HRM and the State

Based on Human Resource Management (4th Edition) by Alan Price - published by CENGAGE


The purpose of this section is to:
  • Provide an overview of the role played by governments in creating the context for human resource management.
  • Outline the concept of human capital and its implications on development throughout the world.
  • Introduce the legal frameworks that regulate employment in the major economies.
  • Describe initiatives taken by the European Union as examples of governmental initiatives with a human resource focus.


In this section we examine the role played by governments in creating the context for human resource management through labour market policies, regulation and legal frameworks. We emphasized the particular influence of state intervention in developing human capital and growth of the employment market. Employment legislation sets a framework for the practice of human resource management but these frameworks vary widely and embody different traditions and views on the nature of the employment market. We took the European Union as an example and highlighted a number of initiatives with a human resource focus which were interpreted differently in member states.

The state and intervention

Should government take a strong hand in the use of a country's human resources?

East Asian economies have been guided by interventionist governments. In other countries the trend has been has been in the opposite direction. With the collapse of the communist command economies in eastern Europe and the predominance of New Right ideology in English-speaking countries,state-ownership has gone out of fashion. In the UK, and even more so in New Zealand, the government further withdrew from many areas of economic regulation. The faith in the virtue of market forces was such that when significant areas of the economy collapsed or were taken over by foreign interests, government reaction was minimal (...)

Government and supranational authorities such as the European Union influence human resource strategies through a variety of mechanisms.

The perspectives taken by different governments reflect underlying attitudes towards the role of the individual versus the corporation within those countries. For example, Brewster has pointed out that in the USA there is an implicit belief that business corporations can and should devise their HR strategies without much regard for the state or wider social implications. Guest puts this down to the historical concept of the US as a land of opportunity where anyone can achieve sucess through their own hard work and entrepreneurship.

Paradoxically, however, US employment legislation is some of the most stringent in the world with regard to individual rights. But (by European standards) state control and social protection are fairly minimal. This goes along with a much stronger belief in the rights of managers to manage (in the US) and a relatively widespread attitude of hostility towards trades unionism.

Within unionized companies in the US the 1930's New Deal model of employee relations lingers on with a frequently excessive emphasis on the separation of managerial and workers' rights and the control of who does what and how. This can place unionized companies at a disadvantage in economic circumstances that demand flexibility in order to compete. Such corporations need to particluar attention to the development of advanced employee involvement programmes to harness the goodwill, creativity and enthusiasm of their workers.

Correspondingly, in mainland Europe Brewster finds constraints deriving from:

  • restriction of autonomy by European Union directives
  • conditioning from national-level culture and legislation
  • distinctive national patterns of business organizations
  • considerably higher levels of trade union organization and consultative arrangements (e.g. works councils.

Countries in the Anglo-Celtic tradition (UK, Ireland, Australia, Canada, New Zealand) adopt intermediate positions between the US and mainland Europe. Developing countries such as Malaysia and South Africa have the opportunity to set the pattern for their national-level strategies by observing (cherry-picking?) the successes and mistakes of the developed countries.

Human capital

Personal and national success are increasingly correlated with the possession of skills. Skilled individuals can command a premium salary in periods of high economic activity. Worldwide, unemployment levels remain high, while organizations have difficulty filling vacancies which require specific expertise. A shortage of skilled people can act as a limiting factor on individual organizations and the economy as a whole. It is in the interest of any country to maximise its human resources by investing in the skills of its workforce, its human capital.

The concept encompasses investment in the skills of the labour force, including education and vocational training to develop specific skills. Human capital is one component of a country's overall competitiveness. The countries that have been most successful in the development process for example, Singapore and South Korea, have investing heavily in the education and technical skills of their population.

Legislative frameworks

One of the most important environmental constraints on the job market and the activities of people managers comes from the law. (...) During the twentieth century, national governments have become law-making machines, creating a complex legal environment for businesses. Governments implement statutes for strategic reasons, ensuring, for example, that employees who are disciplined or dismissed are dealt with in a particular manner (...)

Within Europe, national traditions have led to wide variations in legislation relevant to human resource management. The European Court of Justice has contributed to harmonization with an increasing body of case law. The different legal systems in the EU can be divided into three traditions:

The Roman-German system prevailing in Austria, Belgium, France, Germany, Italy and the Netherlands. Government has a pivotal role in employee relations, guaranteeing a fundamental core of constitutional rights. These provide the foundation for national industrial relations. Legislation covers significant aspects of employment market conditions such as working hours and trade union representation.

The Anglo-Celtic system in the United Kingdom and Irish Republic. A minimalist approach to the role of the state with limited legislative protection. (Note: EU directives are changing this approach).

The Nordic system, covering Denmark, Finland, Norway and Sweden. The 'basic agreement' between employers and unions forms the foundation of employee relations. The state plays a limited role, intervening only at the request of the two parties.

Countries in the central and dominant group of the EU follow the Roman-German model. Not surprisingly, their way of thinking shapes most proposals to the Commission. However, debate on employee relations reflects changing business practices and a shifting balance of attitudes within an enlarging Union.

Human Resources and the Global Economy   >  The Employment Market