Everything you need to know about the factors affecting industrial relations. The term ‘industrial relations’ means the relationship between labour and management which arises through interactive processes.

Both labour and management interact with each other on different issues-may be the issues relating to employment terms and conditions as specified in the standing orders/bipartite settlement, HR practices or the issues concerning court judgement, legal implications, government orders, instructions.

Some of the factors affecting industrial relations are:-

1. Internal Factors 2. External Factors 3. Institutional Factors 4. Economic Factors 5. Social Factors 6. Technological Factors 7. Psychological Factors 8. Political Factors 9. Enterprise-Related Factors


10. Global Factors 11. Socio-Ethical and Cultural Factor 12. Technological Advancement 13. Market Conditions 14. International Relations 15. Ideological Factor 16. Economic Policy 17. Political Parties 18. Conditions for Congenial Industrial Relations.

Factors Affecting Industrial Relations: Internal, External, Institutional, Economic, Social, Technological, Political and Other Factors

Factors Affecting Industrial Relations – 8 Important Factors: Institutional, Economic, Social, Technological, Psychological, Political, Enterprise-Related and Global Factors

The industrial relations system of an organisation is influenced by a variety of factors.

A few important are:

1. Institutional factors


2. Economic factors

3. Social factors

4. Technological factors

5. Psychological factors


6. Political factors

7. Enterprise-related factors

8. Global factors

These interrelated and interdependent factors determine the texture of industrial relations in any setting. In fact, they act, interact, and reinforce one another in the course of developing the industrial relations.


1. Institutional Factors:

Under institutional factors are included items like state policy, labour laws, voluntary codes, collective bargaining agreements, labour unions, employers’ organisations / federations etc.

2. Economic Factors:

Under economic factors are included economic organisations, (socialist, communist, capitalist) type of ownership, individual, company — whether domestic or MNC, Government, co­operative ownership) nature and composition of the workforce, the source of labour supply, labour market relative status, disparity of wages between groups, level of unemployment, economic cycle. These variables influence industrial relations in myriad ways.


3. Social Factors:

Under social factors items like social group (like caste or joint family) creed, social values, norms, social status (high or low) — influenced industrial relations in the early stages of industrialisation. They gave rise to relationship as master and servant, haves and have-nots, high caste and low caste, etc. But with the acceleration of industrialisation, these factors gradually lost their force but one cannot overlook their importance.

4. Technological Factors:

Under technological factors fall items like work methods, type of technology used, rate of technological change, R&D activities, ability to cope with emerging trends, etc. These factors considerably influence the patterns of industrial relations, as they are known to have direct influence on employment status, wage level, collective bargaining process in an organisation.


5. Psychological Factors:

Under psychological factors fall items pertaining to industrial relations like owners’ attitude, perception of workforce, workers’ attitude towards work, their motivation, morale, interest, alienation; dissatisfaction and boredom resulting from man-machine interface. The various psychological problems resulting from work have a far-reaching impact on workers’ job and personal life, that directly or indirectly influences industrial relation system of an enterprise.

6. Political Factors:

The political factors are political institutions, system of government, political philosophy, attitude of government, ruling elite and opposition towards labour problems. For instance, the various communist countries prior to the adoption of new political philosophy, the industrial relations environment was very much controlled by the Government ever since change has altered considerably like other capitalist economics.


There too, unions are now at the helm of labour activities, the industrial relations and is marked by labour unrest. Most of the trade unions are controlled by political parties, so here the industrial relations are largely shaped by the gravity of involvement of political parties in trade union activities.

7. Enterprise-Related Factors:

Under enterprise-related factors, fall issues like style of management prevailing in the enterprise, its philosophy and value system, organisational climate, organisational health, extent of competition, adaptability to change and the various human resources management policies.

8. Global Factors:

Under global factors, the various issues included are international relations, global conflicts, dominant economic-political ideologies, global cultural milieu, economic and trading policies of power blocks, international trade agreements and relations, international labour agreements (role of ILO) etc.

