Initiatives Against Posted Workers – Protectionism in Disguise
Žilvinas Šilėnas, President of LFMI // 10.11.2016
Posting of workers plays an essential role in the internal market of the European Union. Drawing on the fundamental values of the free movement of persons and the free movement of services, it allows workers from one EU member state to work and carry out services in another member state on a temporary basis. Posting of workers promotes business efficiency, facilitates the provision of cross-border services and helps to overcome labour shortages. The European Commission proposed the principle of equal pay for equal work in the same place, meaning that the same rules governing remuneration will have to apply to both posted and local workers. By this, it aims to ensure even “deeper and fairer internal market” and respond to certain concerns of lower labour standards in new member states expressed by old member states.
However, this is nothing but disguised protectionism. The accusations of lower social standards and the abuse of the posting system by new member states in order to gain a competitive advantage over the workers from old member states are premature and groundless. Of course, cross-border competition exists and the average pay in new member states is lower than in old member states, but does it really imply lower standards or constitute unfair competition?
One of the accusations is that workers are less protected under the law in new member states than in old member states. The latter argue that by sending workers new member states are also exporting their low labour standards. However, this is simply not true. OECD Labour Protection Index and World Bank data show that labour regulation in new member states is even tighter than in old member states. For example, the average maximum number of working days per week equals to 5.8 in old EU countries and 5.6 in its new members. In addition, on average workers from new member states benefit from higher premiums for overtime, night hours and work on rest days. Of course, one could find individual examples of more stringent regulation in old member states, but stringency of labour regulation also varies between old member states. This raises a question as to why, for example, Belgium, whose companies are posting workers to France, is not being accused of social dumping? Frankly, looks like double standards are being applied here.
Another false accusation is that new member states consciously keep minimum wages as low as possible so that their companies can gain a competitive advantage. There is no denying that wages in new member states are on average lower than those in old member states. But is it an anti-competitive intent or the result of different levels of economic development, investment and productivity? In this case a mere comparison of nominal minimum wages cannot answer the question whether or not minimum wages are artificially inflated or depressed. However, the ratio of minimum wage to average wage is worth consideration. According to Eurostat, in 2014 the ratio was 41.5 percent in new member states and 43.1 percent in old member states. Surely, this surprisingly small difference of 1.8 percent is not the smoking gun to prove that wages are being kept artificially low in new member states. Furthermore, if lower wages among member states constitute a legitimate reason to restrict access for workers from new member states, then the same logic could be applied to posted workers from Greece or Portugal. Also, if lower wages are recognized as a legal reason to restrict the movement of workers within the EU, what should we expect next? Restrictions on import of cheaper goods?
Leaving aside the accusations, it is also important to look into the proposed principle of equal pay for equal work in the same place itself. Simply put, it means that two workers doing the same job in the same country should receive the same pay. For example, a Polish worker posted to France would be entitled to receive a French rather than Polish wage. The question here is not about the amount of pay, but about the existence of this principle per se. In reality workers doing similar jobs in their home countries receive very dissimilar wages. Wages of non-manual workers may differ by up to 100 percent in Germany and Spain, depending on the size of the company. Similarly, wages for manual workers may differ up to 50 percent in Italy and 60 percent in Ireland and these countries are just a few of many examples (Eurostat data). Therefore, it would be arbitrary and unfair to apply this principle for posted workers. After all, if the principle of equal pay for equal work in the same place does not even exist at the member state level, why should anyone expect to have it at the Union level?
Clearly, the proposal to introduce the principle of equal pay for equal work in the same place has nothing to do with social dumping, unfair competition or other alleged practices of new member states. On the contrary, it is the result of increasing protectionist tendencies in the European Union. Before it is too late, the Commission should carefully consider if they are willing to sacrifice the fundamental values of the free movement of persons and the free movement of services for the sake of protecting the interests of individual member states while undermining those of others.
EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).