2 Theoretical perspectives on

comparative employment
relations
Carola Frege and John Kelly

Research in the area of work and employment traditionally described in Anglophone

countries as Employment, Industrial or Labour Relations, or Labour Studies, was estab-
lished as an independent field of study in the 1920s in the USA and subsequently after
World War II in Britain and other Anglophone countries. Though originally established
by US institutional labour economists it soon came to be seen as an interdisciplinary
field incorporating labour economists, industrial psychologists, personnel management
scholars, industrial sociologists and other social scientists working on labour issues. In
continental Europe, and indeed in the rest of the world, research on work and employ-
ment has remained multidisciplinary and thus a component of various social science dis-
ciplines, in particular political science and sociology (Frege 2007: 2).
The inter-disciplinarity of the field is seen as one of the defining characteristics of
Anglophone employment relations research (Kochan 1998) and was always recognized as
a major advantage of the field. Yet, doubts have been raised over the extent to which
employment relations research remains truly interdisciplinary. Lewin and Feuille (1983:
357) already concluded in the early 1980s that ‘in reality little employment research is
truly interdisciplinary, for specialists in particular disciplines rarely combine research forces
with specialists in other disciplines’. Scholars have in particular criticized the increasing
dominance of labour economics. Employment has been increasingly perceived as primar-
ily a labour market outcome, accompanied by a paradigm of contractual laissez-faire
framed by legal regulations on private property and individual rights (Frege 2007: 173).1
Scholars have also pointed to the subsequent narrowing of methodologies, as
well as the increasingly a-theoretical, empiricist nature of employment relations
research. Thus, the field that has traditionally focused on its achievements in empir-
ical research has struggled to offer much by way of conceptual development or the-
oretical innovation (Lewin and Feuille 1983: 357; Marshall 1998: 355–6; Hyman
2001a; Mitchell 2001: 387). Hyman has defined employment relations research by
a focus on institutional description, governmental policy, and ‘good industrial rela-
tions’, with surprisingly little interest in theory. Marsden (1982: 235) argues that
employment research has been a-theoretical from its beginning and has been
trapped within the confines of empiricist epistemology since then. And Hyman
(2004: 266) observes damaging consequences in that:

the field detaches analysis from broader social science traditions, trivialises its con-
ceptual apparatus and privileges pragmatism over theoretical imagination. If theor-
ies are used they are mainly mid-range, thus hypotheses-testing of psychological
(behaviourist) or economic theories.
10 Carola Frege and John Kelly
One promising development in rectifying these weaknesses can be seen in the
growth of comparative research in employment relations (CER) since the late 1980s,
marked by the first publication of leading comparative textbooks by Bamber and
Lansbury (1987) and Ferner and Hyman (1992, 1998; and see also Hyman and
Ferner 1994) as well as by more recent texts and handbooks e.g. Wilkinson et al.
(2014), Milner (2015) and Bamber et al. (2015). One of the potential benefits of
comparative research is that it can help to advance a more inter-disciplinary and the-
oretical understanding of employment relations and thus provide an important
opportunity to rectify the empiricist bias of past research. Yet, until now much of
the recent comparative research presented even less theoretical ambition and fre-
quently remained within empirical comparisons of national employment models.
In our understanding, CER is not just about a more international scope of
research on work and employment, or a particular scientific method (comparison),
but ideally should also be advancing specific paradigms and theories about the nature
and processes of employment relations systems. Cross-national comparative method-
ology is in many ways the fundamental laboratory for employment relations. With-
out the ability to compare across countries it is virtually impossible to understand
and explain the scientific importance of findings in one particular economy. More-
over, one of the core functions of comparative research is to link conceptually
micro- and macro-levels of analysis (for example, employees’ job happiness with col-
lective representation systems) and to compare across different national settings. In
other words, while most theoretical attempts in employment relations have essen-
tially focused at the micro level, for example attempting to understand the logic of
actors’ preferences and behaviour (e.g. managerial or union strategies), CER theory
should advance our understanding of how actors’ strategies are channelled through
national institutions but also actively shape institutions and regulations. As Crouch
(2005: 208) concludes, comparative research raises the awareness of academics that,

features of one’s native environment which one had thought to be distinctive and
had attributed to rather specific, local causes are in fact more general or in turn that
features of relationships between variables which one thought to be of universal
meaning are in fact locally embedded and not transferable to other countries.