Thus, the industrial relations can be viewed as a “Complex System” formed by the interaction of the industry, the government and the labour which are monitored by the existing and emerging social economic, institutional and technological factors. In this context, the observations of Singh are noteworthy.


He opined that “A country’s system of industrial relations is not the result of caprice or prejudice. It rests on the society which produces it. It is a product on only of the industrial changes, but of the preceding total social change out of which industrial society is built and industrial organisation emerges. It develops and moulds itself according to the institutions that prevail in a given society. It grows and flourishes, or stagnates and decays, along with these institutions. The process of industrial relations is intimately related to the institutional forces which give shape and content to the socio-economic policies at a given time.”

The outward and invisible signs of the country’s industrial relations are generally the reflexes of the nation’s history and its political, historical and social philosophy and attitudes. The development of industrial relations is not due to any one single factor but has rather been largely determined by the conditions prevailing on the eve of the industrial revolution in Western Europe along with the social, economic and political situations existing in the different countries.

The changes which took place during this revolution did not follow a uniform pattern in different countries, but reflected such economic and social forces as had for a long time shaped the principles and practices of industrial relations in these countries.

Baljit Singh has succinctly summarised these- “From the earliest phases of industrialisation, when workers, formerly working with their own tools, entered into power-driven factories owned by others to the minimisation of breakdown due to industrial conflicts of later days and further to industrial peace, and hence, to the human relations approach to raise productivity in an era of fall employment when the threat of a sack would no longer be real; and, finally, to industrial democracy based on labour partnership not only for the sharing of profits, but of managerial decisions themselves. It has been a long journey indeed.”

Factors Affecting Industrial Relations – Socio-Ethical and Cultural, Technological Advancement, Market Conditions, Economic Conditions, Political Parties and a Few Others

The term ‘industrial relations’ means the relationship between labour and management which arises through interactive processes. Both labour and management interact with each other on different issues-may be the issues relating to employment terms and conditions as specified in the standing orders/bipartite settlement, HR practices or the issues concerning court judgement, legal implications, government orders, instructions.

Origin/development, representation, settlement of the issues depend on various factors which indicate/influence the pattern of industrial relations. These factors are socio- ethical and cultural, ideological, technological, psychological, political, governmental, international, economic/financial, market conditions and enterprise related factors. Details of these factor are discussed.


1. Socio-Ethical and Cultural Factor:

Interaction between workers and management personnel becomes effective and complementary when both the parties possess positive thought process, values, beliefs that facilitate to develop a state of collaborative approach, willingness to help, desire for accepting risk, responsibilities to function in a joint venture and application of rational, judicious approach on the issues.

All these traits and attributes develop mostly from social, ethical and cultural activities. So, the positive social, ethical and cultural values influence interaction between labour and management in a positive way. In such situation, human relations will be cordial and industrial relations will be better.

2. Technological Advancement:

In case of advancement of technology production is increased, quality of the product is improved, extent of defective product is minimised, cost of production is reduced, productivity is increased. All this increases the wages of the workers and makes them happy.

The contented and happy workers are much more willing to keep the production activities running than to disturb the system, and for this, they establish good relations with their boss. So, advance in technology influences the industrial relations pattern of the industry.


3. Market Conditions:

Product market plays an important role to Judge Company’s strength to run the production activities. If, the market condition is uncomfortable, production is affected, worker’s earnings get reduced, and in the process discontented, unhappy workforce is created. Under such circumstances, labour-management relation is disturbed and reverse is the case when market ‘ conditions improve.

4. Economic Conditions:

If, the workers are well paid and can satisfy their physiological need to the extent they desire, they feel contented and develop positive impression about the management. In such situation, workers manifest effective behavioural activities and establish better relations with boss through complementary transactions. Hence, economic health of the workers influences the pattern of IRs.

