Abstract
The enlargement of the EU to Central and Eastern Europe after 2004 was accompanied by great optimism: more dynamic economic development was expected in the wider Europe and also a general further development of social standards. The banking and debt crisis that started in 2008, however, has revealed structural shortcomings that disrupted and partly reversed the desired trends. The main reasons were inadequate governance options with regard to European economic and financial policy, together with substantial interference in the social dimension in the old and the new Member States. The impact of these processes in terms of convergence and divergence in the EU can be demonstrated on the basis of comparative empirical data series of core indicators in key areas for EU citizens. This impact has been exacerbated by inadequate state social protection and its funding by means of widely varying forms of taxation. A summary composite convergence/divergence index shows the current effects of crisis strategies in the EU regions.
On the way to a united European Union
A key task of the debate on the progress of EU enlargement during the past 10 years has been to evaluate how far convergence has developed in Central and Eastern Europe (CEE), where desired processes have occurred and in what areas are the most critical diverging trends and negative impacts obstructing more effective cooperation. After EU enlargement in 2004 there were widespread expectations of convergence of economies and social standards as a precondition of a real social and political union of genuinely European citizens. One example of this was the European Commission’s positive projection in 2006 indicating the economic convergence of the 10 new Member States in Central and Eastern Europe in the coming 30 years to the level of the EU-15, with a doubling of annual GDP growth per capita (4 per cent compared with 2 per cent in the EU-15; see European Commission, 2006: 45 – Graph 15: A long road to convergence). This optimistic view, based on economic stimulus in the accession countries in the new millennium, was thoroughly disproved by the crisis emerging after 2007. Convergence was not entirely halted, however: in fact, the CEE countries are today better off, on average, than most of the states with high levels of debt in southern Europe. This finding is the result of comparative research to be presented in the following sections.
This analysis reveals limitations, defects and even contradictions in European governance, with ineffective common economic and fiscal policies, particularly with regard to banking control and tax harmonization. The European Commission’s concentration on ‘improving competitiveness’ ignores the primary need for more active labour market policies and the maintenance and extension of social cohesion in Europe. One negative result of the clearly neoliberal approach that has been followed is the constant EU intervention in national social dialogue and collective bargaining in certain countries, and the lack of a European minimum wage policy, as suggested by Jean-Claude Juncker as early as 2006 (Schulten and Watt, 2007).
The following analysis explores the expectations concerning the effects of EU and national policies aimed at achieving harmonized standards in relation to the so-called ‘social dimension’, based on economic development; promoting the employment and skills of EU citizens; guaranteeing social protection on solid financial foundations; and achieving more equality and balance among regions, sectors, genders and generations. By way of a summary, we conclude with the results of these developments in recent years by means of a comparative index. This shows where there has been more or less convergence in the different EU regions and thus demonstrates the effects of the current crisis since 2008 with regard to the processes just described, as well as what may be needed to bring about a more united EU. The Europe 2020 strategy has laid down targets that require coordinated policy-making in the Member States and convergent trends in key areas for real implementation. Failing this, the EU will be less able to function as an active global political player and remain merely a confederation based primarily on common economic and monetary interests.
More convergence or divergence today?
The consequences of recent developments for convergence or divergence in the EU can be discerned through empirical comparisons of key indicators between 2007 and today. They focus on crucial areas: labour standards and their implementation, the results of redistribution, wages, individual consumption, inequality, risk of poverty and precarity. Job opportunities or ‘forced’ migration determine fundamental living conditions, particularly for young people hoping to improve their job prospects through education. There is a clear trend towards higher qualifications among young adults, but the results are more ambiguous concerning youth vocational training. The trends – again within CEE countries – also differ with regard to gender equality and gender pay gaps and thus the risks of inequity and poverty.
Labour rights standards in the EU-28
To compare labour forces in Central and Eastern Europe with those in the EU-15 we have to look at two aspects in particular: (i) fundamental norms of individual and collective labour law, including basic aspects of industrial relations (trade union density, coverage by collective agreements, information and consultation in companies, board-level representation); and (ii) their implementation and supervision by workers’ representatives, labour inspection, reconciliation or arbitration bodies and – if they exist – special labour courts, which are of equal importance due to the continual violations of rights. This can be measured by a comparative index of labour standards in the EU at several points in time: in 2006, after enlargement; in 2010, after banking and monetary troubles and growing recession; and in 2013, with the effects of ‘austerity’ policies and intervention in autonomous bi- or tripartite social dialogue. 1
As the data show, the initial processes of faster catch-up on the part of CEE countries to the European mean came to a halt in 2010 (Figure 1). The implementation of EU social directives (for example, the Directive on Information and Consultation (2002/14/EC) and the adaptation of social dialogue led to a stronger rise in the context of enlargement (see Eurofound, 2011). Some of the southern European states with high debt levels (Greece and Portugal), however, show the same level as the Czech Republic and Slovakia in 2013. By contrast, the western Member States were able to maintain more or less higher levels. The only CEE states in which special labour courts have been introduced as a special branch of the jurisdiction are Hungary and Slovenia.
