In Depth: Working Time and EU employment and social policy – A business case for the middle ground
By Ariane Poulain
Abstract – This In Depth article gives a business perspective on the development of the so-called “European Social Model” and makes a case for a measured EU role in employment and social law. Bearing in mind the all-important principles of subsidiarity and proportionality, it advocates the retention of the Working Time Directive opt-out, the development of the European Globalisation Adjustment Fund and the ‘flexicurity’ model as the best way to approach employment and social policy across the EU. This article first appeared as a contribution to a publication by the Foreign Policy Centre entitled “Single Market, Equal Rights? UK perspectives on EU employment and social law”.
The best way to damage employment is to protect it. That is axiomatic – a free market operates best when it can benefit from a liberal labour market. On the other hand, a fair society has rules that ensure people cannot be ill treated, so free labour markets must have safeguards built in. As with most political and economic debates, there is a strong argument towards the middle ground regarding employment and social policy and this article sets out what that might be for the UK and the role of the European Union.
First, a choice does not need to be made between labour protection rights or the free movement of services – both can co-exist; secondly, the EU should seek to ensure it regulates in the most appropriate areas; and thirdly, EU social policy must look beyond the current crisis towards building a more innovative, competitive Europe.
Herman Van Rompuy, the president of the European Council, summed up the balance policy makers need to strike when he said, “We must overcome the short-term challenges linked to the crisis […] We need more economic growth now, in order to finance on a lasting basis our social model, to preserve what I call our ‘European Way of Life’. This is a matter of survival […]”
Where did European social policy come from?
The very phrase “European Social Model” refers to a belief in both economic and social progress, where high economic growth coexists alongside good living standards and worker protection rights. Whilst this EU-level approach to employment and social policy has been gradual and somewhat fragmented over the years, it has expanded – beyond the Single European Act and Maastricht Treaty – and its evolution can be traced back over some key milestones, from the European Commission’s White Paper on Social Policy in 1994 to the signing of the Charter of Fundamental Rights in 2007.
The former clearly identified the European Social Model vision and outlined the key objectives for the future development of European social law and the latter heralded a new era for the European Social Model by legally recognising employment and social rights at the EU-level. More recently, the EU2020 strategy demonstrated a continued commitment to the European Social Model vision by setting employment targets under the new ‘European Employment Strategy’ scheme, such as the aim of a 75% employment rate amongst 20-64 year olds by 2020.
This clear commitment to the European Social Model makes a great deal of sense. First, minimum standards for basic working and living conditions are a fundamental right. Secondly, whether you are a SME or a large corporation, a distorted and unequal market is bad for business.
It is little surprise that the impetus behind the creation of European social laws coincided with the early stages of the single market – the EU sought to prevent unfair labour market competition between member states operating in a free trade area. Minimum standards in working and employment conditions not only reinforce the level playing field of the single market across EU member states, but are also vital in strengthening it.
Ensuring the effective role of European social law, specifically employment and worker protection, is more important than ever for both individuals and businesses. The financial crisis – and resulting austerity measures – is having an unprecedented negative effect on labour markets. At the end of 2011, unemployment in the EU reached a historical high of 9.9%, construction and industrial sectors have lost approximately 8.5% of their jobs, and youth unemployment reached a new high of over 22%. With EU GDP in 2012 forecasted to grow by only 0.6%, analysis shows that the labour market will not improve without support from EU-level employment and social policies.
However, whilst the EU has an important role to play in employment and social policy – a role that cannot fully be performed by individual member states – it must be careful not to over extend itself.
This article will examine three key issues surrounding EU employment and social policy but before that, it is important to bear in mind the two fundamental principles guiding EU law-making: subsidiarity and proportionality.
The principle of subsidiarity states that decisions are taken as closely as possible to the citizen. The principle of proportionality refers to the impact of the regulation weighed against the importance of the objective sought, looking in particular at three central indicators: reasonableness, necessity and suitability. The principles of subsidiarity and proportionality are distinct but mutually beneficial: the treaties say that “each institution shall ensure constant respect for the principles of subsidiarity and proportionality, as laid down in Article 5 of the Treaty on European Union” which states that “the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States”.
