European Policies of Economic Adjustment and their Impacts on Job

Security and Employment

Website: http://www.stanford.edu/~weiler/ERT_website.htm.

Marina BourgainEuropean University Institute

Main points

• (1) EU – From hard law to soft law.

• (2) EU- Past actions to accompany sectoral employment evolution.

• (3) EU- The future of cohesion policies.

Main interpretations of the Welfare State

• <1> The provision of welfare services by the state:

• A set of government programs that attempts to protect the health and the well-being of its citizens ….

• … in particular when they are unemployed, ill, or elderly… • … especially those in financial need.

• <2> An ideal model:

• A "safety net" is not enough nor are minimum standards. • Aims to reduce the impact of economic inequality.• Is universal, because it covers every person as a matter of right. • The responsibility is comprehensive, because all aspects of welfare are

considered. • The state assumes primary responsibility for the welfare of its citizens.

Andre Sapir – 4 EU-Welfare models (2005)

Type Characteristics Level of employment

Level of poverty

Anglo-saxon

UK-IRL: last resort, linked to work, LM unregulated, weak unions.=> Efficient BUT poverty

high high(lack of educ-stdd)

Rhineland

Continental

FR,DE,AU, BL,LX: protection (employment, unemployment, pension, sickness). Legal support for LM or strong unions.

=> Equitable

lower lower

Mediter-ranean

GR, IT, SP, PO: old age spending, heavy regulation.

=> « NOT sustainable »lower higher

Nordic SW, DK: Universal

LM unregulated. Strong unions

=> Efficient + Equitablehigh low

Labour market policies:

In Europe today, the search is for the right balance of flexibility, stability and security to accommodate structural change and worker's need for security

• In Organized Market Economies (EU), as opposed to Liberal Market Economies,

the difficulty resides in the capacity to put in place comprehensive and dynamic instruments

allowing for flexibility without alienating the social consensus to which these

countries aspire.

Growing Anxiety over Job InsecurityFrance’s opposition to CPE - EU-constitution…

• CPE Contrat Première Embauche

= First Employment Contract

• Comment

• Perdre les

• Elections

= How to loose the elections

• The “Equality of chances” French Law, Art. 8, institutes the CPE:Contrat Première Embauche = First Employment Contract

• for youths under 26• creates a two-year probation period

• during which they can be fired without cause.

• 9th of March 2006: bill was approved on (by 329 for – 159 against). It is an extension of the already existing “CNE” for Small Entreprises passed last June.

• Start of the unrests. Recourse for unconstitutionality (03/30

• 2nd of April - Psdt Jacques Chirac signed the bill into law while announcing its inoperability pending revision (end of April). All trade unions want its withdrawal.

• Sarkozy (Interior and UMP-Psdt) linked the Nov and March unrests calling

for constitutional reforms, including a stronger Parliament and a more accountable President. Boost his image as the “candidate of Rupture” for the presidential elections next year.

National-Laws “Promoting Employment” and the ECJ

• GERMANY • Abolished the limit on FT-

contract duration• For workers 52y+

• ECJ opinion Case C-144/04 Mangold vs Helm (introduced by AG-München)

German law is contrary to Community Law – National legislation must insure the full effect of the non-discrimination principle.

• // TzBfG Art. 14 § 3

• FRANCE• Ordinance n° 2005-892 • When establishing the size of a

company,• Excludes employees under 26y

• Suspended by the F-State Council

• Pending ECJ-decision as to its conformity with directive 2002/14 (workers information & consultation).