5. International Relations:

Relations with foreign countries indicate the prospect of marketing the products in the foreign market. Better relations open up avenues for marketing the goods and increase volume of sales. Besides these, the benefits of technological advancement are available. In such a condition, production is increased, profit is enhanced, and workers’ earnings are increased.


Workers develop better relations with their supervisors. So, human relations are established. But, if, there is global conflict, the country may not have trade relations with the foreign country. Production is hampered as demand for goods in foreign market is reduced. Workers’ earnings are affected, industrial relations is disturbed.

Industrial relations is the creation of an atmosphere of relationship between labour and management. Such relationship arises out of interaction between two parties. If, the interaction makes fruitful outcome which pleases both labour and management, it brings harmony and peace in the industry and reverse is the case when interaction makes difference and creates a state of disagreement.

Harmonious industrial relation bring prosperity while disharmonious industrial relations stand in the way to progress. Hence, harmonious industrial relations is very important for growth and development of organization.

6. Psychological Factor:

Mind-set, perception, attitudes of both workers and management, determine outcome of their interaction. Conflict arises when perception level differs, attitudes vary, mind-set is dissimilar and all this disturbs the labour management relations.

Better human relation occurs, when positivities in all these psychological areas prevail.


7. Ideological Factor:

Since labour-management relation arises out of interaction between labour and management the influence / guidelines of the government or governmental machineries / agencies, the ideological similarities, dissimilarities amongst workers, trade union leaders, government also affect interactive processes. So, more the similar ideology the concerned parties possess, better is the industrial relations.

8. Economic Policy:

Economic policies of the government manifest its philosophy, approach towards workers, employers and affect employer employee relations. Economic policies concerning liberalization, privatization and globalization (LPG) accept the concept of ‘global village’ where MNCs, TNCs have free access to carry on business/ industrial activities.

Under such situations, small, weak and medium-size organizations are unable to face competition and find difficulty to survive. Hence, labour management relation is affected. Even the workers in MNCs, TNCs feel unhappy, discontented as they remain under the threat of losing their jobs.

9. Political Parties:

Political parties influence government to formulate labour policies, to enact laws, to issue instructions, orders to industrial organizations on different aspects. They also dominate trade union people and rank and file to behave and manifest activities in a way they desire. In the process, labour-management interaction is controlled by political parties and whole industrial pattern is influenced.

10. Conditions for Congenial Industrial Relations:

Sound industrial relations are essential to achieve individual goals, team goals and organizational goals. Absence of congenial labour-management relations creates an atmosphere of disharmony, labour unrest, conflict, disturbance in production activities, piling up of workers’ grievances, higher rate of labour absenteeism, fall in productivity, and profit.

This situation tends towards virtual collapse of the functional activities of the organization. Hence, healthy / congenial industrial relations is a must for survival, growth, development of the people and the organization as well.

For promoting congenial industrial relations the following conditions are required to exist in industrial setting:

(i) Management Attitudes:

Management personnel must think the workers as part and parcel of organization. Better industrial relation is established when workers realize that the attitudes of the management are supportive, helping, positive and consider them as members of organization.

(ii) Organization Culture:

Organization should have the culture to generate and develop enabling and proacting capability of the people at work, so that number of disputes becomes less and the disputes / grievances which crop-up are settled mutually at the shortest possible time.

(iii) Management Philosophy, Approaches and Style of Functioning:

Sound industrial relations are established when top management personnel are liberal, participative, facilitative, enlightened and are concerned for people and work. They practice both theory ‘X’ and theory ‘Y’ at the time of necessities. Their philosophy, style of functioning, approaches are for growth and development of the people and the organization as well.

(iv) Collective Bargaining, Grievance Procedures as Methods for Settlement of Disputes:

Congenial industrial relation is possible if, the management people accept, encourage collective bargaining process, grievance procedure as methods for settlement of disputes and do not force / compel the workers for adjudication of the issues. In such organization, it occurs that practice is already in vogue to dispose of grievances / issues through mutual discussions/negotiations.