This textbook aims to contribute therefore towards a more inter-disciplinary and

theoretically informed analysis of the issues and debates in CER. The present chapter
starts by discussing existing theoretical approaches relevant for CER, followed by an
outline of a conceptual framework, which will be used as a broad guide for subse-
quent chapters.
We start from the basic assumption that labour markets – as all markets in capit-
alist economies – are in need of some kind of regulation. The nature and function-
ing of these regulations are a core part of the study of employment relations, and
the most basic form of regulation are labour contracts between an employer and an
employee. Colling and Terry (2010: 7) highlight three core characteristics of the
employment relationship which we want to discuss: the indeterminacy of the
labour contract; the inequality or asymmetry of power resources of the actors
involved and 0the dynamic nature of the relationship and the coexistence of con-
flict and cooperation. First, in contrast to the original neo-classical belief that all
markets and contracts are complete, modern contract theory starts from the basic
 Theoretical perspectives on CER 11
observation that in reality all labour contracts are by nature incomplete (Fox 1974;
Grossman and Hart 1986; Hart and Moore 1990). Thus, no labour contract can be
written which is complete (except in slavery where full ownership substitutes
incompleteness). Hence, by default markets or contracts cannot exist without regu-
lation or institutions. Moreover, it might not be in the interest of the involved
parties to pursue maximum contractual completeness. For example, it is not clear
whether employers have a preference to pursue maximum contractual complete-
ness or incompleteness. It depends on the existing bargaining power of both sides
at the time of contract writing, as well as on actors’ predictions about how mar-
kets, and hence their power position, might develop in the future. If employers
hire someone before the start of a recession they might want to keep the contract
as incomplete as possible to allow future re-negotiations once employers’ bargain-
ing power increases and vice versa. The same logic (just the other way around) can
be applied to workers’ preferences in the completeness of the contract. The degree
of incompleteness is also influenced by the nature of the job. The more unforeseen
conditions exist and the more discretion the job entails the more difficult it is to
write a complete contract. A call centre employee typically has a very specific job
description whereas an investment banker has not. Consequently in most scenarios
employers and employees are interested in engaging in a certain amount of bar-
gaining exchange going beyond the established minimum contract. The incom-
pleteness or indeterminacy of the employment relationship is therefore open to
negotiation and therefore results in a dynamic interplay of conflict and cooperation
between the actors, conditional on their preferences and their power resources.
This might develop into collective bargaining in circumstances where the labour
movement has effective power resources (Crouch 1993: 56), which moves the ori-
ginal individual employment contract to a collective level. It can also lead to
employers adopting nonmarket strategies (e.g. high performance HR strategies) to
extract work effort from their workers since they cannot fully control them.
This brings us to the second point of Colling and Terry (2010), which is widely
accepted in employment relations research, that in capitalist economies the power
resources of employers and workers are inevitably asymmetric (see also Hyman 1975;
Offe and Wiesenthal 1980). In other words, workers (sellers of labour power) are
asymmetrically dependent on employers (buyers), and that makes labour inseparable
from its seller. Workers’ livelihoods and well-being are closely connected to maintain-
ing an employment relationship with their employer. Unemployment for a worker
usually involves substantial loss in income and in social status and the costs of finding
a new job can be high (Western 1998: 226). In contrast, employers are not as depend-
ent on a particular employee. If an employee leaves the firm the employers’ livelihood
is not threatened. In other words, because of the asymmetric dependence of workers
on employers there is never real equality between buyers and sellers in the labour
market and hence their relationship and the employment contract inevitably expresses
a power relationship in which the costs to workers of lost employment are generally
far higher than for employers (Western 1998). This imbalance or, as Edwards (1986)
called it, ‘structured antagonism’, shapes any employment negotiation or regulation. It
is also a main source of the dynamic nature of the employment relationship and the
co-existence of conflict and cooperation, which is Colling and Terry’s third point.
However, according to Hyman (1975: 11) most research focuses on how conflict is
12 Carola Frege and John Kelly
contained and controlled rather than on the complex processes through which imbal-
ances, disagreements and disputes are produced.
There have been various overviews of social science theories used in employment rela-
tions research (Adams and Meltz 1993; Mueller-Jentsch 2004). One of the best and most
comprehensive summaries is by Mueller-Jentsch (2004), who distinguishes ontologically
between system theory, Marxist theory, institutionalism, action theory and economic
approaches.2 Rather than providing another comprehensive review we want to concen-
trate here on two underlying ‘philosophies’, which cut across all theories, and are particu-
larly important for a comparative understanding of employment relations issues. Both
trajectories offer alternative accounts of the main driving forces in employment regimes:
the first, based on economic functionalism, focuses on market forces and firms (in particu-
lar corporate business) and advocates the primacy of the market. It assumes that the devel-
opment of political economies is driven by ‘economic imperatives for higher efficiency in
the use of scarce resources’ (Streeck 2009: 172). For example, a major assumption is that
efficiency driven capitalist firms will collectively convince the state to behave in the best
interests of their international competitive advantage. And thus the state behaves essen-
tially as an agent of market forces. In the following section we introduce Dunlop’s system
theory, which emphasizes market forces and shaped much subsequent Anglophone
research; Kerr’s convergence theory, and the efficiency-theoretical approaches of the ‘var-
ieties of capitalism’ and ‘globalization’ theories. The latter approaches have in common
that they combine economic and institutional analysis but ultimately adhere to
a functionalist understanding of capitalist (employment) models.
The second, a political-economic approach highlights the historical and institu-
tional embeddedness of employment regimes and focuses on the opportunities avail-
able to social and political forces, which are seen as equally important to market
forces and which can shape and constrain the labour market. In other words, the
labour market is seen as a political as well as an economic forum (Western 1998:
226). The state is regarded as an independent actor and not subordinate to the
market. The approach also highlights the fluid power relations and potential of con-
flict between employment relations actors (Edwards 1986; Korpi 2006). It is historic-
ally informed rather than functionalist and acknowledges the dynamic processes and
changes of employment relations models rather than their static equilibria (Streeck
2009: 19). We discuss approaches centred on politics at workplace level, power
resource theory, trade unions as political actors, the role of the state in employment
relations, corporatism and historical institutionalism.

