Social Europe: One for All?

Citation

(1999), "Social Europe: One for All?", European Business Review, Vol. 99 No. 1. https://doi.org/10.1108/ebr.1999.05499aab.009

Social Europe: One for All?

Reports

Social Europe: One for All?

Keywords Economic integration, EU, Policy, Single market, Strategic planning

What national and supranational policies of social protection and labour market regulation are appropriate for a deepening and widening European Union? A new CEPR Report entitled Social Europe: One for All? explores good and bad ideas for the Social Chapter. In particular the report argues that the effectiveness of national social policy is influenced by the degree of economic integration; deeper EU integration will accentuate the pressure for social policy reform and harmonization, but the most policymakers should strive for is minimum standards acceptable to all countries.

The report also argues that:

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  the essential thrust of economic integration in its various forms ­ from trade liberalization to enhanced labour and capital mobility ­ can be summarized thus: while generally desirable, it usually has adverse consequences for relatively inefficient producers. The interaction between social policy and economic integration becomes particularly obvious whenever it is the poorer members of EU countries who lose out. In such cases, integration is likely to lead to demands for greater social protection.

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  The effectiveness of national social policy is also affected by the degree of economic integration. Coordination may be required if such policies are to be effective. Governments could use them strategically to benefit their own citizens at the expense of foreigners: by offering less regulation and lower social protection in order to encourage inflows of capital ­ otherwise known as "social dumping". If unchecked, this will result in lower levels of social protection all round ­ although to the extent that current national social policies in Europe are ill-designed or fail to protect the most disadvantaged members of society, this could be a positive outcome.

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  Drawing on the lessons of past EU integration, notably the enlargement to include the poorer Mediterranean countries and Ireland, the Report discusses the implementation of national and EU social policies in the context of the continued EU deepening associated with the single market and the introduction of the Euro, as well as the consequences of widening to the East. It concludes that continued integration will accentuate the pressure both for reform, and for greater coordination and harmonization of social policies. While EU-level policies are not particularly binding at present, they may become a more significant factor in future.

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  Increased labour market flexibility would be a welcome development in seeking to minimize high persistent unemployment. The so-called European model has involved the maintenance of both a high level of labour market rigidity and a high level of social protection. In an environment of increasing competition, this model becomes increasingly more costly in terms of unemployment and it risks serious problems of sustainability of the welfare state. So a drive for harmonization should not stand in the way of reform.

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  But harmonization only makes sense between countries at similar standards of development and with similar social preferences in the trade-off between efficiency and redistribution to the poor. Income disparities are already large among the current EU members and will dramatically increase with the next enlargement. There are also large disparities in labour market regulations and in the organization of social policies. Since these are present even among countries with similar income levels, they constitute compelling evidence for different national preferences in the efficiency versus redistribution trade-off, which should be respected. Hence, the most that policymakers should strive for is minimum standards that are acceptable to all countries.

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  Fostering a dialogue between the representatives of employers and employees at the European level so that EU social policy is based on consensus is a good idea, since most measures that are harmful to a firm's ability to compete in increasingly integrated markets will be rejected. But it should be kept in mind that European federations of unions, like their national counterparts, will tend to represent employees rather than the unemployed. Similarly, European federations of employers are more likely to represent the interests of large corporations than of small and medium-sized firms. It seems that only politicians can represent the unemployed and owners of small firms at the European level.

These arguments indicate what types of social harmonization have the highest potential for welfare improvement. But what examples are there of desirable and undesirable measures?:

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  Establishing a single minimum wage or a single unemployment benefit level throughout the EU would not make sense since an average level would be too low for the richest countries and too high for the poorest ones, with the potential of causing even higher unemployment.

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  Measures fostering mobility are desirable, such as those suppressing any discrimination against migrant workers or any unwarranted formal or informal barriers to the mutual recognition of diplomas. By the same token, measures that clearly deter mobility for protectionist reasons, such as the Posted Workers Directive, are a bad idea. Mobility enhancing measures should nevertheless reduce incentives for "benefit shopping".

Measures designed to overcome problems of imperfect or asymmetric information are also potentially desirable, such as the obligation to provide representatives of workers with notice and information on collective redundancies or to foster exchanges of information among employees of multinationals in different countries. But if social harmonization were to evolve into measures obstructing the shift of production sites across countries, then this would harm the competitiveness of firms and would be counterproductive. Problems of asymmetric information may also be overcome by regulations on health and safety, but imposing the same working conditions across countries in a way that runs counter to different national tastes and customs is undesirable.

Social Europe: One for All?, Monitoring European Integration No. 8 by Charles Bean, Samuel Bentolila, Giuseppe Bertola and Juan Dolado, ISBN 1 898128 33 2, £10.00/$14.95/15 Euros is available from CEPR, 90-98 Goswell Road, London EC1V 7RR, UK. Tel: (+ 44 171) 878 2900; Fax: (+ 44 171) 878 2999; E-mail: orders@cepr. org