Regular structured meetings with union representatives are held at different levels to discuss and sort out the agenda issues bilaterally. Day-to-day issues which require immediate solutions are dealt with promptly and in case of need workers’/unions’ suggestions are sought. These sorts of organizational functioning help in promoting industrial relations.

(v) Collaborative / Cooperative Organization Climate:

Existence of collaborative / cooperative climate helps to develop human relations. Under such conditions, both management and workers come close to each other and establish mutual understanding, mutual trust and mutual faith. So, in an organization, where conducive climate exists for establishment of mutuality of relationships, it is possible to develop better industrial relations.

(vi) Existence of Educated, Conscious and Positive Trade Union:

Existence of educated, conscious and positive trade unions help the management to increase production, to improve quality, to reduce labour turnover rate through making workers aware of their rights, duties, responsibilities and their role as individuals, members of the team and members of organization, and this way they achieve organizational goals.

Educated, conscious and positive leaders show their convincing, compromising activities in the collective bargaining process / negotiation as they develop impression that they grow with the growth of organization and they lose everything when organization loses. They do not resort to unfair, restrictive practices and expect fair, unbiased treatment from the management. Prevalence of such condition in the organization facilitates establishment of healthy industrial relations.

(vii) Initiative by Top Management:

If, the top management of organization takes initiative or expresses encouraging activities for introduction and implementation of workers’ welfare / benefit schemes, these come into force uninterruptedly. This stimulates the workers to develop positive mind-set, impression about top management and the organization as well. This situation helps to nurture a comfortable climate to establish sound industrial relations.

(viii) Attitudinal, Job Satisfaction Survey:

If, organization develops practice / system to study employees’ needs satisfaction, morale, aspiration, expectations, demands in a planned and continuous manner through attitudinal, job satisfaction survey and takes appropriate measures to satiate their needs, workers feel involved, contented, committed and intended to reciprocate. In such condition, workers develop sense of ‘we-feeling’, ‘togetherness’, ‘being in the family’ which facilitate congenial climate for the improvement of industrial relations.

(ix) Fair and Rational Management:

If, the management is fair, rational, and gives honour to implement court order, government directions, orders, guidelines, regulations, bipartite settlements, tribunal awards, agreements, a climate of mutual trust, confidence and faith is established which is one of the prerequisites for sound industrial relations.

(x) Positive, Stimulating HR Policies, Procedures and Practices:

If, positive and stimulating policies, procedures are formulated and practised in organization in the area of wage and salary administration, human resource planning, recruitment, selection, reward management, training, career planning and development, performance appraisal, potential appraisal, counselling, quality circles, workers’ involvement, TQM, QWL, welfare, social security measures, discipline management etc., workers feel proud of being the members of organization. This feeling indicates expression of maintaining healthy human relations and conveys the message of performing all kinds of activities for achieving goals.

(xi) Use of HRD Mechanisms:

If, organization introduces HRD techniques for development of skill, knowledge, abilities of workers for performing present job, future job through training and education, workers get acquainted with the operative processes, work methods etc. and thus, enrich knowledge, upgrade skills and competencies.

These training and education mechanisms are also applied for development of knowledge, ability and skills of supervisors that help to develop trust, understanding and confidence between management and employees.

Factors Affecting Industrial Relations

1. Institutional factors – These factors include factors such as labour policy of the government, labour legislation, employers’ and employees’ organizations and their policies, collective bargaining agreements, voluntary codes, implementation machinery, etc.

2. Social factors – These include factors like norms, customs, beliefs, traditions, values, social status, level of education, level of awakening, etc.

3. Economic factors – These include factors such as system (capitalist, socialist, communist, mixed economy), economic conditions and policies, source of labour supply, nature and composition of workforce, relative status of labour market, level and structure of wages, dearness allowance, incentives, price level, nationalisation of industries, level of unemployment, etc.

4. Psychological factors – These include the attitudes and perceptions of workers towards management, their behaviour towards labour unions, fellow workers, their views about living and working conditions, their level of morale, motivation and boredom, etc.