Market driven theories

The pluralist Anglophone employment relations school and its main protagonist
Dunlop (1958) focuses on the substitution of open contestational conflicts between
employers and workers by collective bargaining. Dunlop’s systems theory defines
three core ‘actors’: employers and managers, workers and their representatives and
governmental agencies; and three ‘contexts’: technology, markets and the distribu-
tion of power in society. The pluralist theory was progressive in that it amended
classical market liberalism by allowing organized collective groups to be analyzed as
actors (Crouch 1993). Essential ingredients of the Dunlop model are relatively
decentralized collective bargaining, a plurality of mutually competing unions, and an
avoidance of union political entanglements (Crouch 1993: 57). Politics, and
 Theoretical perspectives on CER 13
government, are thus treated as peripheral; collective bargaining is central. Dunlop’s
core independent variables are the strategies of the ‘industrializing elites’.
In short, Dunlop’s main focus is on the rules negotiated between employers and
unions and on the economic and (in particular) technological factors which influenced
these rules. He devoted two central chapters of his book to a comparison of work
rules in coal mining and construction, arguing that cross-national similarities reflected
common technical requirements. Stability and a common or at least compatible ideol-
ogy are core ingredients; little attention is paid to the internal dynamics and conflicts
of the actors. Thus, Dunlop and his followers placed a premium on the stable func-
tioning of the economy (Crouch 1993) and focused on market forces and employers
as the driving forces within employment relations. The dimensions of conflict and
change were, however, underrated (Mueller-Jentsch 2004: 3). In part, this perspective
reflected the realities of the North American institutional framework at the time
Dunlop wrote, together with an assumption that these would become the universal
model elsewhere. Thus, the dominant approach in Anglophone employment relations
analysis for much of the post-war period assumed that common technologies and
cross-national markets would create convergence towards a common model of
employment regulation.

Convergence theories
The first attempt to formulate an explicit theory of such a convergence is usually traced to
Kerr et al.’s seminal work Industrialism and Industrial Man (1960). Their main argument
was that the world’s employment regimes would experience a certain convergence to
greater uniformity. The central driving force was seen to be the homogenizing pressure of
new technologies, which was thought to be central to the logic of industrialism. Other
forces were the push of progress, education, equality and the ‘compulsion of comparisons’.
The underlying assumption was that structure follows functions. Thus, employment rela-
tions were thought to change in line with technological and developmental requirements.
Kerr further argued (e.g. 1983) that the emerging common model would match the
Anglo-American pattern of the time, which they called ‘pluralistic industrialism’. This
they defined as a system in which employers and unions developed increasingly effective
and non-conflictual bargaining relationships, making detailed state regulation unnecessary.
Hence in their view, ‘mature’ employment relations systems became detached from the
political process.
It is worth noting that Kerr et al. (1960) conceded that a range of different employ-
ment relations patterns within the rubric of ‘pluralistic industrialism’ could co-exist for
some time. They identified certain factors promoting continued diversity such as the
persistence of particular actor strategies, the imprint of national culture and existence
of distinctive industrial cultures. However, in the end the logic of industrialism would
override these diversities and produce a homogeneous set of labour market institutions
and regulations. Uniformity draws on technological imperatives and management’s
authority, divergence on individuality and workers’ rebellion (Kerr et al. 1960: 277).
This ‘convergence theory’ has been much debated ever since. Scholars have criti-
cized their work as excessively functionalist, technologically deterministic and
ethnocentric:
14 Carola Frege and John Kelly
It reflected the ethnocentrism pervasive in Anglo-American social science of the
(cold war) period in that the US was seen as the technological world leader and
therefore its institutions and practices were defined as ‘best practice’ for other
nations to emulate. Patterns in other countries were seen as derivative of, or devi-
ations from, the US model.
(Locke et al. 1995: xvi)

Moreover, as Traxler et al. (2001: 7) pointed out, their theory remains ultimately
based on the (neo-classical or neo-liberal) assumption that markets are superior, while
non-market institutions constitute performance-inhibiting rigidities. Consequently, the
theory concludes that the model best designed to succeed in the global economy is
the US model. However, empirical research from the 1970s onwards has challenged
this core assumption and suggests that rather than converging, ‘national patterns of
employment relations are increasingly diverging’ (Wailes et al. 2015: 12). In particular,
empirical studies revealed that technology cannot be seen as exogenous to economy
and society but instead is shaped by economic and societal forces (Sabel 1982). Fur-
thermore, the historical transformation of the American labour market in the 1980s
with the decline of collective bargaining rendered the Dunlop and Kerr approaches
less relevant. The preconditions for the consensual creation of bargaining rules were
vanishing. Finally, the frequently observed proactive role of management argued for
a stronger focus on the strategic choices of all actors as determinants of action rather
than on potentially exogenous factors, such as technology (Mueller-Jentsch 2004: 22).*
The focus on firms and market forces remained but was modified by an action the-
oretical extension of Dunlop’s systems approach. The influential textbook by Kochan
et al. (1986) developed a strategic choice theory, which argued that although markets
and institutional factors influence and shape actors’ behaviour, there remains a degree
of latitude within which the actors can make significant policy choices. Although all
employment actors are mentioned, their main focus remains almost exclusively on
management’s strategic choices and management–union relations. Thus, the relatively
autonomous strategic decisions of managers are seen as an intervening variable
between environmental conditions and company structures. Moreover, ‘the empirical
basis remains the USA, which continues to be characterized by state abstinence from
issues of employment relations, by the existence of company level unions, and the use
of human resource management, which prefers individual solutions to collective ones’
(Mueller-Jentsch 2004: 23). And so it comes as no surprise that strategic choice theory
has seldom been applied to the analysis of employment relations outside of the USA
or Britain (Mueller-Jentsch 2004).
More recently attempts have been made to upgrade the strategic choice
approach and to make it less functionalist. For example, Locke et al. (1995: xxvii)
compare the strategic choice and institutionalist approaches in order to ‘address
whether a focus on the competitive strategies of firms or one that emphasizes the
role of public policy and legal institutional arrangements (or some combination of
these two approaches) best explains recent shifts in employment relations’. Their
framework distinguishes between two core explanatory forces: ‘national, industry
and firm governance, institutions and structures’, and ‘firm strategies’ (competitive
strategies, technology/production, strategies). Their empirical answer is, however,
vague and ultimately points to a combination of both. Other studies have also pro-
moted a more nuanced argument that convergence might be taking place in two
 Theoretical perspectives on CER 15
ways at the firm level due to increased international competition, thus narrowing
managerial strategic choices to a ‘high road’ or low road’ option. ‘High road’,
functionally flexible workplaces produce complex goods and services, mainly in
advanced economies, and are characterized by high pay and team-based work,
whereas ‘low road’, numerically flexible workplaces produce simple goods and ser-
vices, mainly in the developing countries, and are characterized by non-
unionization and Taylorist work practices’ (see Frenkel and Kuruvilla 2002: 388).