(1) Europe: from hard law to soft law

• “The European Economic Community

is a Regulatory Machine,

not a spending spree.” (G. Majone)

DG Employment and Social Affairs(Vladimir Spidla)

•    Activating the Social Policy Agenda   Developing Quality at Work

   Promoting Employment   Improving Economic Performance

   Investing in people through the ESF•

   Enhancing Skills through Training   Eliminating Discrimination   Achieving Gender Equality

   Combatting Racism and Xenophobia   Empowering People with Disabilities

   Integrating the Excluded   Strengthening Social Dialogue

   Building an Enlarged Social Europe   Acting in Europe for Global Progress

Social “Acquis Communautaire”

• General Principles in the Treaty: Free movement of workers, Gender Equality (Art. 119), Non-Discrimination (Art. 13 Amsterdam Treaty = to combat any discrimination based on sex, race, ethnic origin, religion or belief, disability, age or sexual orientation) (Art.4 TEU)

• Regulations Free movement of workers, Gender Equality

• Directives on Collective Redundancies (1975, 1992,1998), Transfer of Undertaking (1977, 1998,2001), European Works Council (1994), Parental Leave, Fixed-Term Contracts, European Society (2001), Information & Consultation (2002), Non-discrimination (2002)

• Advice: Green paper on Corporate Responsibility

Social “Acquis Communautaire” (2)

• Procedures for decision-making at unanimity :ex-Art. 100 “Harmonization of laws distorting the Common market” ex-Art. 235 “Necessary action for the functioning of the Common market”

• 1986-SEA-Procedures for decision-making at majority - in health and safety

• 1993- Maastricht: Agreements by the ESP

• 1995 Entry of Sweden and Finland: Social / Economy/Employment under Integrated approach

• Amsterdam Treaty in 1997 – Employment Chapter • Lisbon 2000 - Open Method of Coordination

European Employment Strategy

Probability that a Social Directive is not transposed after its deadline

(Linos p.16 dataset of 50 social directives 1982-98)

•

country Not on-time

1 year

2 year

3 year

4 year

Average 12 EEC

68% 38% 18% 8% 4%

Germany

70% 43% 15% 3% 0

France

57% 27% 13% 9% 9%

UK

47% 21% 4% 2% 0

Italy

91% 64% 34% 13% 0

Economic and employment indicators, EU, Japan and the USA, 2003-4

EU25 Japan USA

GDP growth 2.0% 3.4% 4.2%

Inflation (CPI) 1.9% 0.2% 1.4%

Employment rate (2003) 62.9% 68.4% 71.2%

Employment growth 0.2% -0.2% 0.9%

Unemployment rate (Eurostat definition)

9.1% 4.8% 5.5%

Employment Levels in the European Union, USA and Japan

Total

Employment Level

(15-64 years old)

Women Older People

(55-64 years)

1979 2003 1979 2003 1979 2003

EU-25

EU-15 62.7%

62.9%

64.3%45.0%

54,1% 45.3% 38,8%

Japan 70.3% 68.4% 53.6% 60% 61.0%64%

USA 68.0% 71.2% 54.9% 67% 54.6%55%

OCDE- Employment Perspectives (1999)

Indicators of Employment Protection strictness <0-6>

Unemployment level

Employment level

New-Zealand (0.4) 8% 68%

Sweden (4.5) 6% 76%

• Little or no association between EPL strictness and overall unemployment. However, EPL may be more strongly associated with the demographic composition of employment and unemployment and its duration.

• => Youths and women appear to bear a larger share of the burden of unemployment.

• => Research suggests that stricter EPL raises employment for prime-age men.

2000- European Employment Strategy (EES)

Defined following Target :

• Overall employment rate of 70% in 2010

• Women employment of 60% in 2010

• Older workers (55-64) of 50% in 2010

• The Open Method of Coordination (OMC)

and the future of Social Europe

Quid: Open Method of Coordination

• The OMC is a new approach to EU-governance

• based on benchmarking national progress • towards commonly agreed objectives

• and organized mutual learning.

• 1- Define common objectives • 2- Develop a mutual feedback process of planning,

examination, comparison and adjustment of the policies of member states.

Defining features of OMC

• Joint definition by EU member states of initial objectives, indicators, priorities or

guidelines, and sometimes targets.

• Nl reports or Nl action plans (NAPs):to assess performance against objectives and

metrics and to propose reforms accordingly.

OMC and democracy

• The Open Method of Coordination aims to promote the participation of the widest

possible range of actors in policy formulation, implementation and evaluation :

• NGOs, trade unions, experts ...