Index of labour standards and industrial relations in the EU-28*.
Considerable organizational pluralism is typical of trade unions in Central and Eastern Europe (see Bernaciak et al., 2014). Moreover, trade union density is much lower than the European average due to constant membership losses, apart from in Romania, Croatia and Slovenia (Estonia and Lithuania show the lowest levels, similar to that of France). Poland, Bulgaria and Slovakia set the highest legal hurdles to establishing works councils (at least 50 employees as a precondition, thereby preventing elected representation for the majority of workers, see Eurofound, 2011). And, last but not least, the share of persons covered by collective agreements in Central and Eastern Europe is markedly lower than the European mean (see Figure 2).
Rate of employees covered by collective agreements – losses after 2008 due to interventionism*.
Romania and Latvia have also suffered from severe ‘austerity’. The automatic general extension of sectoral agreements in Romania was suspended in 2011 by new legislation, while higher levels of local union membership were laid down as a precondition of the right to negotiate (more than 50 per cent, in 2013 again lowered to 35 per cent, see Ciutacu, 2013; Trif, 2014). In Latvia, intervention in public sector agreements (which account for most collective agreements and members covered) resulted in minimal coverage (and cuts in incomes of about 30 per cent). The most recent data on Portugal refer to new collective agreements since 2011/12; some earlier sectoral agreements are still valid until expiry or cancellation by employers (see Eurofound, 2015: 33).
The lack of sectoral agreements and lower trade union membership are the main reasons for the deviations in CEE countries from the European average (see Figure 2). In addition, the following legal or statutory provisions are weakening organized labour in many cases:
– Special criteria of representativeness or higher minimum membership levels (up to 35 per cent) in a company are preconditions of trade union bargaining rights. – Union membership is possible mainly through an existing basic organization in the enterprise with a minimum number of employees, not directly in an industry federation or national confederation. – Employers must in certain countries be informed of each new member so that they can deduct and transfer the trade union fee in the traditional way, directly to the trade union representation(s) in a company. – In many cases this fee refers only to the legal minimum wage as the declared part of income (a frequent practice in several states). In addition, employees often receive higher payments cash-in-hand or as ‘envelope wages’ (for Central and Eastern Europe see: European Commission, 2007; Kohl and Platzer, 2004: 183). – The biggest part of trade union dues remains with the local, a smaller part with the industry union, while a minimal sum of only 3–8 per cent goes to the confederation to fund all necessary tasks, including recruitment. – In addition, high levels of unemployment in certain countries, especially among young people, and the large share of temporary work contracts put people off joining a union.
Rising incomes, even during the crisis
In contrast to the general trend in western Europe GDP per capita and, more significantly, individual consumption did not decrease in most CEE countries after 2008 (with the exception of Slovenia and Hungary; Figure 3).
Actual individual consumption (AIC)* per capita in PPS, 2008, 2010 and 2013 (EU-28=100).
Without the impact of the crisis this process could have been even more positive, but the repercussions of the crisis-struck southern states have also brought down the European average.
With regard to real incomes a deeper analysis of the data reveals high levels of wage moderation and income losses in Central and Eastern Europe, too. But in contrast to the ‘old’ Member States including the indebted states, real wages in the ‘new’ Member States have continued to increase even since 2010, with the exception of Hungary and Romania, which demonstrates a drastic shift into reverse in those countries as a result of political interference in social dialogue (in Romania with a shift in real wage development from +41 per cent between 2006 and 2009 to –12 per cent from 2010 to 2013, with wage cuts in the public sector of 25 per cent).
The differences between reactions to the crisis in specific EU regions are illustrated by a comparison of the results of wage policies and productivity gains, contrasting wage moderation with active redistribution. Focusing on the larger core countries in Central and Eastern Europe we can discern a broader spectrum affected by different structures of collective bargaining, with only Slovenia and Slovakia dominated by sectoral and not by company agreements (Figure 4a). Compared with western Europe, real wage trends in Central and Eastern Europe (and much more in the crisis-hit states) are characterized by a downturn to strong wage moderation until 2013 (Figure 4b). Assessing the cost-neutral scope for wage gains was more difficult here than in countries with dominant sectoral regulations and general extension (‘erga omnes’) of these agreements, such as in western or Balkan states (for example, Croatia and Romania, though the latter only until 2010).
CEE countries: real wages in relation to productivity gains,* 2004–2014.