Globalization theories
In the meantime an increasing number of studies of globalization have come to the
fore, fostering a new discussion on a global market driven convergence of employ-
ment regimes towards the US model. This time the impact on employment relations
arises from major economic and financial characteristics of globalization, in particular:

the integration of product markets as a consequence of removing trade barriers;

internationalization of financial markets stimulated by deregulating restrictions on
capital flows; cross-border spread of technological advances; and transnational
organization of production by multinational companies.
(Traxler et al. 2001: 4)

Globalization is seen as a threat to any nationally based governance institution, in par-

ticular for employment institutions, which are deeply embedded in national traditions.
As a consequence employment models are assumed to inevitably change and converge
in line with economic requirements. According to Gereffi (2005: 170), a leading
scholar in the field, the competition among firms from different business systems in
overseas markets tends to diminish the influence of national institutions on firms’
behaviour (see also Herrigel and Wittke 2005). Gereffi notes the increase of ‘global
production networks’ as resulting from a growing fragmentation of the production
value chain, which used to be located in hierarchically integrated companies. The
concept of production value chains assumes that every stage in the production and
delivery of goods and services adds economic value. And the argument is that these
stages are increasingly separated both organizationally and geographically (see also
Dicken et al. 2001). For example, sections of the value chain can more easily than in
the past be outsourced to independent contractors abroad and can lead to an inter-
national division of labour that allows producers to form cross-border networks of
production (Lane and Probert 2009: 24). According to Gereffi (2005) in many indus-
tries (e.g. textiles) the centre of production has moved to developing countries
although the power remains in the hands of large retailers in the developed world.
Globalization theories have been criticized for continuing a functionalist approach
to the explanation of social and economic structures and processes. Their arguments
make sense only in a world of perfect market competition (Elster 1982). But critics of
globalization theories find it questionable that global markets have become so power-
ful that national employment regimes are necessarily subject to performance-driven
convergence (Traxler et al. 2001). This claim is supported by a large set of compara-
tive studies indicating that national economies can stay competitive and efficient
through a diverse set of employment relations solutions, which are functionally
equivalent (e.g. Piore and Sabel 1984; Hollingsworth and Boyer 1997). The argument
16 Carola Frege and John Kelly
was picked up and further developed by the ‘Varieties of Capitalism’ literature (see
below). For example, a recent study of the global clothing industry by Lane and Pro-
bert (2009: 292) agrees with Gereffi et al. that global production networks do exist
and they shape global work and employment patterns. But they also find that these
networks remain substantially shaped by both national institutional ensembles and
domestic markets, evidence that supports the continuing variety of capitalist employ-
ment regimes and the core distinction into coordinated and liberal market economies.

Varieties of capitalism
The ‘Varieties of Capitalism’ literature (Hall and Soskice 2001; Amable 2003) con-
tinues the focus on the primacy of market forces. It identifies firms and financial mar-
kets as the core actors within capitalist economies, and suggests less prominent, less
strategic roles for both state and organized labour (Howell 2005: 27). It portrays
a firm-centred political economy where firms establish relationships with other actors
by strategic interaction (Hall and Soskice 2001: 6). At its core the theory combines
several theoretical approaches (game theory, transaction costs, institutionalism) with
a functionalist equilibrium model (Streeck 2009: 18). In particular, national models of
capitalism are characterized by distinctive institutional arrangements supporting specific
kinds of strategies on the part of firms in international markets (Thelen 2004: 2).
Institutions enter the analysis because they are seen as helping firms to solve several
coordination problems in five spheres: employment relations, vocational training and
education, corporate governance, interfirm relations, and the workforce. Different insti-
tutions deal with these different spheres but they are not isolated but interconnected and
produce ‘institutional complementarities’ where different institutions reinforce and
complement each other (Hall and Soskice 2001: 9). A core argument is that these insti-
tutional arrangements provide the foundation on which the competitive advantage of
firms and their national economies rest, so that employers as key actors, who have
organized their strategies around these institutions, will be reluctant to change them.
One implication of this argument is that institutions possess a significant degree of resili-
ence even in the face of strong market pressures and that the institutional changes that
do occur are likely to be incremental, revealing a strong degree of ‘path dependency’
(Kelly 2011: 64). These interlocking and mutually reinforcing institutions are thought
to co-vary systematically, yielding two major ideal-typical capitalist models – liberal
market economies (LME) and coordinated market economies (CME). Thus, both
models solve their coordination problems with a different set of institutions. In LMEs
firms tend to coordinate their activities via market relations and hierarchies and in
CMEs firms depend more on additional political and societal institutions.
Not surprisingly, the VoC theory has become the most popular vehicle for comparative
employment research in the last decade. According to Streeck (2009: 17), ‘VoC theory
must be applauded for its recognition of the importance of institutions, its emphasis on the
significance of national contexts even in times of globalization, and its rejection of a neo-
liberal convergence-on-best-practice model of political economies’. At the same time VoC
theory has been criticized on a number of grounds: for reducing the diversity of national
capitalist regimes to two types3; for ultimately rooting both models in efficiency-theoretical,
functionalist premises; for its underdeveloped account of change which may be linked to
the underlying idea that, conceptually, stability takes precedence over change (Streeck 2009:
18; Baccaro and Howell 2017; Heyes et al. 2012). Critics also argue that the theory falls
 Theoretical perspectives on CER 17
short in explaining what brought these regimes into being in the first place, what holds
them together, and ‘how we should characterize the dynamics of change and weigh these
against the forces of institutional reproduction’ (Thelen 2004: 3).

