Students of elementary economics learn that there are three factors of production; labour, land and capital. Of these three, labour is considered the most important.
A famous American chief executive in the automobile industry, Lee Lacocca, said: â€œIn the end, all business operations can be reduced to three words; people, products and profits. People come first. Unless you have got a good team, you canâ€™t do much with the other two.â€
The term labour in economics does not mean labourers. It embraces all grades of workers so long as they are employees of the firm, not its proprietors.
The status of labour or employees has evolved in the course of industrialisation and democratisation. In pre-industrial times, most people worked on their land, self employed and independent. With the advent of industrial transformations and shortage of land, most peasants left the rural hinterland, went into urban centres. Here, they became what Karl Marx called proletariats, people who had nothing to sell but their labour.
At first, industrial workers toiled under difficult conditions. At the time, Africans were being transported to the American continents to work as slaves, the position of industrial workers was only marginally better. They worked in factories from dawn to dusk and were paid only survival wages.
Those who were grouped in large numbers began to form trade unions to demand better conditions of work. The better conditions included shorter working hours, healthier factory environments and compensation for sick leave. As long as governments of the day were dominated by landlords and business people, workersâ€™ demands were given little attention. Some men were imprisoned for forming trade unions.
In democratic countries, workers achieved most of their cherished rights when they secured universal suffrage. They were able to form government that promoted socialist ideals. They got most of the major industries nationalised that industries should consider the welfare of employees first instead of profit making.
In communist countries, private ownership of factors of production; land, capital, business, banks and so on was forbidden. The State owned everything.
Neither democratic socialism nor dictatorship of proletariats called communism provided permanent solutions to the problem of employees versus employer.
These days, legislation concerning employees differs from country to country. In European countries it is easier to hire an employee than to fire him. An employer who decides to fire an employee is compelled to pay all sorts of compensation.
When those with capital think of investing in a foreign country, one of the incentives and disincentives they take into account is labour legislation. Where legislation is seen to be too much pro-worker, investors shun that country and go where they will enjoy more freedom to hire and fire.
Governments which want to attract foreign direct investment (FDI) scrutinise the labour legislations of other countries to make sure their own is not repellent.
According to the latest Economic Journal of the Royal Economic Society, the intensity of employment protection regulation varies considerably among European Union (EU) countries. During the period 1985 to 2018, Spain has substantially loosened its employment regulations; Germany stiffened the regulations, while France moved in both directions.
Flexible legislation is enacted to enable employers to hire workers on fixed contracts under which termination is less expensive. Though the flexible labour does not provide optimum security, it generates more opportunities for employment.
In some of these countries, trade unions have a high sense of altruism. When an employer decides to cut down labour because business conditions have become bad, trade union members have offered to suffer 10 percent cut of their salaries provided the employer agrees to retain most of them.
When the Tigers of the Far East started industrialising they asked trade unions not to engage in Western style adversarial tactics until the countries achieved first world status. Now according to The Economist of September 8 2012, Asia is about to go for the social welfare State.
Lesson: develop the economy first before you demand maximum social services.