EU regions*: real wages in relation to productivity gains, 2007–2015.
Social cohesion
The outcomes of social dialogue and redistribution, together with specific labour market situations (see next section) determine living standards and social cohesion in the EU-28. Among the most important parameters are statutory minimum wage levels in relation to average incomes, income inequalities, gender wage gaps, low wages with risk of poverty and – as a further reason for discrepancies – precarious or temporary work contracts.
For all these indicators we find wide variations in Central and Eastern Europe. To start with minimum wages, we observe a specific trend: a continuous run-up to the European mean even during the crisis – in contrast to western and southern states – but in most cases remaining markedly below 60 per cent of national median wages as the poverty threshold (Figure 5). Only Slovenia has managed this level since introducing new regulations on minimum wages in 2010.
Index of minimum wages in PPS in relation to the EU mean (=100).
In January 2015 monthly minimum wages in CEE countries grew by +6.4 per cent, on average in purchasing power standards, while in the rest of EU the rise was only +0.7 per cent (see Eurostat news release 35/2015). This does not mean that full-time employees usually earn only this minimum, however. In most Central and Eastern European countries only a small minority do so: in Croatia and Poland fewer than 10 per cent, in the Baltic states between 10 and 15 per cent; in Slovenia, with its higher statutory level, fewer than 20 per cent. 2 The majority of workers have higher incomes due to collective agreements, labour market demand or individual qualifications.
On the other hand, temporary contracts influence income and living standards. The proportion of such contracts in south-east Balkan (Bulgaria and Romania) and Baltic states is only one-third of the European average (13.7 per cent in 2013), but much higher in Poland (26.8 per cent). In Slovenia, Croatia and Poland, 70–75 per cent of newly hired young workers have only temporary work contracts. In the EU as a whole this affects 42.5 per cent of young people aged 15 to 24. In addition, there are growing numbers of self-employed and so-called ‘civil law contracts’, which are not governed by national labour law. 3
The different allocation of incomes with smaller or greater risks of poverty can be discerned by examining income-inequality and poverty-risk ratios. The European average for the quintiles S80: S20 (the ratio between the highest 20 per cent of incomes and the lowest 20 per cent) is 5.1. Central and Eastern European countries on the north- and south-east periphery with high inequality show much higher risks of poverty than those with inequality below the European average (16.6 per cent; see Figure 6 and Dauderstädt, 2014).
Income inequality and risk of poverty in CEE countries, 2013.
Two groups are at particular risk of poverty and of being ‘severely materially deprived’ in Central and Eastern Europe: Young people from 18 to 24 years of age and older women over 60. According to Eurostat figures, the average proportion of young people at risk of poverty or social exclusion is about one-third (2013: 31.8 per cent in EU-28). But in Romania and Bulgaria (members since 2007) the shares are over 47 per cent, and in Latvia 36.5 per cent. Less at risk are young Czechs, Slovenians and Slovaks (19–23 per cent). Similar proportions are found in the southern crisis-hit states. Women over 60 years of age show a smaller average to young people in the EU-28: 20.6 per cent (2013). But they are hard hit in Bulgaria and Romania (60 and 38 per cent, respectively), while in Latvia and Lithuania the figure is about one-third.
Another special feature of social cohesion in the enlarged EU are low-wage-earners. In 2010 – date of the last available survey from Eurostat – on average, 17 per cent of all employees fell into this category. The trend during the economic crisis has been rising (see the case of Germany: 2006: 20.3 per cent; 2010: 22.2 per cent; 2012: 24.3 per cent; Eurostat and German statistics). In Central and Eastern Europe, only Slovenia and Croatia correspond to the European average, with Latvia and Lithuania having the highest figures, at 27 per cent (followed by Romania, Poland and Estonia).
Looking at the groups most affected by in-work poverty we again find people below 30 years of age, with a high European average of 30.4 per cent in 2010 (compared with the total average of 17 per cent), but with extreme highs in western Europe (Netherlands 46.1; United Kingdom 40.6; Ireland 39.4; Germany 38.1 per cent) and above average also in Romania (32.7) and Poland (31.3 per cent).
To sum up, social cohesion in the EU is threatened by negative processes of growing inequality despite the benchmarks laid down in the Europe 2020 strategy to reduce poverty and social exclusion (initial target: minus 20 per cent). But this overall negative trend is not the case in all Central and Eastern European countries, where there are positive exceptions and statistical variations depending on the effects of social dialogue, public social protection (see below) and the labour market situation.