The political economy of employment relations

Alternatively, scholars more influenced by political science traditions have focused
their attention on the political and social nature of employment relations and have
interpreted the incompleteness of employment contracts as a political and not just
a market problem. The starting assumption is that labour markets are inherently
different to other (product or financial) markets in that they deal with human
beings and citizens of, in most cases, political democracies. Early scholars primarily
focused on the dynamic political nature of work and workplace relations. They
analyzed power relations at workplace level between individuals and groups and
understood the concept of politics primarily as a means to achieve power (Machia-
velli’s or Max Weber’s definition of power). For example, Burawoy (1985) estab-
lishes the important concept of ‘the politics of production’, arguing that work and
employment is inevitably a power relationship, since the employer has to compel,
persuade or motivate the employee to work diligently and productively. Kelly
(1998) takes this further and underlines the importance of a social movement per-
spective on employment relations by emphasizing the crucial role of workers’ per-
ceived injustice at their workplace in explaining social unrest and collective action
in the employment relationship. Hyman (1975: 11) argues that employment rela-
tions should not be exclusively defined in terms of rules and regulations because to
do so is to foster the maintenance of stability and regularity rather than recognizing
the inevitability of conflict and control. Interpreting collective bargaining as eco-
nomic regulation was already contested by Flanders, who saw it as primarily
a political process, modifying power relations in order to impose rules, which con-
strain management discretion. Trade unions, he argued, were therefore more sig-
nificant in establishing rights than in obtaining economic benefits for workers. In
other words trade unions provide a ‘sword of justice’ (Flanders 1975; Kelly 2010).
The political nature of trade unions and their relationship to the state and political
parties are topics that have been of long-standing research interest (e.g. Marks
1989; Burgess 2004).
Other, more recent approaches, dominated by political scientists and economic soci-
ologists, discuss the political character of work and employment in a more institutional
sense, focusing on political regimes and power resources. They discuss labour policies
of national states and integrate other political and civil society actors (such as NGOs –
non-governmental organizations – or lobbying associations), which impact on work
and employment. Labour markets and employment relations are thus inevitably
embedded not just in the economic but also in the political sphere. They are located
at the intersection of the economy and politics. Employment regimes are therefore
regarded as fluid social orders, shaped by multiple actors with differing interests and
power resources as well as by institutional path dependencies, long-standing norms,
political and economic cultures and traditions (Gallie 2007). This requires a theoretical
understanding of the underlying power structures in capitalist economies, which have
been somewhat neglected in previous employment relations research.
18 Carola Frege and John Kelly
In particular, the ‘power resources theory’ essentially claims that power differences
between major social actors, grounded in the social (capitalist) structure of society,
are the basis for the development of social institutions, among them the welfare state
(e.g. Korpi 1978: 37–54; 2006: 242–250). In short, power resources theory involves:
(i) claims as to what kinds of power resources are basic in capitalist societies, and
consequently, who are the most important (dominant and dominated) actors in pol-
itics; and (ii) suggests a set of causal and intentional mechanisms resulting in hypoth-
eses regarding the institutional consequences of these power differences, i.e. the
development of the welfare state (Sommer Harrits 2006: 7). According to this
theory the two main power resources in capitalist societies are the control over the
means of production and the control over labour power or human capital. The most
effective power resource is the first, and hence capitalists or employers are expected
to be, at the outset, the dominant actors. However, these different power resources
can be affected by changes in institutional surroundings, and specifically, the effect-
iveness of labour power can be enhanced by collective mobilization. Thus, the
working class, in possession only of labour power, will tend to organize collectively,
whereas capitalists or employers will not. This tendency will be ideally supported by
political institutions, assuming that labour within the arena of politics (as distinct
from the economy) will be relatively stronger. Second, institutions that reduce the
need for the continuous activation of power will be built, and as such, the welfare
state (as well as collective bargaining) can be seen as a strategic attempt of the mobil-
ized working class, i.e. unions and social democratic parties, to include more and
more areas of conflict within a political context. Hence, this theory assumes that
strong welfare states and strong employment regimes will be built in countries with
a strong and mobilized working class (Sommer Harrits 2006: 8). As a consequence,
markets and employment institutions are interpreted as ‘less inherently coherent and
not self-equilibrating’ (Thelen 2004: 4, but pace Hall and Soskice 2001).
Related to the power resources model is the work of some comparative political
scientists who have taken a more institutionalist approach to employment relations.
They have concentrated on legal, regulatory or organizational frameworks as compris-
ing both constraints and opportunities on the actions of employment actors (Wilkinson
et al. 2014). In addition they have tried to map the different preferences and logics of
actions of the various actors whilst acknowledging some degree of path dependency
(Sommer Harrits 2006: 3). In particular, these scholars focus on the importance of the
nation state and employment institutions. The state is not just seen as the guardian of
economic well-being but also of individual well-being and is seen as a potential repre-
sentative of not just employers’ but also workers’ interests in society. More radically,
Esping-Andersen et al. (1976) define the state as the ‘locus for class struggle’. Argu-
ably, the state’s task is not only to introduce regulations, which help to make labour
contracts more efficient and to support the economic performance, productivity and
competitiveness of its industries (‘accumulation’), but also to ensure dignified working
conditions, social justice and human rights for its citizens at their workplaces. Some
authors have called this ‘legitimation’, maintaining popular consent by pursuing social
equity (which may require ‘market correcting’ interventions) and fostering citizenship
and voice at work (industrial democracy). Involving the ‘social partners’ in economic
and social policy-making may also be a means of enhancing government legitimacy.
For example, Hamann and Kelly (2011) found that social pacts are partly driven by
competition between political parties in PR electoral systems with fragmented party
 Theoretical perspectives on CER 19
systems. Moreover, the state has an ultimate interest in reducing conflicts, which chal-
lenge social harmony and are costly for society at large (‘pacification’). Historically,
the boundaries between industrial conflict and social and political disorder have been
uncertain and frequently overlapping, as in the case of general strikes (Hamann et al.
2013), and governments are usually eager to avoid industrial conflicts becoming polit-
ical (see Ost 2005).
Finally, employment lawyers have pointed to the government’s involvement in
many countries in establishing collective employee rights and minimum working
standards that have fundamentally shaped employment contracts over the last two cen-
turies. Arguably they have also helped to reduce, in particular during the 20th century,
the need for negotiation between individual employers or employer associations and
trade unions. In particular, more recently as employees’ ability to bargain collectively
for rights and improved labour standards has declined, we can observe a parallel
growth of states’ engagement in the field of individual employment laws, such as anti-
discrimination, anti-bullying, privacy laws etc. One could argue that the development
of individual rights and minimum work standards increasingly substitutes for collective
employment laws (Estlund 2010: 75). The verdict is out on the extent to which col-
lective labour rights can be fully replaced by individual rights.

