Interview: De-regulated labour markets ‘much more dynamic’

Europe does not need more highly regulated job markets but rather increased investment in human capital if it is to meet the dual challenge of achieving both economic efficiency and social justice, Wolfgang Merkel, the director of the Social Science Research Centre in Berlin, told EURACTIV Slovakia in an interview.

While de-regulating labour markets can harm some people by lowering levels of protection, it ultimately leads to the creation of more jobs, Professor Merkel believes. He points to the Spanish model, where a completely de-regulated labour market for younger people, with time-limited contracts, has created what he describes as “the most dynamic labour market in Europe, a true job-machine”. 

Rather than trying to regulate markets to offer workers more social protection, Merkel believes European governments should instead focus on investing in human capital, “because this means enhancing people’s chances”. “They will be more flexible in the global market. It is in line with the social justice, but at the same time it is investment in the productivity.” 

If Europe does not follow this path, it will be unable to fulfill its ambition of developing a knowledge-based economy with high-tech industries and highly-skilled services, and it will not only lose its competitiveness battle with the US but also with China and India, he predicts. 

Lowering taxes is also the “wrong strategy”, Professor Merkel states, because it would lead to a decrease in human capital investments as “Europe still does not have a culture where private investors are willing to do this”. 

He observed that to some extent the EU has not done enough to close tax havens and harmonise tax systems. But harmonisation will be even more difficult in a Europe of 27, he notes, adding that in Eastern Europe, tax collection is particularly ineffective. 

Despite huge differences as regards labour, social and taxation policies between eastern and western EU member states, Merkel nevertheless insists that EU enlargement “was not a mistake”, stressing that there was no alternative to it, either politically or economically. 

However, he does see enlargement leading to some kind of “multi-speed Europe” in the future. Currently, “decision-making is too complex, it is not transparent and it takes too much time. And the lowest common denominator is too low for solving some of the problems,” he explains. 

“You have 27 countries with 27 interests. It is no longer possible to co-ordinate them in the old fashioned way […] I’m in favour of a multi-speed Europe; it is a price we have to pay for not being the EU of six, twelve or fifteen members. It will be the future of Europe.” 

To read the full version of the interview, please click here. 

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