Employed or unemployed
‘The employment rate of the population aged 20–64 should increase from the current 69 per cent to at least 75 per cent, including through the greater involvement of women, older workers and the better integration of migrants in the work force.’ This was one of the priorities of the European Commission’s Europe 2020 strategy formulated in 2010. There was, however, a fall in 2012 and 2013 to 68 per cent. The long-lasting crisis has led to employment rates falling below this EU average in many CEE countries (Bulgaria, Slovakia and Slovenia), with others stagnating at fairly low levels (Hungary, Romania, Croatia), while the Czech Republic and Baltic states already report levels of 70 per cent or more.
This outcome of lasting high unemployment has hit some new Member States less, with levels below the European average (2014: 10.2 per cent), such as the Czech Republic, Romania and Estonia (with 6–7 per cent), but some have been much harder hit, such as Slovakia (13.2) and Croatia (17.0).
Since 2008 this situation has been much more dramatic, especially with the explosion of youth unemployment. Something of a peak was reached in 2014 and a slight downturn in youth unemployment has been observed among those below 25 years of age. Youth unemployment rates have for many years been more than double the total unemployment rate: the average total unemployment in the EU-28 fell slightly to 10.2 per cent in 2014, although the proportion of unemployed young people remained at a high level of over 22 per cent. The so-called Youth Guarantee of 2013 shows little effect so far (see Figure 7).
Youth unemployment in EU-28: 2008, 2010 and 2014 (> 25 years, %).
One explanation of the lower rates of jobless persons in Romania and Poland, as well as in some Baltic states, is the high degree of migration from these countries. Significant numbers of the active population are today working abroad (Table 1).
Proportion of migrants in all active persons.
Tremendous increases in migration from Central and Eastern European states to the rest of the EU started after 2007 from countries with rising unemployment. According to national and Eurostat statistics the proportion of those migrating shot up after 2008 and by 2012 was many times higher than in the previous period: in Bulgaria (times 8), Poland (times 7), Hungary (times 3.5), Latvia and Lithuania (times 2–3); in Romania, too, with already the highest level of migrants before accession in 2007, it had risen to almost 1.6 million by 2012. 4 Preferred destination countries are western European states (Germany, United Kingdom, Switzerland), but also Italy and Spain (particularly for Romanians). Migrant workers still represent only 3 per cent of the total European workforce, however (Eurofound, 2014a).
Mobility concerns mainly younger people between 18 and 40 years of age. It helps to reduce unemployment at home and brings new professional knowledge, experience of other working practices and social dialogue and more international contacts, which also helps European integration. Another result of migration is higher minimum or collectively agreed wages in response to shortages of skilled workers in certain sectors in the country of origin. This could be observed in the health sector in Latvia after 2006 and nowadays in Estonia; or in the continuous process of wage increases in Bulgaria even in the crisis and in Romania, too, until the total shift of bargaining systems after 2010 (see ETUI, 2014: 70 ff).
Migration can lead to a brain drain of the highly qualified, but it also helps to increase monetary remittances from outside and, last but not least, to relieve public expenditure on social protection.
Financing necessary expenditure
Decisive factors in living standards and social justice, including the development of education systems, are based on the current level of spending on social protection in the enlarged Europe and the pursuit of ways in which the necessary financial resources can be levied.
Two surveys must be compared here: social protection expenditure per capita (Figure 8), and the overall tax-to-GDP ratio (Figure 9). Both illustrate the divergent potentials of sovereign policy-making in times of crisis.
Expenditure on social protection per capita, 2008 and 2012 (in PPS; Index EU-28 =100).
Overall tax-to-GDP ratio* in the EU-28, 2008 and 2012 (%).
Per capita expenditure on social protection in all new Member States is at a markedly low level of 30 to 70 per cent of the European average. These figures have remained fairly constant since the advent of the crisis in 2008, and the differences between old and new Member States are greater than in respect of GDP (or AIC) per capita (in respect of which Central and Eastern European countries have ratios between 47 and 83 per cent of the EU-28; see AIC data in Figure 3). Annual expenditure grew in 2012, by an EU average of 3 per cent, while in Central and Eastern Europe the figure was 2.8 per cent, in deficit states only 0.9 per cent, but in western and northern Europe over 4 per cent.
Comparatively lower levels of spending on social protection are of course affected by the different ways in which social services are organized and funded, for example, due to different levels of tax revenue (see Ther, 2014: 124 ff). This has led to strong dissatisfaction among citizens with the existing social welfare systems in eastern Europe, which are far below the European average. The Standard Eurobarometer of spring 2014, a representative poll in all EU Member States, reports that only 20 per cent of respondents in Central and Eastern Europe agree that welfare systems provide them with ‘wide enough coverage’ (T 147).
But are state revenues sufficient to finance social protection? Figure 9 helps to provide an answer.