• from all levels : European, national, regional, local levels

• OMC is a mechanism for “experimental learning”

• Peer review of national plans through mutual criticism and exchange of good practices, backed up by recommendations in some cases.

• In light of experience gained during implementation

-> Periodic re-elaboration of plans -> and, less frequently, re-elaboration of broader objectives and metrics.

Fields of application OMC

• Social protection:

• Social inclusion / fight over poverty

• Pensions

• Health, care for the elderly (not yet formalized)

• Disability (under discussion)

Fields of application OMC (2)

• Education/ Training:- common objective for national systems

• Immigration/ asylum- OMC as a tool for monitoring/ complementing implementation of EU-legislation

• Other dimensions of the Lisbon-strategy:- R&D innovation, knowledge-based and information society….

OMC- Employment Results so far

• EU missed the intermediate employment rate target of 67% in 2005.

• However four Member States (DK, NL, S, UK) have already achieved the 70% employment rate at their national level.

Results-2- Women

• Having said that, the employment rate for women continues to improve and is on track to meet the 2010 target of 60%.

• Seven Member States (DK, NL, A, P, FIN, S, UK) currently meet or exceed the 2010 target of 60%.

The Employment Challenges

• In some member states the employment rate of older workers is less than 33%,

in particular :

• Belgium, France, Italy, Luxemburg, Austria.

Pace of Progress on Employment

Explanation: Pace of progress is defined as the percentage point change in the employment rate between 1997 and 2004:

• a) Low progress: the employment rate increased below the EU25 average minus half of the (un-weighted) standard deviation

EMT-Rates

in 2004 (%)

Low pace of progress since 1997

Close to averageHigh pace of progress since 1997

> 70% DK, SE, UK, NL

65-70% AT CY, DE, PT, FI, SI ES, IT

< 65CZ, EE, LT

MT, PL, SKBE, EL, HU, FR, LU,

LV

Has employment become more flexible in Europe? Defining Flexibility: External versus Internal**Internal flexibility means the adjustment within jobs or firms, while the

employment relationship is maintained.

A- The long-term employment relationship has not disappeared in Europe

Job-tenure as a mesure of Job stability. Over 1992-2002, tenure averaged:

* 10 y. in Europe (11y. FR-DE , 12y. IT, 13y. GR)• 6.6 y. in the USA * 8 y. in the UK * 12.2 y. in Japan

• B- But a growing dual labor market• New Flexible forms of employment: FT, PT, work through a

Temporary Work Agency are becoming regular forms of employment.

• It concerns women, youths, older workers more than prime-age-men. Job flexibility has increased “at the margin”.

Has employment become more flexible in Europe? 1950-2000 EU-15 Workforce in 3 main sectors

(agric-ind –service) as a percentage of total workforce

0

10

20

30

40

50

60

70

1950 1960 1970 1980 1990 2000

Agriculture

Ind. Manufacturière

Services

Main points

• (2) EU- Past actions to accompany sectoral employment evolution.

• Heavy Industry

• Agriculture (40% workforce)

• 1951 European Coal and Steel Community (ECSC)

• 1957 Common Agricultural Policy (CAP)

• Both have their own fundingsBoth have their own fundings

European Coal and Steel Community (ECSC)Paris Treaty 1951

• Preamble: 1. CONSIDERING that world peace can be safeguarded only by creative efforts commensurate with the dangers that threaten it, […] 4. ANXIOUS to help, by expanding their basic production, to raise the standard of living and further the works of peace, 5. RESOLVED [to merge of their essential interests to create the basis for a broader and deeper community among peoples; and to lay the foundations for institutions which will give direction to a destiny henceforward shared,]

HAVE DECIDED to create a EUROPEAN COAL AND STEEL COMMUNITY ;

• The foreseeable consequences of Modernization and Building a common market for Coal and Steel were companies downsized,

closed, relocated+ increased competition, mergers and acquisitions.

