DOING BUSINESS IN THE EU


Doing business in the EU

The elements of a modern EU Labour Market – Enrique Fernández-Macías

ENRIQUE FERNÁNDEZ-MACÍAS  is of the opinion that a modern labour market agenda in Europe should try to boost job creation by following the high-road model of Nordic economies rather than the employment flexibilisation strategy that has been dominant in recent years. Such an agenda should also openly confront the socioeconomic divergence effect of the Economic and Monetary Union (EMU), by coordinating employment policies and fostering EU-level redistribution mechanisms. And it should initiate a serious debate about how to reorganise our socioeconomic systems if, as seems increasingly plausible, there is a generalised substitution of human labour by robots in a not so distant future.

What elements should be part of a modern labour market agenda in the EU? I would like to concentrate on three challenges (two of immediate application, one more speculative) that are facing European labour markets, and discuss some ideas on what can be done about them.

Challenge one: To confront job polarisation and de-standardisation, follow the Nordic model

In many European countries, employment growth has been anemic since the 1980s, with high levels of unemployment becoming endemic. The preferred approach to confront this problem has been to make employment relations less regulated and more flexible. In some cases (though not all), this resulted in faster employment creation – but often at the expense of job quality and economic stability. For instance, the deregulation of employment contracts in Spain in the 1980s led to a massive expansion of temporary employment (up to a third of all employment contracts in Spain): however, this resulted in a brutal segmentation of the labour market, a big expansion of low-value-added activities and jobs, and a more unstable economy due to the fast turnover of temporary employment contracts.

The current success of the German economy may have shaky foundations for similar reasons: successive rounds of labour market deregulation have reduced unemployment to a very low level, but at the expense of a very significant expansion of jobs in low-value-added activities, with very precarious conditions. As a result, Germany has become the canonic case of job polarisation in Europe since the 1980s and has increased its share of low-paid employment to the highest level in Europe (in 2010, the share of workers with wages below 60 per cent of the median in Germany was 24 per cent).

So what can be done? Our own research [3] shows that, although de-standardisation and job polarisation have generally grown across Europe, there are very significant exceptions that prove that such polarisation is by no means inescapable. In the last few decades, the small Nordic economies have managed to maintain low levels of unemployment while expanding high value
economic activities and creating mostly high quality jobs. Sweden is a paradigmatic case: since the 1970s, it has been consistently shifting employment from low to high skilled occupations, without a trace of the polarisation tendencies that have inflicted other labour markets during the same period. As is well known, the Swedish model is based on powerful labour unions with a strongly egalitarian strategy (they have explicitly tried to block the expansion of low-value-added activities), as well as a highly redistributive welfare state model. Perhaps less widely recognised though is the fundamental acceptance by Swedish trade unions of the need to innovate and modernise the economic system, even if that means layoffs and restructuring. In fact, Swedish unions have traditionally played a significant role in restructuring processes from the very beginning, engaging in local polities to reskill and reallocate the displaced workers. These key elements of the Nordic model could be a crucial part of a modern labour market agenda in the EU.

Challenge two: Balance the EMU shortcomings with coordinated and redistributive policies

In terms of social and employment outcomes, the 2008 crisis has been a harsh awakening from the European dream of previous years. In the first decade of the euro, it seemed as if economic integration could on its own act as a force of socioeconomic convergence between the rich and the poor European countries, fulfilling the implicit promises of the European project. Yet the crisis recast that period as a mirage, the result of unsustainable developments that would cruelly reverse after 2008, wiping off a significant part of the progress previously achieved .  This has led to the recognition that, after all, economic and monetary integration on its own – without significant coordination of social and employment policies, nor EU-level redistribution mechanisms – is a force which creates divergence, not convergence. Even worse, it can result in a ‘race-to-the-bottom’ process of downward convergence, in which social standards are used as factors of adjustment in the absence of other mechanisms.

So what can be done? A progressive labour market agenda within any European country must recognise the need to step up EU coordination of social and employment policies and develop EU-level redistribution mechanism.  In the context of European economic integration, a narrow national labour market agenda is bound to fail in many important respects. An example of such EU-level mechanisms is the idea of European coordination of minimum wage policies.  Aiming at a commonly agreed minimum relative level (the most frequently mentioned is 60 per cent of the median national wage, although there are many possible alternatives) could be a powerful tool for preventing vicious processes of racing to the bottom. Such a move would strengthen demand while minimising negative effects on the competitiveness of countries with respect to other European economies.

