Labour market reforms


In the wake of the global financial and economic crises, the EU is developing a new labour market strategy as part of its successor to the 'Lisbon Agenda' for economic, social and environmental reform, which is due to end in 2010. The new roadmap will retain many of the previous ambitions, but will also be shaped by EU leaders' exit strategies.

The 1997 Luxembourg job summit launched the idea of a European Employment Strategy, which had three primary objectives: achieving full employment, increasing productivity and quality at work, and promoting cohesion. 

In 2000, the EU launched its ambitious 'Lisbon Strategy' to become "the world's most dynamic knowledge-based economy by 2010". 

After five years of limited results, EU leaders relaunched the strategy in March 2005, putting greater emphasis on growth and jobs and transferring more ownership to member states via national action plans (see EURACTIV LinksDossier). 

On the home straight of the Lisbon agenda, scheduled to end in 2010, many countries are far from delivering on its objectives and many EU leaders and experts are voicing mixed evaluations, with some deeming it an outright failure (EURACTIV 03/06/09) and others offering a more moderate appraisal (EURACTIV 23/06/09). 

The ongoing financial and economic crises are likely to be a key factor in drafting the new strategy, with the European Commission acknowledging that "European labour markets will be changed profoundly by the crisis". 

Nonetheless, many priorities are likely to remain atop the agenda, including the EU's commitment to flexicurity (see EURACTIV LinksDossier for more). 

By 2003, it was clear that the EU's long-term strategy was failing to reach its objectives. As a result, a March 2003 summit of EU leaders in  Brussels invited the European Commission to establish a high-level task force (with former Dutch Prime Minister Wim Kok as chairman) to examine the challenges. The Kok Report, published in November 2004, inspired the Commission to refocus its Lisbon Strategy on economic growth and jobs. 

The Kok report on employment policy underlined the need for more flexibility in the labour markets "while providing workers with appropriate levels of security". 

According to the report, flexibility is not only in the interest of employers but also of workers, as they can then more easily combine work with care, education or free-time preferences. The report urged member states and social partners to: 

  • Review and adjust the level of flexibility in standard contracts (terms and conditions of contracts, work organisation and working time, wage-setting mechanisms and mobility of workers);
  • introduce other forms of contracts to suit the needs of employers and workers; 
  • remove obstacles for temporary work agencies, especially discrepancies between member states; 
  • promote use of information and communications technology (ICT) and more flexible working times as tools to modernise work organisation;
  • improve the attractiveness of part-time work, and; 
  • adapt social protection systems to support workers' mobility. 

The first Barroso Commission followed up on these recommendations and developed some tools to adapt to changing labour markets - namely the introduction of flexicurity and other forms of contracts.

On the face of it, the EU has a considerable 'war chest' at its disposal to realise these labour market reform goals – mainly through the European Social Fund (ESF) for the period 2007-2013. With EUR 10 billion invested in people every year across the EU member states, the ESF trains and supports the employability of approximately nine million Europeans per year. 

In reality, however, these lofty ambitions and substantial budgets serve only to disguise the fact that negotiations have largely reached a stalemate, especially in the aftermath of the economic crisis. 

EU efforts to achieve such ambitious targets have been consistently undermined by what Brussels think-tank Bruegel describes as member states "jealously guarding their national sovereignty in social matters". 

As a result, argues Bruegel's recent report, "ambitious and successful EU legislative initiatives have been rare in recent years, apart from those linked to internal mobility within the EU or the largely generic non-discrimination agenda". 

The financial and economic crises, too, have weakened the willingness of member states to pool their resources in attempting to find ways to push through the Kok agenda. 

To sum up the situation, while many of these priorities remain, the confluence of the financial and economic crises with the end of the current Lisbon Strategy's lifespan means that a new or modified approach may appear in 2010. 

Failed jobs summit = failed jobs policy?

The European Commission's recent (June 2009) key communication on these matters, 'A Shared Commitment for Employment', suggested as much, arguing that while the Lisbon Strategy's priorities remain valid, "as labour markets continue to deteriorate in reaction to the economic downturn, additional action is needed". 

Thus, while massive amounts of EU funds are channelled into recovery packages to stimulate job creation and reinforce creaking welfare systems, Europe must continue to "invest in people's skills and employability, and ensure inclusive and efficient labour markets anchored in the flexicurity principles". 

The necessity of a new approach – or, rather, the weakness of existing strategies in the current climate of stalemate– was highlighted earlier this year when the Czech EU Presidency attempted to hold a high-level EU 'jobs summit'. 

The event, which was intended to deal specifically with these complex issues, effectively became downgraded to a 'non-summit' after EU leaders led by French President Nicolas Sarkozy pulled out, amid fears that the EU "would not be able to deliver on the level of ambition" set out by such a summit, increasing the risk of social unrest across Europe (EURACTIV 25/03/09). 

