Making Sense of Employer Collectivism

This conceptual paper argues that the preferences employers for collective action cannot be reduced to rational actors making decisions based on market structures or institutional logics. Both markets and institutions are inherently ambiguous (Parsons, 2007; Streeck and Thelen, 2005) and employers therefore have to settle for plausible – rather than accurate – rational strategies among many alternatives through so-called sensemaking (Weick, 1995). Sensemaking refers to the process by which employers continuously make sense of their competitive environment by building causal stories of competitive advantages (Porac et al., 1989). The paper therefore tries to provide a better understanding of how preferences for collectivism are formed, sustained and potentially changed by identifying dominant and competing stories that either reinforce or challenge preferences for collectivism. The sensemaking concept comes from organization studies and provides a novel theoretical micro-foundation for the study of employer collectivism that couches the empirical investigation at the company level. Hereby, the paper fills a theoretical, empirical and methodological void in studies that allude to the ambiguous role of markets and institutions but do not study how actors deal with this ambiguity.

In the first part of the paper, it is argued that conventional explanations of collectivism can be divided into two. Market-based explanations argue that employers have a rational interest in cooperating with each other depending on their positions in market structures, that is, the resource allocation and relationships between companies (Parsons, 2007). Collectivism between employers is subject to free-rider problems when employers enjoy public goods without contributing to the production thereof (Olson, 1965). Using this logic, Schmitter and Streeck (1999) for example posit that company size matters. One market leader might not need collectivism while a few larger actors cannot go-it-alone. The few larger companies might therefore take on the cost of cooperation and sanction that smaller actors do not free-ride. Collectivism can be hampered by employer heterogeneity. So, if companies have different mixes of capital, labour and raw materials, this might give them different preferences for collectivism on labour matters (Thelen and Wijnbergen, 2003). Internationalisation of markets might erode the preference for national employer association as employers no longer direct their business towards national markets (Katz, 1993). In this vein, Rodrik (1997) argues that national employer collectivism in labour markets will eventually wither away.

Institutionalist explanations, conversely, stress that social rules, norms and procedures mediate market structures by providing specific logics for behaviour (Hall and Taylor, 1996). This explanation suggests that institutions either promote or demote collectivism by providing incentives for collectivism. And as institutions are hard to change they produce path dependency despite market internationalization. Korpi (2006) argues that employers develop a preference for cooperation when forced to by strong trade unions that have control over labour supply. Institutions that promote unions are therefore conducive to employer collectivism (Traxler, 2007). The varieties of capitalism-literature (Hall and Soskice, 2001) argues that employers in certain countries have a first-best preference for cooperation due to the competitive advantage they derive from institutionalized public goods, such as training funds and wage moderation in collective bargaining. Moreover, employment protection legislation might help employers in overcoming market failures in skill formation (Estevez-Abe et al. 2001) as it secures a return on investment on skills when poaching becomes harder.

The great challenge to both market-based and institutionalist theory is how to explain employer collectivism dynamically. The choice to be a member of an association might be stable over time but it is not permanent, nor is the content of the membership, i.e. what associations do for their members. In the market-based explanation, change occurs due to market structures changing. Responses to structural changes are not self-evident (Blyth, 2003) and very similar structural changes have been dealt with remarkably differently by similar actors (Hall and Thelen, 2009). The institutionalist explanation goes some way in filling this gap by referring to specific institutions that shape the behaviour of employers. However, institutions themselves change and rules are often ambiguous (Streeck and Thelen, 2005). Moreover, actors pertain to various institutional settings, giving actors a choice between different institutional logics (Weber and Glynn, 2006). Some scholars have introduced ideas as meaning structures to explain shifts in employer preferences (cf. Schmidt, 2010). However, this approach often operates at the macro-level (e.g. neo-liberalism) and is therefore insensitive to how actors actively use ideas differentially. This calls for a more agency-based view of how markets and institutions are framed by meaning structures (Carstensen, 2010).

In the second part of the paper, the concept of sensemaking is developed by addressing the question of how employers subscribe to stories about competitive advantage stemming from employer collectivism. To paraphrase Weick (2008: 1403), sensemaking refers to a process of ongoing retrospective development of plausible stories that rationalize what employers do. The premise is that employers continuously rationalize their actions in relation to their competitors and other stakeholders (Porac et al,. 1989). The framework for sensemaking analysis focuses on 1) the salient cues about competitive advantage in relation to employer collectivism, and 2) how these cues labelled, categorized and related to each other into dominant and/or competing stories (Weick et al., 2005). Cues are understood as signals from the environment, e.g. from competitors, customers or suppliers about how the company is doing. A story is primarily cognitive as it develops a causal explanation of why employer collectivism causes competitive advantage for the company (March, 2010),  e.g. ‘we share the cost of training collectively because it funds training we otherwise would not get’. If employers interpret new cues from their environment using such a story, the preference for collectivism is reinforced (Bruner, 1990). If, however, the collectivist story is challenged by a competing story (Näslund and Pemer, 2012) – e.g. ‘we are paying too much to training funds compared to other members of the employer association’ – employer collectivism might be jeopardized.

The paper concludes that competing stories are possible and exist in particular market structures and institutional settings and this underlines the salience of sensemaking for studies of employers’ preferences for collectivism.