Corporatism
A particular topic of interest for comparative political scientists has been the cap-
acity of the state to enable intermediary, private interest governance of employ-
ment relations, namely corporatist arrangements to regulate the potentially
conflictual employment relationship (Korpi 1978; Esping-Andersen 1985; Streeck
and Schmitter 1985). This approach analyzes the state ‘as a medium in institution-
building processes, particularly between parties with diverging interests, for their
capacities to build intermediating institutions (ones that bridge conflicting interests)
on their own are limited’ (Mueller-Jentsch 2004: 28). Corporatist arrangements
have been characterized by an all-encompassing scope of political governance and
a high degree of organizational centralization. Typical examples are the Scandi-
navian countries, as well as Austria, Switzerland and Germany. These corporatist
political economies have long been admired as models of economic efficiency and
social equality (Thelen 2004: 1). For example, Streeck and Schmitter (1985: 14)
examine the self-regulation of intermediary associations (besides family, commu-
nity, market or state actions) that shape and coordinate private interests in societies.
They argue that employment regulation in corporatist countries is governed by the
concerted coordination of the state and non-state (‘private’) institutions and inter-
est organizations (trade unions and employer associations), also called tripartism.
This coordination is embedded in an institutional system, often created and
changed with the aid of the state, without which the associative arrangement of
relevant interests would not work (Mueller-Jentsch 2004: 18). Necessary precondi-
tions for a functioning corporatist governance are ‘active economic policy-making
of the state, social democratic political parties that are part of the government and
that are supported by unions, and encompassing interest organizations that have
bargaining power and centralized representation structures’ (Mueller-Jentsch 2004:
18). Many authors have interpreted corporatism as a high point of workers’ power
in society (Esping-Andersen 1985; Rothstein 1987; Glyn 1991) and view large
20 Carola Frege and John Kelly
centralized political unions bargaining over national economic policy aspects as
revealing the ultimate strength of labour movements in democratic societies.
Moreover, a major underlying assumption is that non-market institutions in the
labour market (such as collective labour market regulations) are not necessarily per-
formance decreasing but on the contrary can enhance performance (Schmitter 1979).
Strong corporatist institutions (characterized by an all-encompassing scope of gov-
ernance and a high degree of internal centralization) can even outperform market-
based regimes (Traxler et al. 2001: 7). In fact, in the heyday of corporatist thinking
some scholars even predicted a universal trend toward ‘corporatist intermediation’
(Schmitter and Lehmbruch 1979; Lehmbruch and Schmitter 1982). Later on, from
the mid 1980s, corporatism fell into abeyance given the widespread decline of trade
union density and the decentralization of collective bargaining (e.g. Lash and Urry
1987). A major force behind these changes towards disorganizing corporatist
employment relations was, arguably, increasing international product market compe-
tition (Traxler et al. 2001: 9), as well as increasing strains on welfare states and pen-
sion systems. Liberal market economic models re-emerged onto the research agenda,
ironically supported by Hall and Soskice’s (2001: 30) prediction that LMEs will
adapt more easily to globalization, given ‘their preference for more flexible and
loose relations, both within and between firms’ (see also Baccaro and Howell 2017).
However, empirical studies have remained more ambiguous, revealing that the
increasing processes of disorganization and disintegration in national employment
regimes remain complex. Tendencies towards convergence on the LME model are
accompanied by increasing cross-national diversity (Hyman 1975; Ferner and
Hyman 1992; Crouch 1996; Visser 1996; Traxler et al. 2001) and corporatist
arrangements have been revived in many countries under the rubric of ‘social pacts’
(Avadgic et al. 2011; Hamann and Kelly 2011).