Again, all new Member States show lower tax ratios than the European average of 39.4 per cent in 2012, and a general trend of decreasing tax ratios. A larger mean variation from minima (26 per cent) to maxima (47.8 per cent) is a reality in the EU. The average ratio in Central and Eastern Europe now is 31.9, and in northern and western European states 42.7. These discrepancies are caused by the fundamentally different tax systems, as well as by extremely divergent top rates for income and corporate taxes (see Eurostat, 2014).
Flat-tax rates were introduced in most Central and Eastern European countries after EU accession, usually at between 10 and 24 per cent of individual incomes (in Bulgaria: 10 per cent; Latvia and Czech Republic: 15 per cent; Romania and Hungary: 16 per cent; Slovakia: 19 per cent; Estonia: 21 per cent; and Latvia: 24 per cent). Only the Czech Republic and Slovakia reacted to the crisis in 2013 by introducing a second rate (22 per cent and 25 per cent, respectively) for people on higher incomes. Slovenia, after strong trade union resistance, and Poland did not follow this trend of favouring individual consumption or national competitiveness over collective expenditure through the state.
An even more favoured option is low corporate taxation to promote foreign direct investment (FDI): in Central and Eastern Europe we find an average top rate of 17.5 per cent compared with 25.7 per cent in the EA-18 in 2013 (with large discrepancies again, such as Cyprus and Ireland, on 10 per cent and 12.5 per cent, respectively). On the other hand, VAT rates are lowest in western (Luxembourg: 15 per cent) and highest in some eastern (Hungary: 27 per cent) countries.
However, this approach had a severe effect on the budgets of Romania and Latvia during the monetary and banking crisis and led to harsh intervention by the IMF and the European Commission in the structures of state budgets and collective bargaining (see Figure 2 and also Table 2 below), resulting in lower consumer demand. Social Europe lost its charm as a model due to such taxation and ‘austerity’ strategies. Divergent tax policies impede political and economic governance in the EU as well as development towards a more integrated and stabilized union.
Collective agreement structures in Central and Eastern Europe and coverage of employees (2012/13).
* Of which 11 in 2013/14 as result of ESF programme. The European Social Fund has financed 20 projects in Lithuania since 2012, together with the social partners, to promote social dialogue and collective agreements, with positive results at local, territorial (in regions and municipalities) and sectoral level (final results not yet published), http://www.eurofound.europa.eu/eiro/2013/10/articles/lt1310049i.htm; and http://socmin.lt/en/social-report.html.
** 2008: 7372 (coverage was 25%).
*** Until 2010: 21 from 32 sectors, all agreements extended; about 9000 company agreements; coverage: > 70%.
Sources: Fulton (2015); Eurofound; Trif (2014); national trade unions.
Impact on education and possible progress
Another important aim of Europe 2020 is to promote the knowledge and skills of young people through higher participation in vocational education and improved academic attainment: – The first objective is to reduce the high rate of early leavers in education and training to a maximum of 10 per cent (from 14.9 per cent in 2007). According to current trends this is possible (Figure 10), as the European average in 2014 is now 11.3 per cent. – More difficult would be to halt the upward trend with regard to NEETs (teenagers and young adults ‘Not in Employment, Education or Training’), despite the Youth Guarantee of 2013 (see Figure 11). – There is a good chance that tertiary education can be extended to 40 per cent of those between 30 and 34 years of age. This target, already realized by young women in 2012, is realistic (Figure 12).
Early leavers from education and training, 2007 and 2014 (% of persons from 18 to 24 years).
NEETs (Not in Employment, Education or Training), 2008 and 2013 (%; 15–24 years of age).
Tertiary education diploma: women and men between 30 and 34 years of age, 2007 and 2013 (%).
In this context we find converging trends with positive results in Central and Eastern Europe, although always with the exception of Bulgaria and Romania.
The situation with regard to NEETs in south-east Europe is dire, however, with similar high rates. Only the Czech Republic, Slovenia, Latvia and Poland report fewer persons with vocational activities than the EU average (Figure 11). Very high negative deviations in the two figures are also discernible with regard to the six EU crisis-struck countries.
There has been real progress with regard to the expansion of tertiary education among both women and men in the past six years.
The Baltic countries surpass even the northern European states in this regard. Surprisingly, Germany, Austria and Italy are at the negative end of this scale together with Romania, Czech Republic, Croatia and Slovakia, but it should be noted that education systems are not fully comparable. At any rate, gender equality has been boosted by this upward trend in education.
Gender equality – new perspectives
A controversial picture emerges from a comparison of – now slightly improving – gender pay gaps between women and men measured by the respective average hourly wages in a country. This gap has decreased by almost 1 per cent, on average, in the years since 2008 (2013: 16.4 per cent; see Figure 13). Central and Eastern European states on the periphery of south-east and north-east Europe (Balkan and Baltic countries, except for Estonia) and most of the Mediterranean states show more equality than Austria, Germany, the Czech Republic, Slovakia and United Kingdom.