• The title III of the ECSC-Treaty enclosed procedures to control Mergers (ch.6 & 7)

and for social provisions (Art.46) incl. on financial aid (Art.56) and on wages (Art.68)

ECSC – Title III-Economic and social provisions Art. 46 – General provisions

• The [High Authority] / Commission shall study the possibilities for re-employing workers made redundant in existing industries or through the creation of new activities

• it shall assess the possibilities for improving working conditions and living standards for workers;

• The Commission may at any time consult governments, the various parties concerned (undertakings, workers, consumers and dealers) and their associations, and any experts. [These, in turn] shall be entitled to present any suggestions or comments to the Commission on questions affecting them.

ECSC – Title III-Economic and social provisions Art. 56-2§ - Financial Aid provisions

• 1. In case of exceptional large labor reduction, the Commission shall provide non repayable aid towards:

- monthly allowances to workers (early retirement or temporary inactivity or until they find employment)

- financing of vocational retraining and/or resettlement of workers;

• 200 000 co-financed houses were built.• 900 000 miners benefited from aids for training,

relocation, and housing loans (until 1997).

ECSC – Title III-Economic and social provisions Art. 68 - Wages

• 1. The methods used for fixing wages and welfare benefits are the competence of the companies and the Member States …subject to the following provisions:

• ….

• 2. if undertakings are charging abnormally low prices because they are paying abnormally low wages, OR

• 3. if wage reduction entails a lowering of the standard of living of workers and at the same time is being used as a means for the permanent economic adjustment of undertakings or as a means of competition between them…

• Then, the Commission shall make appropriate recommendations [to the undertaking or the government], at the expense of the undertakings, to benefit the workers in order to compensate for the reductions.

Has employment become more flexible in Europe? 1950-2000 EU-15 Workforce in 3 main sectors

(agric-ind –service) as a percentage of total workforce

0

10

20

30

40

50

60

70

1950 1960 1970 1980 1990 2000

Agriculture

Ind. Manufacturière

Services

Agricultural population (FAO)

1950 1960 1970 1980 1990 2000 2010Italy 21

(80%)

15 10(45%)

7 5(20%)

3 1.8

Germany 16(50%)

11 7(19%)

5 3(7%)

2 1.3

France 13(68%)

10 7(30%)

4 3(10%)

2 1.2

Greece 4 2.5 1.7 1.2

(25%)

0.8

Spain 14 7 5 3

(17%)

1.8

Portugal 4 3 1.9 1.4

(28%)

1.0

Poland 13 7

(35%)

6

UK 3 2 1.5 1.4 1.2 1.0 0.8

CAP- A flagship of European collaboration

• France, before agreeing to free trade in industrial goods, insisted on a system of agricultural subsidies during the negotiations on the creation of a Common Market.

• The 6 MS were net importers of agricultural products.

• The need to ensure food security became particularly important during the Cold War era. Food shortages and price instability were frequent in the 1950s.

Common Agricultural Policy (CAP)Part of the EEC-Rome Treaty 1957

• Objectives – Art. 33 (ex Art. 39-1957) (a) to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilization of the factors of production, in particular labor;

• (b) thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture;

• (c) to stabilize markets; (d) to assure the availability of supplies;• (e) to ensure that supplies reach consumers at reasonable prices.

• The foreseeable consequences = more competition = a Common Market for agricultural goods

= fewer workers = increase productivity through technical progress and optimum utilization of labor

• Employment in the agriculture sector has collapsed due to productivity increase. Between 1970 and 1990, the number of

farmers in Europe halved.

