Labor, Employment and Social Policies in the EU Enlargement Process

Labor, Employment and Social Policies in the EU Enlargement Process

The World Bank, The Bertelsmann Foundation and The EPC held a joint meeting on 29 April 2002 to launch the World Bank’s publication Labor, Employment and Social Policies in the EU Enlargement Process – Changing Perspectives and Policy Options. Keynote speakers were Rita Suessmuth, Member of the Bundestag and its former President, and Michal Boni, Former Minister of Labour of the Republic of Poland. This is not an official record of the proceedings and specific remarks are not necessarily attributable.The meeting opened with words of welcome from representatives of the organisations involved.

Margret Thalwitz from the World Bank explained briefly how her organisation and the Bertelsmann Foundation had signed an agreement some three years ago to set up a network of east European research institutions that would examine common economic, social and political accession issues and their political and policy implications. The first results of their work had appeared in 2000 in “Winners and Losers of EU Accession” (available on the World Bank website) and that the launch of this current publication on the implication of employment policy was the second book to come from the network’s research activities.

Hywel Ceri Jones of The EPC said that the book appeared at an important time and he hoped it would help provide clues that could be used in achieving the Lisbon process. The EPC was currently looking at the future of the EU’s cohesion and structural policy and how this could be used to underpin the Lisbon strategy and to drive knowledge-based economies. He felt that examples in this book could be helpful. He also stressed the importance of the social partners in developing employment policy and structural change. It was vital that all actors be engaged in building partnerships at local, regional and national levels.

Annette Heuser of the Bertelsmann Foundation said that her organisation was heavily involved in the enlargement process and that she was pleased that so many experts from their networks in eastern Europe had been brought together in this publication. The book reflected the complexity of labour, employment and social policy for the applicant countries as they liberalised their markets, made labour more flexible and modernised their welfare and social security systems. Ms Heuser was pleased that two of the distinguished authors had agreed to be present at the book’s launch.

Michal Boni, former Polish Minister of Labour and Independent Advisor for Socio-Economic Policy Issues in Warsaw, pointed out that Poland had had to undergo three lots of structural changes within a generation. In the early 90’s it was the construction of a market economy. Then followed the preparations for EU membership and now the adaptations required by the Lisbon process. In all these areas, labour policy was a vital link to successful reform.

Structural changes

Since the early 1990s Poland had seen important structural changes in employment, with a rapid decline in public employment and the traditional heavy industries, which had lost between 800,000 and 1 million jobs. Some 700,000 new jobs had, however, been created between 1994 and 1999 and many had people were now self-employed. Out of a workforce of 14 million, 10.1 million were employed and around 3.2 million self-employed or employers. The old rust belt industries had declined but the service sector had grown by 50%. Mr Boni emphasised that employment policy must not shy away from job destruction in areas that were no longer economically viable in the interests of short-term political advantage. Economies were dynamic and as old sectors contracted, new areas expanded. Poland now had 45% of its GDP produced by SMEs, who were also responsible for 60% of all employment. This was a far cry from the old command economy.

Unemployment

Mr Boni explained that Poland’s biggest employment challenge was unemployment. With a total employment rate of 45%, improvements were necessary to bring it more in line with the US-73% and the EU-63%. During the first wave of unemployment (as a result of structural changes) some 2.5 million had changed jobs. The second wave (the result of the economic cycle) had left around 40% of the under 24s unemployed. Some 43% of rural inhabitants were unemployed. The baby boom of the 1980s would maintain pressure on the labour market until 2006. The effective remedy for this problem was economic growth that would expand employment opportunities.

Labour market characteristics

Poland had also faced a mismatch of opportunity and qualification. New employment opportunities required better educational qualifications. The number of people with only primary education had been declining but there needed to be a redefinition of educational policy to improve access for the young and provide life long learning for all. High regional unemployment had persisted, as job seekers had been unable to migrate to areas of better opportunity due to lack of housing. This implied that flanking measures to improve mobility were needed.

Common EU challenge of rigidity

Polish employers also faced the same problems of labour law rigidity as employers in the EU: high non-wage labour costs, bureaucratic expenses, taxes etc. This burden fell particularly on SMEs. Ways had to be found to reduce this burden to allow expansion.

The way forward

Poland had to finish the process of economic and social alignment with the EU, complete the free movement of labour and capital, sort out agriculture and improve labour market indicators. It needed to focus on the development of the IT and service sectors, continue with privatisation, keep interest rates low and watch the budget deficit. All of these things would help Poland compete at the global level and improve its human capital.Mr Boni said that labour migration offered only a temporary solution to unemployment. Poland now received some 1 million migrant workers from its eastern neighbours but it was strong economic growth in the home and host countries that would reduce this problem.

Rita Suessmuth, Member of the Bundestag and Member of the Board of Trustees of the Bertelsmann Foundation, said there were high expectations both within and outside the Union concerning the policies covered in this book but it was highly controversial that social policy was the task of the EU. She felt that the publication clearly demonstrated how different the countries of Europe were but this allowed the discussion to be opened up. The country reports showed just how the market system and social protection could be differently tackled.

