s benefits, dignity and human rights. Otherwise people will pay high social cost and even destroy all achievement of the social and economic development. This is an important hint from the history of the western modernization process. 4 Construct stable labor relationship and promote long term social harmony In our opinion, the most major and fundamental institutional change in recent 20 years in China is the change of labor relationship. We should fully affirm the original reform intention for breaking the ‘iron rice bowl’ and ‘life employment’ and its historical value to improve the efficiency and profits in the whole society. It will be one of our important guiding principles in the future. However, after 20 years of reform, the new labor relationship has been established, the situation is quite different from 1980s. One thing is for sure, ‘iron rice bowl’ and ‘life employment’ are no longer existing in common economic organizations. If this is the true case, then both the guiding principles and basic measures on China’s labor relationship reform need to be adjusted. It’s especially important considering the increasing problems shown in recent years. Recently the central committee set the object of establishing socialistic harmonious society, one of its fundamental contents is the harmony among different classes of the society [7]. To our opinion, the harmony of labor relationship is very important to the harmony of the whole society. Just like what many people have pointed out, the long term flourish and development of the society can’t be achieved by sacrificing the benefits of common labors [8]. Currently, the frequent troubles such as ‘mine disaster’ [9], ‘shortage of labors’ and even ‘blood factory’ have been giving us warnings in various ways. How to decide the basic countermeasure for future labor relationship reform? Our opinion is that the guiding principle should be stabilizing the labor relationship (Not going back to ‘iron rice bowl’ and ‘communal pot’) and facilitating the long term social harmony in new conditions, to suit the socialistic market economy. Related with the current situation, there are two important missions: One is handling some historical problems and current outstanding problems, to facilitate the shift from current labor relationship to standardized and marketized labor relationship. We need to fix the labor relationship problems existed in the process of allocating redundant labors in public sector, and protect the weak labor groups’ benefits and legal rights from infringement; The other is to ensure the long term peace and harmonious development of China. We need to strengthen the system establishment and innovation in fast pace. The most pressing thing is to establish labor relationship adjustment mechanism or new patterns to suit the socialistic market economy. With the stable new labor relationship, we’ll reach the ultimate goal of long term harmony. The following specific jobs need to be done: First, handle the labor relationship problems in the reform of state owned enterprises well, shift it toward 618 marketized labor relationship. Concretely it means: 1. Insist the principle of financial compensation, especially return the social security fund to the labors by way of financial compensation; 2. Insist reasonable standard of financial compensation. The lowest standard is to compensate the annuities and medical fees from the time of unemployment to the time of retirement; Insist on the principle of overall planning, consolidated implementation and government s final responsibility. In the process of system transform of state owned enterprises, government need to have overall planning to solve the problems of labor relationship and employees compensation; 4. Design special policies for special industries, special areas and special population groups; 5. Regarding the problem of employee identity in mixed property right enterprises, especially for the enterprises in which the national stock has partial retreat, shall we change the employees identity or shall we give them compensation? In practice it s better that some enterprises preserve employees compensation from national assets in the process of system transform. According to stipulations, employees can receive this compensation when the national stock is retreating or when there is a staff reduction. [10] Second, we need to take various measures to protect the benefits of weak labor relationship groups. Firstly we will work more on propaganda and urge the enterprises sign labor contracts with unemployed peasant labors, reduce the uncertainty and instability in labor relationship; Secondly we need to offer employment help to 40, 50 unemployed staff and peasant labors[11]; Thirdly we need to establish community services such as consulting, reporting and legal aid for weak labor relationship groups, offer them various kinds of help urgently needed; Fourthly we will strengthen labor inspection, for example before Jan 1st and spring festival, and solve problem when or before it happens; At last we will smash all kinds of illegal action infringing labors benefits, and protect common labors basic human rights. Third, the most important and fundamental thing is to start from actual situation, establish the new system or pattern regulating the labor relationship in China and facilitate the long term social harmony by stabilizing labor relationship. By now the opinions from different parts of the society can be summarized as two aspects: Firstly we should establish effective group negotiation system. In history, group negotiation is a long time effective labor relationship regulating system in mature market economy countries, also the primary system applied in most market economy countries. The main feature is establishing strong labor union, and negotiating with employers on labor s working condition, social benefit and social security through the power