Gender pay gap* in the EU-28, 2008 and 2013.
Gender pay gaps are not confined to the private economy; they also exist in the public sector with similar variations, even in the health and social sectors, which are dominated by women. On the other hand, in-work poverty is less frequent for women than for men. Another problem is the high proportion of women with precarious work contracts, part-time or fixed-term employment, or mini- and low-paid jobs, which maintain gender inequalities.
A positive effect of the higher proportion of women with tertiary education is the growing proportion of highly qualified women, linked with a trend towards more women in leading positions. Here, too, nine out of 11 Central and Eastern European countries report proportions above the EU average (34 per cent), led by the three Baltic countries, with more than 40 per cent. By contrast, Austria and Germany again stand alongside other western societies at the other end of the scale (see Statistisches Bundesamt, 2012). Is this a sign of changing trends of gender convergence throughout the continent?
Measuring and evaluating the effects of the crisis in the European Union
There are both positive effects of convergence and evident negative ones, hindering the aspired-to transformation of the EU into an active global player (see Lehndorff, 2015). This is not merely an academic issue but one of considerable practical importance as the strengths and weaknesses as determining factors can be more thoroughly debated and influenced by political actors (see the findings presented in the Transfer special issue 2/2013 on Central and eastern European industrial relations in the crisis).
To make possible such stock-taking we have chosen combined indexation, measuring the range and variation of all scrutinized indicators in the EU-28 according to the respective deviations from the European mean in a differentiated plus/minus matrix over a certain time period. To illustrate the real changes after the enlargements (2004 and 2007) and today, 10 years later, at the expected end of a turbulent economic recession characterized by ‘austerity’ policies we present two snapshots of the situation:
– 2007 (end of the accession phase);
– 2013 and 2014 (with latest available significant data);
each time using the set of the above-described index of labour standards and relations (Figure 1), with additional consideration of economic development, incomes and living standards, labour market conditions, social protection, taxation and state budgets, education trends and gender and inter-generational equality (18 indicators altogether, see Box 1).
1.
– individual labour law (protection from dismissal and health protection, freedom of association, limitation of working time, statutory minimum wage),
– collective labour law (freedom of association, union density, workplace representation, information and consultation in enterprises, board-level representation, collective bargaining systems and coverage, right to strike),
– monitoring of implementation (via labour inspection, pre-trial conflict management by mediation or arbitration, labour courts or other effective sanctions for legal violations);
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
The balance of these indicators (including the 18 comparative sub-indices of labour standards) makes it possible to provide a comprehensive picture that illustrates the state of affairs at each date in different EU regions. With this cumulative balancing procedure a summarizing index at each point for each EU country can be established, based on a standardized evaluating method (see Figure 14).
Index of convergence/divergence in EU countries, before and after the crisis (2007 and 2012/13)*.
This comparison not only refers to the old and the new Member States; it also separates out the states with high levels of debt as a third group with a specific problematic of divergence.
The trends illustrated by this comparison of key data at different time periods are as follows:
– There are relative constant proportions in both snapshots in northern and western Europe and in Central and Eastern European Member States, with an evident exception in the southern European countries. Lithuania and Latvia show more converging trends here, whereas Romania is falling towards the edge of the scale.
– Slovenia and the Czech Republic attained higher levels of convergence with the European mean with more social cohesion than the United Kingdom or Germany in the crisis. Germany is indeed better off due to stronger management of the economic crisis and the labour market.
– The Mediterranean deficit states now have a similar range to Central and Eastern European countries, on average. This is not the case for Ireland. Their decline from the European mean is much more critical than in the new Member States. The biggest divergence and downward trends in the two regions are observed in Greece and Romania, but in Spain and Portugal too, due mainly to the rigid ‘austerity’ course in these countries.
– The largest positive deviations are in the Scandinavian states. Denmark (20.7) is at the opposite end of the scale to Romania (–20.2).
– Without the break caused by the crisis the prior, more rapid convergence process – as observed in earlier economic data (AIC) or the progress of labour standards (Figures 1 and 3) – might have continued. Extreme declines were exacerbated by external intervention and ‘austerity’ policies, especially in the southern European countries and Romania, with harsh cuts in incomes and pensions in the public and private sectors.
– Path dependency is no longer the main determining developmental factor. In the course of growing integration and Europeanization the legacy of the past seems to have become less important. Nonetheless, we find evident differences between Slovenia or Croatia with their tradition of workers’ self-management and other former socialist countries (see Bohle and Greskovits, 2012). Changed structures in industries (privatization, globalization) and labour markets, the role of agriculture as well as new frameworks in social justice and cohesion play a more decisive role in this context.