1. Free markets vs. Labour Protection – a false dichotomy
There does not need to be a conflict between the free movement of services and labour protection rights because this is not a case of ‘either/or’ as is often portrayed.
The ‘either/or’ problem is well demonstrated in the aftermath of the European Court of Justice’s (ECJ) controversial Viking and Laval rulings in December 2007. The European Social Model was called into question because the ECJ ruled on the side of the right to collective action in one and on the side of economic freedoms in the other. Leading academic in European labour law, Brian Bercusson, argued that social protection rights should take precedence over pure free movement of labour, and subsequently argued that the draft Treaty for establishing a Constitution in Europe should be revised to prevent economic freedoms being invoked against collective action. Bercusson’s position is a good example of the prevalence of the view that primacy must be given to one or the other through the whole acquis communitaire and the fact that it is a political question.
However, in the long run, Bercusson’s recommendation would be a fleeting enhancement of the ‘social Europe’ because it would undermine the importance of economic growth and the related impact on employment and living standards. Striking the balance between adhering to collective agreements and maintaining free movement of labour is always going to be extremely challenging. The solution has to lie in rigorously enforced rules for minimum protection. This means ensuring every EU member state has a clear minimum wage or universally applicable collective agreements, as is required by the Posted Workers Directive. The solution is not to insulate wages in host countries from the competition provided by a free movement of labour.
Labour and employment conditions in EU member states will continue to develop rapidly – mainly due to globalisation and technological advancements – but at slightly different speeds. This is not to say, though, that we should halt European employment and social policy, nor choose between economic freedoms and social protection. When attempting to strike the right balance, one should return to the principles of subsidiarity and proportionality for guidance. The EU is the best actor to achieve certain European Social Model objectives that override domestic self-interest issues and provide European Added Value (EAV) – criteria which are both covered by the governing principles.
2. Where should the EU get involved?
Secondly, whilst EU-level legislation should not be avoided just because different members have different systems, the EU must seek to ensure it regulates in the most appropriate areas, and at the same time, ensure it does not unnecessarily tamper with the social settlements across different member states. Bearing this in mind, there is undeniably a role for the EU to play in setting the framework and the minimum standards in employment and social policy. The trickier task is identifying – or prioritising for that matter – the areas where it is most appropriate to regulate.
On the wider issue of the European Social Model, the EU should not aim to have a ‘one size fits all’ policy and the difficulties surrounding the ability to reach agreement on the complex negotiations of the Working Time Directive (WTD) are a good example of this. The 2003 WTD provided common minimum health and safety standards for workers, including maximum working hours, minimum rest periods and annual leave.
However, due to national labour market differences, the directive was agreed with an ‘opt-out’ which sixteen EU member states, including the UK and Germany, now use. The opt-out allows member states to let individuals choose to work more than a forty-eight hours week if they wish. However, just a year after the 2003 adoption, the European Commission proposed an amendment to revise – or preferably phase out – the opt-out clause but this proposal was fraught with disagreements that harked back to the economic freedoms versus social protection arguments.
There are two key reasons why the EU’s WTD has been so difficult to get right. Whilst we do not believe that the EU should avoid regulation in policy areas that are significantly varied amongst EU member states, it appears that in the case of the WTD, for example, the minimum standards of employment and social protection were already provided for in the 2003 agreement. Following on from this, the failings of the Commission’s 2004 – 2009 attempts at reform can be best understood in light of the guiding EU principles noted above.
The proposed reforms did not meet the proportionality and subsidiarity principles. Renegotiating the terms of the opt-out was unnecessary because action here would not be mutually beneficial for all worker and employment sectors. Individual member state action also has more weight in terms of suitability and added value, and current principles of the opt-out provide the room for reasonable discretion on the part of individual member states, known as their “margin of appreciation.”
On the other hand, the European Globalisation Adjustment Fund (EGF) is a strong example of where the EU provides added value. The EGF became operational in 2007 and was set up to support workers who were the victims of large-scale redundancies due to the effects of globalisation in specific sectors, such as the automotive industry, but following the onset of the 2008 financial crisis, the EGF’s remit was expanded in 2009 to include redundancies that were caused by the impact of the crisis.