Germany – migration and integration

Migration and integration were of concern to all member states and applicant countries. Ms Suessmuth said that people in the EU feared a wave of migration from eastern Europe that would lower unskilled wages on the one hand and lead to higher demands on social security on the other. Governments needed to acknowledge these fears and aim to manage them by linking migration policy with reform of the labour market and social systems. For decades this sort of discussion had been taboo in Germany. The reality was that the EU would remain a migration destination for the whole world and therefore migration needed to be properly and openly discussed.

The book showed that each member state dealt differently with migration but the reality was that there needed to be EU rules. The German press concentrated on scare reporting of migration issues, quoting eastern European migration figures that were non-proven. Trades unions often focussed on the “dumping salary” effect. There was plenty of discus sion on the burdens of migrants but little on what they brought in terms of cultural enrichment and economic contribution. In fact, both the EU and the applicant countries have declining birth rates and a shortage of qualified people. Migrants could bridge this gap and refugee communities often contained highly skilled and experienced people.

The EU had a humanitarian obligation to protect migrants but it was no use complaining that they were a burden on social security when they were not legally allowed to work. German experience had shown that when there had been frank and open discussion as to the value of migrant workers, the public had responded in a more understanding and tolerant way.

Migration raised important issues as to how all sides could be protected but it needed to be viewed in a more differentiated manner, as not all migrants were unskilled workers from rural areas. Ms Suessmuth concluded by saying that while integration took place at the local level, there was a need for a migration framework at the EU level.

Discussion

Labour markets in the applicant states have been liberalised. Do they now adapt to EU standards that are more rigid?

Michal Boni agreed that this was true in some candidate countries but not in Poland because of the power of the trade unions that preferred inflexible labour laws. With a total unemployment rate of 18% it was important for the trades unions to grasp that flexibility was the best way to create better conditions for development. He said the EU needed “flexisecurity”, a model of flexibility created after consultation with the social partners.

Rita Suessmuth said that Germany had a very protected labour market that needed to be made more flexible. All member states needed to seek more flexible models that offered social protection but this needed to be done by dialogue. Imposed systems never got the necessary support.

Hywel Ceri Jones said that achieving a balance between flexibility and security was a central question for member states and applicant countries alike. The reality was that there was little regulation at EU level as most of the laws were national. He felt that the way forward was social dialogue that could offer a way of defining options and compromises and so obviate the need for a legislative approach. This dialogue had to be linked to the future of the Lisbon strategy.

Member States can no longer afford generous welfare systems. From where will the political resolve and courage come to reduce this level of social welfare?

Michal Boni said there was a will in Poland to find a solution due to the high rate of unemployment but that decision would be made not just at the political level but also required the support of the trades unions. Any solution would need to consider generational differences. The young were used to a more individual approach to savings etc but the older generation was far less flexible.

Rita Suessmuth said this was a crucial issue and, if decisions were postponed, the time would come when there would no longer be sufficient finance available. Trades unions had to be involved in reform discussions but they had to take on a new form. The discussions needed to consider the role of the state in giving more choice and the fact that social dialogue (as successfully practised in the Netherlands) costs in terms of time. Germany needed more political initiatives for job creation and more freedom for employees and employers to find solutions at the individual firm level.

Margret Thalwitz said that greater flexibility gave more chance of security but one of the problems that had to be dealt with in Europe was mobility. The US had a highly mobile workforce but housing problems hampered this in many EU member states.

What is the impact of the need to develop knowledge sector in Poland?

Michal Boni said that while new technologies liquidated some jobs they also created new ones. The Polish service sector had expanded 50% and there was still room for more growth but this would depend on overall economic growth. He said that social policy should aim to equalise chances, which meant improving educational standards and mobility.

How do you ensure that the benefits of economic growth reach the disadvantaged?

The panel felt that the best way to do this was to channel some of the additional revenue generated by growth into further education so enabling the disadvantaged to become better qualified and more able to take advantage of the new economy. This will result in the virtuous circle of higher productivity.

How can one bring about a change in the perception of migration so as to avoid exploitation by people like Le Pen?

Rita Suessmuth felt that the solution lay in taking public fears seriously and actively seeking answers. She felt that politicians were not the best people to undertake this task as they always had an eye on the next election and they know leadership on difficult issues can lead to loss of votes. In her experience the public were more open-minded if presented with the real facts. For example, 44% of the health care sector relied on workers from different countries. Sending nurses back home would mean the collapse of the German health service. Few Germans would want to see this happen. Discussion should also focus on the fact that many migrants do jobs that the local population have refused. If the public can see that areas of the economy will collapse without the aid of migrants they will be more supportive and understand that they are making a real contribution to their host society.

For more analyses see The European Policy Centre’s

website.