Compared with other recent published surveys on (i) social justice and inclusion (Schraad-Tischler and Kroll, 2014), (ii) the EU report on Gender Equality (EIGE, 2013) and (iii) the above-mentioned labour standards (Figure 1), the relevant findings reveal evident parallel trend-lines, with certain exceptions of positive or negative aberrations (see Figure 15: the Gender Equality Index comprises three factors: work, money and knowledge).
Index of convergence compared with indices of labour standards, of social justice* and gender equality** (2013).
This comparative illustration shows particular strengths and weaknesses in essential matters of social and gender politics. It emphasizes and explains other reasons for divergence and convergence trends, as well as possible and necessary corrections, particularly concerning industrial relations and implementation of labour regulations. 5 None of the countries appear in each scrutinized field of all indices or sub-indicators with the same positive or negative deviations from European average or similar minimum or maximum scores each time. This shows clearly the potential for more converged societies and better cooperation in the Union.
Central findings and expectations of European citizens
Disappointment and criticisms characterize public opinion in European societies today, which was also reflected in the last elections for the European Parliament. What are the reasons for this and what consequences and new visions for further Europeanization may result?
The concentration of European policy-making on mechanisms to tackle the monetary and economic crisis has pushed dominant vital interests of European citizens into the background. This ignores the fact that the European Union is a community whose inclinations are more social than national. Above all the enlarged Union is not only a marketplace but is based on a promise to be a social Europe with specific prospects of improved living and working opportunities for all. This includes the so-called social dimension – once promoted by Jacques Delors – to combine economic dynamics with social balance, providing job security, sufficient incomes and social protection. For this purpose the social acquis of minimum social standards was formulated in the pre-accession phase to guarantee future extension of the European social model. One of the core elements of this model is the participation of European citizens in working life in compliance with the requirements of minimum standards of social dialogue. Many efforts have been made to introduce these elements in the new Member States within the framework of EU directives, the European Commission PHARE programmes and initiatives of experts of trade unions and employer organizations.
Central determinants of living conditions depend on the effects of social dialogue through tri- and bipartite collective bargaining. These instruments have been established in Central and Eastern Europe in the past decade with positive effects at company, sectoral, national and also multinational level to ensure more participation in working life and economic performance. The European Trade Union Confederation and its member organizations have helped to implement the essentials of this social model in cooperation with social partners, specialized trainers and political foundations, or the European Foundation for the Improvement of Living and Working Conditions (Eurofound) in Dublin with its efforts to strengthen social dialogue in the acceding countries. 6
Today we can evaluate the extent to which this transformation has been successful. One indicator is the rate of coverage of collective bargaining. An important role here is played by the range of sectoral agreements to enable wage development in correlation with productivity gains. A comparison of the outputs of more centralized bargaining strategies shows the links between agreements at levels higher than the company, general extension to all employers in a sector (irrespective of membership of the signing associations) and the coverage rate for all employees (see Table 2).
The lack of sectoral agreements in private industry characterizes most Central and Eastern European countries. This explains a lower coverage of employees. General extensions to all employers in a sector are therefore fairly rare, in contrast to frequent practice in western countries. Clear progress in this respect can be discerned in Slovakia and Lithuania with support from government. The amended Slovak labour law in 2013 abolished the previous requirement of at least 30 per cent union membership to enable collective bargaining in a company and suspended the former possible veto of employer organizations against extensions of sectoral agreements.
The argument that the decentralization of collective bargaining is a better alternative and a leading strategy, as presented by the ‘troika’, is clearly not borne out by these figures. It excludes the large number of SMEs and the majority of workers from social dialogue and the fruits of adequate incomes and more equality (see the disadvantages faced by small companies in Eurofound, 2014b).
Numerous ‘anti-crisis’ amendments of national labour codes have caused the shift to deviations from previous more stringent labour law provisions (as in 2013 in Hungary, see ETUI, 2014: 75). Aggravating effects in this context are triggered by statutory restrictions on the right to strike, mainly in public services, in most Central and Eastern European countries, requiring ballots with extremely high rates of consent, longer notice periods prior to industrial action or compulsory state arbitration (Kohl, 2009: 33 ff; Eurofound, 2015: 34 ff). This has led to less successful strike activities in recent years.
It is clear that the main targets of Europe 2020, with its important social focus, will not be met. On the contrary, according to current trends, employability will be lower and poverty aggravated at the end of this decade through the lack of real economic and fiscal European governance (see Hacker, 2014). Much more public investment would be needed to produce equivalent living and working conditions through infrastructural and regional development, intensified training and further education. Tax revenues vary dramatically. The ideology of flat-tax rates instead of progressive taxation supposedly as a means of treating all citizens equally in reality creates considerable inequality of income and life chances in the long run: the flat tax-rate states in Central and Eastern Europe with the lowest tax rates – the Balkans and the Baltic states – have the highest rates of inequality and poverty (see Figure 6), as well as more divergence from European standards. This way of attracting foreign investors is a form of redistribution from the bottom to the top. At the same time insufficient budgets and incomes tend to make state functionaries more susceptible to corruption.