The EGF supplemented active national labour market policy measures by providing one-off financing to help redundant workers get back into work. For example, the EGF assisted with job search costs or further training. Demand for EGF funding has been increasing at a rapid rate. In 2011, there were nearly 80 applications by member states for EGF assistance compared to 30 in 2009 and only 5 in 2008. Successful applications in 2011 included, for example, €9.6 million given to assist nearly 2,000 redundant workers get back into employment in 2011 in Denmark, Germany and Portugal.
The EGF is exactly the kind of EU-level employment and social policy that we should be seeking in present times – it can help businesses keep staff by temporarily co-financing their salary with the member states, reduce the time it takes for redundant workers to find new employment and provide funds to help the redundant worker learn new skills and increase their employability. Furthermore, the EGF clearly meets the subsidiarity principle. It provides critical targeted financial support for national labour market policies that are under increasing pressure to cope with the historic levels of unemployment and financing under the EGF scheme is essential/necessary for these domestic-level policies to continue.
At present, the EGF has technically ended as it was only supposed to run until the end of 2011 but a draft regulation is recommending it continues until the end of 2013. Furthermore, negotiations on the Multiannual Financial Framework (MFF) 2014 -2020 (the EU’s long-term budget) are underway and it is proposed that the EGF budget should be increased from €500 million to €3 billion for 2014-2020. This increase – if supported – would be a great boost during the present crisis, benefitting individuals, businesses and governments, by speeding up the economic recovery.
3. European social policy after the financial crisis
Thirdly, one must seriously consider the impact of the financial crisis across all European labour markets and recognise that employment and social policy has a vital role to play in the EU’s future growth. This is highly political and there are diverse views on this issue. For example, Alain Supiot argues the onset of the crisis proved to cause “unprecedented disruption” to the European Social Model, going on to say that European policy-making in the area of employment and social policy was sidelined, and the original vision of the European Social Model started to become undermined as “ultra liberal ideology” developed but not to the benefit of the economic recovery.
Business for New Europe firmly believe that member states must work to ensure the EU maintains and further strengthens its ability to remain competitive in the global political economy. This undeniably includes effective employment and social policy at the EU level because after all, it is inherently linked to the completion of the single market. Whilst boosting competitiveness in the EU requires practical recognition of the two main points above, it also critically requires looking ahead to long-term issues vital to the EU employment sector, namely bridging the skills gap in Europe, supporting ‘green jobs’ and the promotion of greater labour market flexibility in Europe.
The skills gap in Europe must be addressed now – particularly across science, technology and engineering – because otherwise there is no doubt that the future competitiveness of the EU will be damaged. By 2020, statistics show that 35% of all jobs will require high-level qualifications and less than 10% of jobs will not require computer skills. Beyond the skills gap, the EU must lead in employment policies that support the creation of ‘green jobs’ which focus on sustainable growth through low-carbon energy efficient technologies. As the price of conventional energy sources increase, a greener economy will be a more competitive economy.
Also, policies that promote greater flexibility whilst considering the importance of job security – ‘flexicurity’ – must be supported across all EU member states. A highly flexible market is most conducive to long-term competitiveness and the notion of flexicurity refers to combining liberal policies for the employer alongside security of employment for the worker.
Denmark is an excellent case study to promote flexicurity and represents the kind of labour market that the EU should strive to achieve – it is best for businesses and workers. Denmark has no restrictions on working time, the second most competitive salary levels in Europe and high productivity. At the same time, it also guarantees 5 weeks holiday, minimal social security contributions and provides good, free education whereby 80% of their labour market has attained upper secondary education. Denmark’s highly flexible labour market has allowed it to manage the effects of the crisis and despite not being able to wholly avoid the impact of the downturn, Denmark’s unemployment levels remain below the OECD average. Denmark’s unemployment rate in Q3 2011 was 7.5% compared to the OECD total average of 8.2%, and the OECD Europe average of 9.5%.
An ultra liberal approach to employment and social policy is not what we should be seeking but, as the Denmark case highlights, we will damage employment by over-protecting it. The future of EU employment and social policy depends on an honest recognition of this.
The reasonable middle ground is not always easy to achieve but we have solid guiding principles in place, a financial crisis to recover from and a clear vision of what is required from European employment and social policy to help guarantee our long-term growth and prosperity. A little more flexibility now could lead to a lot more security for European employees in the long term.
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