The difficulties for such coordination would be mostly institutional, due to the wide diversity in existing systems of minimum wage setting across Europe (with some countries having statutory universal wage floors and others collectively agreed sector-specific minima). The countries with strong collective bargaining traditions have historically feared that EU-level coordination on these issues could erode the autonomy of social partners. However, options that allow for an effective harmonisation of minimum wage levels while respecting the existing diversity in the systems of minimum wage setting could and should be explored. Another example of this type of EU-level coordination and integration that is being discussed is a European unemployment scheme to complement existing national systems.  Such a scheme would protect national labour markets against asymmetric shocks such as the one suffered after 2008, acting not only as an economic stabiliser, but also as a powerful counterbalance to the centrifugal effects of European economic integration.

Challenge three: The coming of robots and the future of European employment

The final challenge I would like to discuss is much more far-fetched and less certain than the previous two. Still, its potential implications are so vast that in my view any modern labour market agenda has to take it into account. In recent decades, human civilisation has massively expanded its capacity to process, store and communicate information. This development, which is proceeding at an accelerating pace, is precipitating a generalised increase in the rate of innovation in many different fields, with subsequent rounds of cross-fertilisation and synergies between them that suggest further acceleration in the future. For example, separate developments in the fields of robotics, artificial intelligence and cloud computing are converging in ‘cloud robotics’, an innovation which allows cheap connected robots to learn from the experiences of each other and expand their overall competence massively.

These technological developments have obvious wide-ranging implications for all aspects of human civilisation. But probably the most important implications are those for the economy, understood in a broad sense. The possibility of creating highly autonomous robots that could do most of the tasks currently done by human workers seems reachable in the not-so-distant-future. This conjures visions of Arcadia, a final emancipation from work and the toils imposed by the material conditions of our existence. Yet the coming of an age of robots conjures dystopian images also. A fundamental pillar of our current socioeconomic system is that the distribution of the fruits of production is linked to participation in such production, which for the vast majority of the population takes the form of labour input. Under these parameters, a production process totally carried out by robots would exclude most of the population from any access to the material wealth created: the owners of the robots would receive all the income. Of course, such a system would be unsustainable in its own terms, since there would be hardly any demand for the goods and services produced by the robots. But what this scenario shows is that the technological developments we are entertaining may require a radical rethinking of the main principles of our political economy, particularly the link between the spheres of production and distribution.

Many argue that fears of large-scale technological unemployment are fundamentally wrong. After all, technology has been displacing labour since the agricultural revolution, and society has always found ways to allocate the excess labour, mainly through the emergence of new activities and services made possible by the increased levels of productivity and surplus. But previous large-scale technological revolutions have led to massive disruptions to the social fabric, and declines in living standards that could last generations (as testified by the social conditions of the English working class during the industrial revolution). Further to this, it is possible that this time is different: a level of technology in which machines can do all or most types of unpleasant tasks could certainly create a very different type of society, where the concept of work would have a very different meaning.

What can be done? This is such a long-term challenge, that it is difficult to say anything practical or sensible on what to do about it. And yet it seems reasonable to argue that we should start thinking about how to reorganise our socioeconomic systems in order to deal with the potential implications of a generalised substitution of human labour by robots. As previously mentioned, the key challenge is how to deal with the fact that on its own, such a development could exclude the general population from the fruits of progress. The economist Richard Freeman, echoing previous proposals of ‘people’s capitalism’, suggests a policy of expanding the ownership of robots/capital to workers, who would then benefit from the income they generate.  A radically different strategy would be to explicitly decouple the distribution of income from participation in production, by using some form of universal guaranteed income scheme financed by taxes. These ideas may seem far-fetched, but it seems likely that labour market agendas will incorporate them in a not so distant future.

Enrique Fernández-Macías is a research manager at Eurofound, Dublin. He holds a PhD in Economic Sociology from the University of Salamanca and his main research interests are job quality, occupational change and the division of labour.

Andre Beukes LLM

Andre Beukes LLM

I am an International human resources consultant to multinational companies in international employment law and employee relations.

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