Such failures bode poorly for the long-term viability of EU labour market reform goals. In the worst-case scenario, according to Bruegel, a 2010 peak in European unemployment could "destroy the most important conceptual pillar of European employment policy": flexicurity. 

Flexicurity under threat

The stakes, then, are high. It is clear from all official statements in recent months that the Danish flexicurity model remains the vehicle of choice for EU policymakers on the road to continuing labour market reform. 

The model was introduced to Denmark in 1993 by a Social Democrat government and has resulted in a decline in unemployment from 12% to 5%, while keeping nominal wage growth at a steady 3% to 5% per year. It is based on the country's centennial tradition of collective bargaining between employers and trade unions and resulted in the principle of a flexible labour market - which makes it easy for employers to hire and fire - combined with high unemployment benefits of up to 90% of the latest wage, making the transition from one job to another easy. 

The concept of employment security thus replaces traditional job security. An active labour market policy includes rights and duties related to training and job offers. 

Indeed, so prized is the flexicurity model in some quarters that a July 2009 report by the Dutch Social and Economic Council (SER), in response to a series of questions from the Dutch government, argued that "the credit crisis is no reason to change course" and that "flexicurity can make a vital contribution to creating a dynamic, competitive labour market geared to the high level of employment and social protection". 

However, the Breugel report, while broadly supporting continued EU promotion of flexicurity, claims that the policy's survival is threatened in the current crisis as governments lose faith in flexible labour markets. 

With this loss of faith likely to increase further in 2010, the report presents the incoming EU employment and social affairs commissioner with a stark policy choice – "the most important strategic decision of your tenure: whether actively to promote an ambitious flexicurity agenda against the odds […] or whether to shift emphasis and attempt to develop a less controversial agenda based on longer-term challenges such as ageing and migration". 

The Dutch SER report also claims that until now, the emphasis of EU labour reform has been mainly on improving the employment participation rate. While this remains a valid goal, overall "emphasis should now shift to improving labour productivity," the experts contend, adding that this will "require an improvement in the EU's innovative capacity". 

New skills revolution: A mere mirage?

Since the launch of the Lisbon Strategy, the Commission has encouraged member states to shift the focus gradually to achieving full employment rather than merely combating unemployment. In support of this shift and with the assistance of the European Social Fund, EU countries have increasingly undertaken to give priority to the financing of active labour market policies. 

With the 2005 Communication on 'Restructuring and Employment', the need for better job matching and more effective ways of analysing and predicting the skills for tomorrow's labour market has become more evident. To maintain the momentum and reinforce efforts for a new skills revolution, the EU put forward in 2008 a New Skills for New Jobs initiative. 

The EU estimates that around 20 million jobs could be created by 2020, the bulk of these coming from the service sector (EURACTIV 17/12/08).  

Presenting the EU executive's New Skills for New Jobs initiative, Employment Commissioner Vladimír Špidla and Education and Training Commissioner Ján Figel' said in a joint statement: "It makes no sense in these difficult economic times to see unemployment rising but job vacancies still not being filled. We must ensure a better match between the skills that workers have and the jobs that are available." 

Indeed, despite growing unemployment, millions of jobs across the EU cannot be filled, according to Rudi Thomaes, CEO of the Federation of Enterprises in Belgium. Europe's workers do not have the right skills to meet the needs of modern businesses, he said (EURACTIV 03/09/09).

Upgrading skills at all levels and providing quality education is considered critically important for Europe's short-term recovery and longer-term growth and competitiveness, as well as for equity and social cohesion, by improving the capacity of jobs and people to adapt to change. 

Portability of supplementary pensions

Supplementary pensions are retirement schemes, and sometimes also invalidity and survivors' benefits, which supplement or replace statutory social-security schemes. Demographic changes are making supplementary pensions an increasingly important way of securing a decent standard of living into old age. 

People change jobs more frequently than in the past, and with initiatives such as the 2006 European Year for Workers' Mobility, the EU encouraged them to do so, because mobility benefits economic growth, competitiveness and job creation. 

However, when people move across borders, they often lose pension rights. Some occupational pension schemes impose waiting periods, other schemes impose vesting periods, and not all schemes allow the transfer of rights to other schemes within the same country or between EU member states. 

Within the EU, there are huge differences with respect to supplementary pension schemes. In some countries, they do not exist at all, while in others coverage is less than 1%. In Sweden, on the other hand, around 75% of all workers aged between 20-64 are members of occupational pension schemes. 

To support workers in this respect, the Commission in 2005 proposed a Directive on improving the portability of supplementary pension rights. However, the European Parliament judged the proposal to be unworkable, as according to one MEP, "it failed to consider the complexity and technicalities of transferring rights from one country to another, not to mention the intricacy of the fiscal aspects involved" (EURACTIV 21/03/07). 

Despite failing to reach an agreement with the other EU institutions, the Commission has been sufficiently encouraged by two academic studies to carry on its work on the transferability of company pension schemes when workers move across borders (EURACTIV 24/01/08). The directive currently remains before the Council of Ministers and the European Parliament. 