of the labor union. By considering the difference and similarity of both parties, press influence to the employer and protect labors benefits. Since the system is built on the complete combat and negotiation between two parties, it demonstrate the basic rules of market economy. Therefore, its advantage is larger than its disadvantage. It s especially important that it s effectively applied in many countries and should be easy to apply in China. However, the implementation of group negotiation depends on the establishment of a strong labor union, which is not available in China yet. The independence of labor union in China is very weak and it is far less effective than expected. In the current condition in China, some work of the union is weakened by outside interference. How can we expect the union will represent common labors benefits and conduct powerful group negotiation with employers? It may needs a series of difficult reform even including the reform on political system. Secondly we need to strengthen the construction of legal system, especially strengthen the law execution and supervision and strengthen labor inspection and labor conflict processing system. Objectively speaking, we did pay emphasis on protecting labor benefits by way of legislation. Just as argued by some people, the established labor protecting law in China is even in a higher level than some developed countries, but it has a very unefficient result. Some regulations are far from practical and in fact infeasible. It shows that there are lots of in-depth work to be done. On the other hand, there are many problems in the supervision and execution of labor laws and it s an important cause of the neglect and infringement of common labor benefits. Some local governments have a strong bias toward investors and managers while show no care to common labors especially to external and unemployed labors. They show favoritism to investors in time of labor conflicts and ignore the regarding labor laws. It s also ’ ’ ’ ‘ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ 619 possible that some local officials collude with investors for their own benefits. All above shows that there are lots of important and hard missions to be completed on strengthen labor law legislation and execution. 5 Conclusion After 20 some years of reform and opening up, the labor relationship has gone through great and deep changes. Based on the fact that the socialistic new labor relationship has been primarily formed, a pressing mission now and in the future is solving the historical problems and standardize certain acts regarding labor relationship in the process of reform and change of system in enterprises. We need to strengthen the establishment of laws and other regulations, especially strengthen the execution of the law. We need to protect the benefits of common labors and other weak groups. We need to understand the particularity of labor market and labor capital, protect labors in the labor market, reestablish long term stable labor relationship in socialistic market economy, and facilitate the standardization and perfection of labor market. Labor relationship is related with millions of common labors core benefits. Without whole society stable and standard labor relationship, the continuous economic development and long term social harmony will have no basic guarantee. ’ Annotation [1] In China, labor relationship refers to the social and economic relationship built in the working process between labors and employers [2] According to related data, a long term jobless group has been formed in China. According the spot check from labor insurance department, 55.2% of unemployment are more than 2 years, only 15.2% are less than half a year, the trend for long term is obvious; There are 10227 industrial accidents (525 more than last year) from January to September 2003 in China, 11449 casualties (924 more than last year), it is respectively 5.4% and 8.8% higher than last year; There 184 thousand industrial conflict cases heard by different levels of labor conflict arbitration committee in 2002, 610 thousand labors were involved, it is 19.1% and 30.2% more than last year respectively. (Chang Kai, Qiao Jian. The labor relationship and labor policy under globalization, China workers’ publishing company, 2003: 64) [3] News office, State department of China. The situation of labor and social security in China, white paper. 2002, 4, 29 [4] China business, 2002,4, 24, 3rd column [5] Wang Cheng. The status quo and countermeasure of labor relationship in the transforming period, Enterprise culture, 2005,1:15-18 [6] As above; [7] In recent years, the CCP central committee raised the important problem of establishing socialistic harmonious society. Many papers and reports were delivered and the leaders of the party and the nation emphasize this problem in many occasions. [8] The survey team of China labor science institute. The current situation of labors in China and the related social problems, Economic and social observation, 2004.3 [9] 2005,8,18, reference message quote Los Angels Times 2005, 8, 16, The price of coal mining, the life of miners: China mined 35% of world’s coal while suffer 80% of world’s mine accidents casualties. The casualty/production rate of China is 10 times of India, 30 times of South Africa, 100 times of US [10] Guo Yue, Labor science institute, Labor and social security department. The research on the China labor relationship in transforming period, http://www.sina.com.cn, 2005.01.07, Worker’s daily online [11] Recently, a 54 years old unemployed worker’s saying were frequently quoted by medias in China: The attitude toward intellectuals represents the civilization level of a people, the attitude toward business men represents the richness of a people, and the attitude toward workers and peasants represents the conscience of a people. Tabloid weekly, 2005.6.1, 1st column 620