Historical institutional theories

Finally, building on the corporatist literature there has been a growing body of work
in the 1990s and 2000s, which revives a historical and institutionalist approach to the
comparative study of capitalism (Hollingsworth et al. 1994; Thelen 2004; Thelen and
Streeck 2005). The ambitious aim of this work was to combine the insights of institu-
tionalism concerning the constrained nature of strategic action, with an account of
social change and innovation (Crouch 2005: 2), and thus contribute to the under-
standing of varieties of capitalism with a more dynamic political economic approach.
Thus, it attempts to advance the varieties of capitalism theory by moving away from
the original functionalist equilibrium model to a more historically informed theory of
social action, which is conceptually open to change. Streeck (2009: 237) calls it an
‘action-theoretical microfoundation for an institutionalist theory of capitalism as
a social system’ or ‘action-centred institutionalism’ or ‘a theory of institutional action’.
In short, it advocates a more political understanding of the varieties of capitalism.
Such a theory aims to explain ‘processes like the parallel, endogenous, dialectical, and
mutually reinforcing institutional change’ in employment regimes (Streeck 2009).
For example, Thelen (e.g., 2004, 2010) aims to explore the continuing diversity of
employment institutions (such as vocational training) across countries through
a historical perspective. She calls her approach the ‘political economy of skills in com-
parative-historical perspective’ and focuses on ‘where these institutions come from,
 Theoretical perspectives on CER 21
what has sustained them, and the ways in which they have changed over time’
(Thelen 2004: 4). A similar theme can be found in Streeck (2001, 2009), who stresses
the institutional complementarities of political economies but at the same time down-
plays the functional and economic logic of the varieties of capitalism in favour of
a more singular political analysis (Thelen 2004: 3). National employment regimes are
seen as the product of past and current political interventions designed both to main-
tain but also to recalibrate institutions. Political economies are ‘not the product of
a grand design, and ex-post accommodation seems to have been at least as important
as a priori calculations of the advantages of compatibility and complementarity under
conditions of interdependence’ (Streeck 2001: 31). From this perspective, political
economies are more open to change than in Hall and Soskice’s analysis. ‘While stabil-
ity is a temporary product of social and political construction, change is endemic and
in fact may be largely endogenous, external shocks notwithstanding’ (Streeck 2009: 2).
Streeck reconstructs ‘capitalist development as a conflictual interplay between the indi-
vidual pursuit of economic advantage and collective political efforts at restoring and
protecting social stability rather than as a negotiated rearrangement of meso-level insti-
tutions in pursuit of national competitiveness’. He argues that capitalist developments
have been fundamentally misconstrued in the former market driven theories as
a collective and consensual quest for higher levels of efficiency, i.e. as a collective
effort at ‘economizing’ on transaction costs. In reality, according to him, capitalism
must be understood as an outcome of a permanent struggle between pressures for the
expansion of markets and increasing commodification of social and political relations
on the one hand, and social demands for the political stabilization of relative prices
and extant social structures (based on non-market values such as communities or trust
relations) on the other.
To conclude, we have summarized selected theories from diverse disciplines,
which were found to be influential in the analysis of comparative employment rela-
tions in a global economy. We broadly distinguished between approaches focusing
on markets and firms, highlighting an economic functionalism as the main driving
force in employment regimes with the potential to reach a stable equilibrium, and
approaches that foster the historical and institutional embeddedness of employment
regimes in the wider political economy highlighting processes and change rather
than a stable social order. Our subsequent country chapters will reveal the inherent
dynamics between periods of social stability and of transformation and change in
selected employment regimes. We favour the political economic approach but
acknowledge that both approaches are interrelated and both provide deep insights
into the making of employment relations. In the last section of this chapter, we
want to provide a heuristic framework, which outlines the major variables to be
taken into account in analyzing country specific employment relations regimes.