The role of agencies

With the changing needs of the labour market comes also the need to modernise labour law. The Commission stimulated a Europe-wide debate on labour law in 2006 (see the EU Green Paper on modernising labour law). During this process it became clear that the emergence of new contractual work relations had to be clarified. That brought to the fore the role of temporary work agencies, and negotiations successfully concluded in December 2008 with the adoption of review of the 'Temporary Agency Work Directive'. 

The proposal recognised that there is growing demand for flexible working arrangements through agencies and that this can be in the interest of employers as well as workers. The objective of the proposed directive was to combine high-quality employment for agency workers with a high level of flexibility for the agencies. 

Industry experts, speaking to EURACTIV in an interview, said that agencies' current ability to have a positive impact on the crisis is "severely hampered" by "several outdated and discriminatory regulatory barriers" in EU member states. 

However, they believe "the implementation of the Agency Work Directive, adopted last December, will force EU member states to review their regulations on agency work and to lift the unjustified restrictions". 

In conclusion, the experts believe that "in times of economic crisis, policymakers should integrate temporary work agencies into the implementation of their active labour market policies, and promote cooperation between public and private employment services in order to fight unemployment". 

Posted Workers

In the enlarged 27-member EU, the question of the working conditions of posted workers has also been raised repeatedly - in particular, the question of the control member states can exercise in this area. 

The Commission has published two communications in recent years, drawing up guidelines explaining to member states their obligations with regard to postings that take place on their territory. The communications sought to clarify these matters as they relate to internal market provisions in the EU treaties, specifically in the context of the free provision of services. 

For example, when member states carry out inspections of postings, these measures should not restrict the freedom to provide services any more than necessary, and "host member states are not allowed to require service providers to have a representative domiciled on their territory". 

Also, host member states are obliged to provide posted workers and posting companies with adequate access to information on the terms and conditions of employment that apply on their territory. 

In the eyes of the European Trade Union Confederation (ETUC), it is still "far from clear" if Barroso's strategies are "a step in the right direction". "There is still a lack of any precise idea about what form a strengthening of the Posted Workers Directive would take. Is the president of the Commission recognising the case for equal pay for equal work for posted workers? It is disappointing that he has not made any move on the ETUC proposal for a Social Progress Protocol. These points must be pursued and clarified in the Parliament, and the ETUC will be taking them up with the president." 

European Works Council

Improving the role of European Works Councils (EWCs) has been in the making for many years. The Barroso Commission decided to review the EWC rules, as it considered the role of the councils very important in the single market, particularly the enlarged single market, where cross-border restructuring of big companies is increasingly commonplace. 

The European Works Councils Directive of 1994 obliges companies with 1,000 or more workers and at least 150 employees in two or more member states of the European Economic Area (all EU states plus Norway, Iceland and Liechtenstein) to set up councils with worker representatives from all countries. 

Since 2004, trade unions had been pressing for a review of the text, pointing to large gaps in its implementation. Indeed, twelve years after the directive entered into force, only a third of companies have implemented it, with medium-sized businesses of up to 5,000 workers lagging behind the most. 

Despite business opposition to a recast of the text, in February 2008 the European Commission announced a review aimed at strengthening workers' consultation and information rights. The EU executive went as far as saying that "while EWCs have been successful in many areas, they could not fully play their role in the anticipation and proper management of change and in developing genuine cross-border social dialogue. Indeed, evidence suggested they were not properly informed and consulted in many transnational restructuring cases and the take-up of EWCs was lower than hoped for". 

To tackle these shortcomings, the Commission proposed a number of changes to the EWCs to "improve their role in anticipating corporate restructuring and involving employees in decision-making". This is particularly important in a time of economic crisis, given the difficult restructuring decisions and speed with which developments occur, Commission officials noted. 

Specifically, the revised directive will aim to improve the concepts of information and consultation in a number of ways: 

  • Defining the competences of European Works Councils more clearly and linking the national and European levels of information and consultation;
  • improving the fall-back rules applying in the absence of agreement by strengthening the coordination of the EWC and improving its consultation in case of restructuring;
  • providing for the training of employee representatives, introducing a duty for them to report back to workers;
  • recognising the fundamental role of the social partners in supporting fruitful social dialogue in companies and providing tailored mechanisms to that aim;
  • adapting European Works Councils in the event of significant change in the structure of companies, and;
  • simplifying the legislation, replacing three different directives (94/45/EC, 97/74/EC and 2006/109/EC) with a single recast and updated directive. 

These changes were approved by the European Parliament and adopted by the European Council, and the new rules will apply as of spring 2011. 

  • Oct./Nov. 2009: Expected nomination of new EU employment and social affairs commissioners.  
  • 2010: Expected legislative proposals for the post-Lisbon Agenda.
  • Spring 2011: Revised rules on European Works Councils to come into force. 

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