5. Technological factors – The technology used and the work methods adopted in the factory influence the working conditions, wage levels and the employment status which have a bearing on industrial relations.

6. Political factors – These factors include the ideology and philosophy of the ruling party, political institutions, attitude of oppositions, etc.

7. Organization-related factors – These are also known as internal factors. These include industrial relations policy of the organization, working environment, prevailing management style, living conditions, organizational culture, trade unions, wages and salary administration, HR management policies, etc.

8. Global factors – These include international relations, international trade agreements, role of International Labour Organization (ILO), and economic and trading policies of powerful nations.

Factors Affecting Industrial Relations – 18 Main Factors Influencing Industrial Relations

Main factors influencing industrial relations are as under:

(i) Industrial Relations Policy of the organisation.

(ii) Administration of Wages.

(iii) Working Conditions.

(iv) Trade Union, its policy, approach, attitude, leadership and relation with political party.

(v) Recruitment Policy.

(vi) Transfer and Promotion Policy.

(vii) System of demotion, suspension, discharge, retrenchment and retirement.

(viii) Provision of Grievances redressal.

(ix) Employers’ associations and their policies.

(x) Conduct of supervisors.

(xi) Workers’ culture, individual approach, their level of education and economic position.

(xii) Conduct and approach of workers towards management.

(xiii) Conduct and approach of workers towards trade union.

(xiv) Conduct and approach of workers towards fellow workers.

(xv) Conduct and approach of management towards workers.

(xvi) Labour legislation.

(xvii) Administration and enforcement of labour laws in the country.

(xviii) Labour policy of the government, etc.

Factors Affecting Industrial Relations – Institutional, Economic, Technological, Social and Cultural, Political and Government Policies

IR is influenced by various factors as follows:

1. Institutional Factors – These factors include Government policy, labour legislation, collective agreement, employee court, employer federation, social institution like community, caste, family, attitudes of workers, belief system, etc.

2. Economic Factors – It includes economic organization like capitalist, communalist and mixed, structure of labour force, demand for and supply of labour.

3. Technological Factors – Mechanisation, automation, computeri­sation and rationalisation are technological factors.

4. Social and Cultural Factors – It encompasses population, religion, customs, tradition, race, ethnicity and culture of people.

5. Political Factors – These include political parties, ideologies of parties, their growth and involvement of parties in trade union.

6. Government Policies – Export-import policies, economic policy, labour policy industrial policy, etc., are Governmental factors.

Factors Affecting Industrial Relations

Industrial relations are influenced by the following factors:

(a) Institutional Factors – These factors include government policy, labour legislations, voluntary courts, collective agreement, employee court, employer’s federations, social institutions like community, caste, joint family, creed system of beliefs, attitude of works system of power status, etc.

(b) Economic Factors – These factors include economic organisation like capitalism, communism, mixed economy, etc., the structure of labour force demand for and supply of labour force, etc.

(c) Technological Factors – These factors include mechanization, automation, rationalization, computerization, etc.

(d) Social and Cultural Factors – These factors include population, religion, customs and tradition of people, race, ethnic groups, cultures of various groups of people, etc.

(e) Political Factors – These factors include political parties and their ideologies, their growth mode of achievement of their policies, involvement in trade unions, etc.

(f) Government Factors – These factors include governmental policies like industrial policy, economic policy, labour policy, export policy, etc.

Factors Affecting Industrial Relations – As Per Michael Armstong: Internal Factors and External Factors

As per Michael Armstong, there are two sets of factors influence on industrial relations viz.:

1. The internal factors, and

2. The external factors.

1. Internal Factors:

These are:

(i) The attitudes of management to employees and unions.

(ii) The attitudes of employees to management.

(iii) The attitudes of employees to unions.

(iv) The inevitability of the differences of opinion between management and unions.

(v) The extent to which management can or wants to exercise absolute authority to enforce decisions affecting the interests of employees.

