EU Social Policy

ref: social policyMar 09

(1) Introduction

Broad definition in EU compared to UK Employment & living conditions

(welfare) Nations have differing priorities re:

labour markets social security leisure & other social aspects

Social aspect in Treaty of Rome economic and social progress low priority not specific

Developments in future, particularly single market

(2) 1950s-1970s

Little progress beyond TOR TOR, despite deficiencies did seek

to establish freedom of movement for workers freedom of establishment equal pay rights for migrant workers

paid holidays living & working conditions vocational training established ESF (1960)

ESF

Initially limited financial support to temporarily

unemployed migrant workers localised retraining

1971 reforms financing from State levies to EU’s

‘own resources’ 2 broad objectives

facilitate employment adjustment from EU policies

help overcome structural problems experienced by regions / groups, eg young job seekers

vocational training more important

Greater activity Several ‘minor’ developments SEA - main impetus for change

(3) 1980s: Social dimension of the SEM

Social policy: Counterbalance to SEM Integral part of econ policy Strengthens social cohesion

Economic integration creates winners and losers

Willingness to undertake economic integration depends on the winners readiness to compensate the losers

Argued ‘safety net’ required for broad political support

Argued prerequisite for economic integration

Social policy & productivity

EU founders believed full harmonisation of social policies not necessary component of integration the division of wage & non-wage

costs (ie: social policies) have limited impact

Assume initially no social policy & closed economy wage W, employment level L

Adopt raft of social policies Raises cost of employing workers by

‘T’ Result:lower wage (W1) &

employment (L1) Important: wage incl wage & non-

wage costs

Closed economy

Real wage

Labour

D

w

L

S

Closed economy

Real wage

Labour

D

w

L

S

D1

w1

L1

T

Non-wage benefits include

Part of wage taken as benefits rather than take home pay

Limit working hours (eg Working Time Directive, French 35 hr week)

Maternity, paternity & sick leave Pension benefits Holidays TUPE

Open economy

Now, consider open economy More elastic demand (now D2)

greater integration in goods mkt greater competition between workers

Wage falls below W1 if social policies, (non-wage )cost = T greater burden of (T) falls on workers

Open economy

Real wage

Labour

D

w

L

S

D2

w1

L2

T

W2

Open economy + productivity gain

Empirical evidence suggests integration has simultaneously seen higher real wages, due to efficiency benefits from integration

Gains from SEM incl. raised productivity value of workers to firm rises D3

More than counteracts more elastic demand

Real wage rises to W3 & employment rises to L3

EU examples…

Open economy + productivity gain

Real wage

Labour

D

w

L

S

D2

w1

L2

W2

D3

L3

W3

Other issues: Social dumping Movement of jobs to countries with

lower social protection, reflected in lower overall labour costs

Hoover, Dijon - Glasgow 1993 Argued concerns misplaced

France 1960s Productivity must be considered – high wage

sectors can maintain comparative advantage Division between wage & non-wage costs

can be left to States

Wages and productivity in 2005(Germany = 100)

Country Weekly private sector earnings Labour productivity

Bulgaria 5 32Croatia 22 57Czech Republic 19 66Estonia 13 54Hungary 20 69Latvia 7 46Lithuania 10 51Poland 16 63Romania 7 36Slovakia 15 60Slovenia 33 77

Other issues: End of the European Social model?

Today – some argue lower wages & social protection in CEECs a threat to the European Social model

Flexibility Regulation v laissez faire

Regulation ‘dual labour’ markets /Insider-outsider problem

High wage productivity sector & low wage unskilled sector (with unstable employment)

Eg Youth unempt UK employment more open to ‘outsiders’

France v Anglo-Saxon approach Scandinavian 3rd way

Social Charter 1989

Social Charter 1989 not legally binding opt out by…

(4) 1990s and beyond

TEU / Maastricht Treaty Binding Social Protocol (chapter) Opt out Subsidiarity still central

White Paper for Growth, Competitiveness and Employment 1993

Social Action Programme 1995-2000 Treaty of Amsterdam 1997 European Employment Strategy (EES)

1997 Lisbon Agenda (2000-2010)

EMU

Lack of downwards real wage flexibility Conflict OCA theory

Pre-EMU devalue for international competitiveness

EMU makes impossible Employment may move to low cost

countries . EU examples…… Increased productivity may be solution

(5) Social policy: Effective?

Fragmented EU policy National policies important

eg mutual recognition of qualifications - major task

Employment creation? Unemployment? YOU get data from EU

Commission/Eurostat 1990s – shift to promote employment

European Employment Strategy (EES) 1997 Lab market & other measures, eg entrepreurship

Slight participation and reduced unemployment

See Martin J, ‘What works among active labour market policies: Evidence from OECD countries’ experiences’, OECD Occasional Papers, 1998

Funding Political will Some success

Source The Lisbon Scorecard VIII, Is Europe Ready for an Economic Storm?, March 2008. See section on Employmenet and Social Inclusion

Benchmarking suggested as way to create EU wide social policy Leave States to design, but meet

minimum threshold Scharp F, ’European integration,

democracy and the welfare state’, Jnl of European Public Policy, 1997

(6) Social Policy & Business

… … …

(7) Conclusion

Fragmented Main development 1980s+ Does globalisation indicate move

away from social policy? Lisbon Agreement ties social

cohesion to increased competitiveness