To solve the problem of lack of progress in European integration more minimum standards and regulations will be needed. This should comprise coordinated corporation taxes. The ETUC is therefore supporting a European Commission initiative for a Common Tax Base for all companies in Europe (see Proposal for a Council Directive COM(2011)121/4), as well as common guidelines for fixing statutory minimum wages according to national average incomes and productivity rates. 7 Productivity gains in Central and Eastern Europe are always markedly higher than the rates in the old Member States and could thus favour faster convergence of living standards.
To monitor the real state of labour standards in Europe it is also urgently necessary to adopt a European directive introducing effective implementation of national and European labour law through labour courts in all countries (at present they exist as a special branch of jurisdiction in CEE only in Hungary and Slovenia). Lack of fiscal means or constitutional provisions can no longer serve as an argument for less efficient control. Numerous examples of the treatment of individual and collective labour conflicts by ordinary courts in CEE show (i) extremely prolonged procedures and (ii) failure, in many cases, to implement rulings that are at long last delivered. The levels of violations of workers’ and union rights need stronger control (see the rankings in Figure 15; ITUC, 2014).
European citizens want more European decision-making to boost equality, justice and more social rights: more than two-thirds of respondents in representative polls in the EU-28 agree with this (Eurobarometer 77/2012 and European Commission: Future of Europe 2012). At the same time, the vast majority of people already feel that they are a ‘citizen of the EU’, with an EU average of 63 per cent (autumn 2014). We find much higher rates in Central and Eastern European states, with a north–south trend from Estonia (78), Poland (74), Slovakia (73), Lithuania (71), Slovenia (69) and Hungary (67) to Czech Republic (60), Croatia (56) and Bulgaria (48). 8
Conclusion – 10 years after
– Economic convergence in Central and Eastern Europe after EU accession was always stronger than the general economic growth rates in the EU, and this momentum has continued during the crisis.
– Social cohesion is characterized by divergence, but to a smaller extent in Central and Eastern Europe than in southern countries in the course of the sovereign debt crisis.
– Convergence in the adoption of the European social model has halted following oppressive ‘austerity’ measures in the public and private sector with a dramatic collapse of purchasing power. Wage moderation has proved to be counter-productive in Central and Eastern Europe.
– More social and economic convergence might be possible by means of more coordination of sectoral wage bargaining policies (see the example of the Doorn initiative and the Vienna Memorandum at the end of the 1990s with joint campaigns by the metalworkers’ confederations in old and new Member States). This should be supported by ESF programmes and new directives fostering further Europeanization.
– Positive effects of convergence are found in education and some progress with gender equality, but not with regard to managing the urgent challenges of youth unemployment. A future social divide seems inevitable.
– More European solidarity is the sole antidote to growing political populism based on ‘splendid isolation’ or the allegedly better past of the Communist Era. 9 A more united and socially balanced Europe is the only alternative to the much discussed ‘triumph of failed ideas’ (Paul Krugman) as a result of driving into a dead end with a one-dimensional management of international institutions. 10
– Negative impacts of enlargement for EU members are the subject of debates in politics and the media with regard to mobility and social security systems. Worker mobility meets the need for specialists in health care or in technical professions in the EU-15. A higher number of mobile workers, however, in atypical employment or in mini-jobs can endanger labour standards and wages in a country and foster labour market segmentation (see the migrant wage gaps in the EU in: ILO, 2015: 50–53).
– Another problem has been the relocation of businesses from the EU-15 to tax oases in Central and Eastern Europe, combined with outsourcing to locations that allow tax and wage dumping. An effective remedy to these discrepancies is the reversion to positive integration policy-making at European level by coordinating taxation systems. Based on higher revenues social protection provisions could be harmonized in the Member States and at European level. 11
– The neoliberal obsession with restricting social dialogue and collective bargaining to the enterprise level and pursuing decentralization of wage setting has affected union power and workers. This, coupled with the fact that there are an increasing number of SMEs and micro-enterprises, which have less good labour conditions (see Eurofound, 2014b), will undermine the achievements and status of the labour movement.
For the European Union to be more than just an economically integrated association of states, requires gradually redressing the imbalance on social and labour policy. To redress the balance between economic freedoms and fundamental social rights the ETUC has been calling since 2008 for a Social Progress Clause to be attached to the European Treaties. In this way, the European project could regain the confidence and support of EU citizens and their organizations.
Footnotes
Funding
This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.