The six main mechanisms of CAP

• 1- Price support: guarantees minimum prices set by agricultural ministers

• 2- (Since 1988) Production control: quotas (e.g. on milk) and "set aside" (refers to land)

• 2- Import taxes: to ensure external prices cannot undercut internal EU prices

• 3- Intervention: by storing surpluses or selling them over time

• 4- Stock disposal: to dispose of surpluses by other means (e.g. Free Food Scheme)

• 5- Subsidized exports (often resulting in a destabilization of prices in third countries)

European Budget Revenues 2004

Inc. Agr-sugar =73,7%

Customs duties =10%

VAT =15%

Nat. Contributions = 1,3%

European Budget Expenses 2004

Inc.agric. = 43%

Structural funds =36%

Internal pol. = 8%

Administration =5%

External actions = 5%

Reserves, accession,compensations, etc…=4%

EU funds for other economic sectors ? The proposed Globalization fund or

Shock-absorber fund

• 7 bn euros over 7 years

• Goal: to help workers retrain if they loose their job as part of a significant corporate restructuring – in order to “soften the impact of globalization”

Main points

• (3) EU- The future of cohesion policies.

• The concept of social cohesion relates to poverty, inequality and social exclusion.

Social cohesion

• Objective of an “ever-closer union of the people”• Objective of promoting social cohesion:

• Regions under Objective # 1The EU is co-funding projects in regions where the

GDP/inhabitant is lower than 75% of the European average GDP/inhabitant.

European Social Model is determined by the interaction between competitiveness, solidarity

and mutual trust

European regional policies in light of recent location theories by Diego Puga

•NOTES

The EU-employment question since the 1970s• 1984 approx. 4 millions LT-unemployed.

• 1985 Action Program for employment• 1993 approx. 17 millions unemployed

• 1986 - The Single European Act gave new impetus to social policy, especially in the areas of health and safety at work, dialogue with the social partners and economic and social cohesion.

• 1989 First Commission report on Employment in the EU• 1993 OECD – Employment Strategy

• 1995 Entry of Sweden and Finland brought the “Scandinavian model”: economic, social and employment policies seen as complementary.

• 1997- Amsterdam Treaty introduces a chapter on Employment. Incorporate the Maastricht Social Protocol.

Art. 13 refers to the adoption of provisions on non-discrimination. It authorizes the Council, acting unanimously, to take appropriate action to combat any discrimination based on sex, race, ethnic origin, religion or belief, disability, age or sexual orientation.

EU-12 mio

% USA mio

% Japan mio

%

Agriculture

1983 11 9.2% 3 3.5% 5 9.3%

1992 8 5.8% 3 2.9% 4 6.4%

Indust. 1983 43 35% 28 28% 5 9.3%

1992 46 33% 29 24% 4 6.4%

Servi. 1983 67 55% 69 68% 32 56%

1992 86 61% 85 73% 37 59%

Secteurs affectés par les « grandes restructurations »France / Allemagne

Is OMC effective ?Ambiguities and assessment criteria• - how to establish clear causal connections between policy and

performance ?

• Does OMC enhance the EU problem-solving capacities?• - in identifying common challenge ?• - in building consensus around objectives ?• - in developing agreed upon metrics ?• - i n identifying promising policy approach?• - in achieving measurable performance improvements?

A Real Impact ?

• Causal effects are hard to determine:

• - changes in member states' policy orientation often preceded launch of OMC processes (EES)

• - member states themselves helped to define OMC objectives, guidelines and approaches.

Still we observe

• Broad shifts in policy thinking of member states:• - wide adoption of EU-concepts and categories

(employment-levels instead of unemployment-level, lifelong-earning, gender mainstreaming…)

• - but subject to local inflection and interpretation

• => we better speak of a two-way interaction than one-way impact.

The Mechanisms of domestic influence

• Persuasion / mutual socialization: influence of foreign examples in domestic reform debates.

• Peer pressure : 'naming and shaming’.

• Strategic use of OMC by domestic actors:• -> national governments, agencies, opposition parties,

organized interests, NGOs…

• Influence depends on public awareness and broader attitudes towards the EU.

OMC and democracy ?

• But the OMC processes, objectives, guidelines and recommendations are "authorized" by elected member states governments.

• The civil society (trade unions, NGOs, local associations) has only a limited role

• Most of the work is done by unelected committees of national civil servants and Commission officials (EMCO, SPC, EPC)

• Finally, the representative democratic institutions (EP, national parliaments…) have a limited role

• And there is still a low public awareness within member states.