Conceptual framework
One of the major challenges for comparative empirical researchers is to specify the
conditions, under which certain sets of variables are more or less successful in
explaining attributes of work and employment and in particular how they can
account for change. Here we develop a broad conceptual framework, which focuses
on five core variables, based on Peters’ famous framework of comparative politics
22 Carola Frege and John Kelly
(2008): ‘actors’ interests’, ‘power resources’, ‘institutions’, ‘international environ-
ment’ and ‘ideas, ideologies and identities’.
(i) Employment actors should be defined broadly, integrating not only the three
traditional agents (employers, workers, state), but also non-traditional actors such
as worker centres (Fine 2006) or NGOs. As we have seen above, actors’ interests,
preferences and their subsequent strategic choices can be based on rational choice
explanations, as in basic neo-classical assumption that employers or employees are
utility maximizers, or, as the new institutional economists (Williamson 1985)
would argue, that they are minimizing their transaction costs (e.g. information
costs, negotiating and decision-making costs, controlling and monitoring costs).
However, as institutionalist theory in political science reminds us, reality is often
more complex. For example, employers are not necessarily only interested in short-
term profit maximizing but also in long-term sustainability. Moreover, in corporatist
countries employers and workers are given the right to participate in making eco-
nomic and employment policies, but in return have to be reliable partners, with
their membership abiding by agreements, avoiding for example wildcat strikes
(Peters 2008: 51). A good example is German-style works councils, which have, by
law, the dual task of representing workers interests and cooperating with manage-
ment. And governments as employment actors tend to pursue a complex mix of
complementary and sometimes conflicting goals and interests which can also change
over time. The state is also not autonomous in its decision-making but influenced by
various actors such as national constituencies, lobbyists and supranational bodies.
Recent network theorists have also propagated the importance of networked
groups, thus ‘surrounding almost all policy areas there is a constellation of actors and
groups (e.g. lobbyists) who seek to influence that policy, and who are increasingly
connected formally to one another and to the relevant policy-making institution’
(Peters 2008: 51). The examples modify the traditional, self-interested rational
choice assumption of employment actors, in favour of a mixture of individual and
collective preferences and actions.
(ii) A main emphasis of our textbook is a focus on the power resources of the employ-
ment actors, a topic that has been neglected or underestimated in traditional theoretical
approaches. In particular, the importance of power as an institution-building and insti-
tution-preserving force has usually been underplayed by most market-oriented
approaches. Yet, as outlined above, capitalist labour markets can be convincingly char-
acterized by ‘structural antagonism’ and power therefore plays an important role. We
strongly agree with Mueller-Jentsch (2004: 27) that ‘the building of employment insti-
tutions by two or more actors in conflictual interactions cannot be explained without
the notion of power and counterpower’. In employment relations actors’ power is
inevitably influenced by a variety of factors, in particular by market forces (the state of
the economy), by political forces (political parties and policies), but also by internal
organizational capacities of the actors (e.g. degree of centralization of unions or
employer associations), and by the changing nature of work and technology and
group relations at the production level. Power resources are therefore dynamic and in
constant flux.
(iii) Employment institutions are generally interpreted as norms and rules, which
enable markets to operate but can also constrain markets. Employment institutions are
usually taken to comprise labour laws, collective bargaining institutions, and arbitration
bodies, but can also include broader economic institutions such as free trade zones or
 Theoretical perspectives on CER 23
trade agreements; and political institutions such as different forms of democracy (for
example direct or representative electoral systems) and their path dependencies, which
have an impact on employment regimes. Institutions do not rigidly determine individ-
ual actions but rather establish trajectories for possible actions. Those trajectories have
‘conditioning effects on the goals, strategies, and interest definitions of the actors as
well as on the power relations between them’ (Mueller-Jentsch 2004: 12). Thus,
actors are seen as being embedded in a rich institutional context consisting of social
ties, organizations, and disparities in social power (Western 1998: 224). Moreover, as
the historical-institutionalist theorists have rightly reminded us, institutions have an
inherent tendency to persist over long periods of time, even in the face of their poten-
tial dysfunctionality (Peters 2008: 49). The difficulty is therefore not so much to
explain institutional stability but institutional change.
(iv) The international environment is increasingly important in the understanding of
employment relations. Much recent work has focused on comparing national actors
and institutions in two or more employment regimes and this is very valuable
research. However, as our introductory chapter revealed, global financial and product
markets, patterns of labour migration, global politics and institutions (such as the EU,
World Bank and the IMF) increasingly shape national employment regimes. For
example, there is an increasing number of studies on the links between national labour
laws and regulations and supranational bodies such as the WTO (Hepple 2005).
It is an obvious point to make that individual countries function in a globalized
environment and cannot be understood as isolated systems. An excellent example is
the member states of the EU or Eurozone, which have to conform to precise eco-
nomic and political membership conditions and witness increasing homogenization
and convergence tendencies (sometimes reluctantly as with case of the UK).
A dramatic example is provided by the institutions of Greek employment relations,
which have been subject to scrutiny and intervention by the European Central
Bank, the European Commission and the IMF institutions. Or again, with regard to
the transformation of post-communist Central Eastern Europe, the EU as well as the
IMF and the World Bank had a significant impact on the development of their
employment relations. The World Bank has also played a major role in influencing
employment relations institutions in Asia and South America (Evans 1995).
(v) Finally, the concept of ideas, ideologies or identities (to use Hyman’s phrase 2001b)
refers to the historical path dependencies or inherited normative or ideational tradi-
tions as well as to new ideas that shape actors’ interests as well as institutions. The
concept broadly refers to the ‘economic culture’ of a country,4 thus to the prevalent
societal ideas on private property, ownership, employment at will, industrial democ-
racy, workers’ dignity, justice, privacy, trust or social capital. Dominant social actors
might have very different understandings of what defines social justice in the labour
market or what entails private property and ownership in a capitalist society across
countries and the struggle of different ideologies and discourses certainly shapes the
institutional architecture of employment regimes. Of course, concepts such as ideas or
economic cultures might not be as easily measured as institutional constraints since
they have a more subtle or indirect effect. One option is therefore to analyze actors’
legitimation for certain strategic choices (such as companies’ corporate social responsi-
bility claims) or the social and discursive (de)construction of political agendas in the
media or public arena (e.g. Schroeder’s Hartz reforms, Merkel’s policy on minimum
wages in Germany or Obama’s ‘American Job Act’).
24 Carola Frege and John Kelly
Last, but not least, every comparative analysis of employment relations needs
to be specific about its dependent variables, that is, which outcomes are to be
explained. Different theories tend to concentrate on different outcomes; part 2 of
our book will discuss the major challenges and outcomes of employment regula-
tion. Market driven theories are usually interested in performance indicators, for
example which employment regime yields the highest labour productivity, high-
est skills or highest employment rates. Political economic theories tend to include
the outcomes for society as a whole such as the quality of their welfare states,
strike levels, social unrest, the quality of their civil societies or the wellbeing of
individual workers (happiness) and their social and political engagement levels.
Relatedly, different national employment regimes might focus on different
employment outcomes.5 Moreover, not all five variables will prove equally
important in different country settings. It remains an empirical task to analyze
the importance each factor plays in a particular historical and national setting.
This will be illustrated in the country studies in Part 4.

Notes
1 For example, with regard to the increasing influence of economics in the field of labour law
see Schwab (1997).
2 In more detail: System theory (Dunlop), Marxist approaches (political economy, labour pro-
cess debate, regulation theory), institutionalism (historical institutionalism, neo-corporatism),
action theory (micro politics, labour politics, negotiation of order, strategic choice) and eco-
nomic approaches (rational choice, transaction costs).
3 Note, however, that Hall and Soskice acknowledged there might be a third type, the Mediterranean
economy, a theme developed in Hancké et al. (2007) through the concept of the ‘mixed market
economy’.
4 Note that legal scholars are discussing a similar concept, ‘legal cultures’, across countries
(Finkin 2004; Nelken 2004; Whitman 2004).
5 Interestingly, on the international policy level, the Stiglitz Commission on the Measurement
of Economic Performance and Social Progress, initiated by former French President Sarkozy
in 2008, was trying to combine both.

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