(vi) The present and the future strength of the unions.

(vii) The extent to which there are dominating unions or the existence of multiple unions leading to the inter union rivalry.

(viii) The extent to which effective and agreed procedures for discussing and resolving grievances or handling disputes.

(ix) The effectiveness of managers and supervisors in dealing with industrial relations problems and disputes.

(x) The prosperity of the company, the degree to which it is expanding, stagnating or running down and the extent to which technological changes are likely to affect employment conditions and opportunities.

2. External Factors:

These are:

(i) The militancy of the unions locally or nationally.

(ii) The effectiveness of the union and its official and the extent to which the officials can and do control the activities of supervisors within company.

(iii) The authority and effectiveness of the employers association.

(iv) The extent to which bargaining is carried out at local or plant or national level.

(v) The effectiveness of any local or national procedures, and agreements may exist.

(vi) The employment and pay situation locally and nationally.

(vii) The legal framework within which industrial relations exist.

Factors Affecting Industrial Relations – Internal and External Factors

Two sets of factors, internal as well as external influence an industrial relations strategy.

The internal factors are:

1. The attitudes of management to employees and unions.

2. The attitudes of employees to management.

3. The attitudes of employees to unions.

4. The inevitability of the differences of opinion between unions and management.

5. The extent to which the management can or wants to exercise absolute authority to enforce decisions affecting the interests of employees.

6. The present and likely future strength of the unions.

7. The extent to which there is one dominating union or the existence of multiple unions leading to inter-union rivalry.

8. The extent to which effective and agreed procedures for discussing and resolving grievances or handling disputes exist within the company.

9. The effectiveness of managers and supervisors in dealing with problems and disputes related to industrial relations.

10. The prosperity of the company, the degree to which it is expanding, stagnating or running down and the extent to which technological changes are likely to affect employment conditions and opportunities.

The external factors affecting industrial relations strategy are:

1. The militancy of the unions – nationally or locally.

2. The effectiveness of the union and its officials and the extent to which the officials can and do control the activities of supervisors within the company.

3. The authority and effectiveness of the employers’ association.

4. The extent to which bargaining is carried out at national, local or plant level.

5. The effectiveness of any national or local procedure agreements that may exist.

6. The employment and pay situation-nationally and locally.

7. The legal framework within which industrial relations exist.

Therefore, industrial relations are influenced by institutional, economic, technological, social and cultural, political, and governmental factors.

Factors Affecting Industrial Relations

It is both the external and internal factors that affect IR as follows:

1. External Factors:

External factors may include:

a. Economic factors – These may comprise wages, DA, bonus and other allowances.

b. Psychological factors – These factors may consist of management’s approach, its philoso­phy and attitude towards its workforce; management’s trust and confidence in the trade union(s) of the organisation concerned; workers’ attitude towards management, their union, their fellow workers and working environment; and so on.

c. Political factors – These factors may include the labour policy of the government, ideology of the ruling party, labour legislation, labour administration, political stability in the coun­try, role and attitude of opposition parties, and so on.

d. Global factors – Globalisation also affects the state of IR. The approach of MNCs and transnational companies also affect IR of a country.

e. Social factors – These factors may include level of enlightenment, level of education, cul­ture, attitudes, beliefs, customs, rituals, traditions and so on of the people at large.

2. Internal Factors:

Internal factors are controllable. Hence, these factors should be paid due attention to maintain good IR. These consist of the IR policy of the organisation, WPM, profit-sharing, labour co-partnership, trade unions and their leadership and approach, work culture, working environment, wage policy, fringe benefits, mutual trust between labour and management, workforce diversity, grievance handling procedure, discipline, opportunities for growth for employees, promotion policy, recruitment policy, transfer policy, quality of work life, training and development, machinery for prevention and settlement of industrial dis­putes, inter-group behaviour, human relations, bipartite and tripartite committees, transpar­ency in the working of the organisation, collective bargaining, financial stability of the organisation, treatment towards workers and so on.