Round Table. From Lisbon to Porto: taking stock of developments in EU social policy: Opening up the Pandora’s Box of EU Social Rights

The Lisbon strategy: from aspirations of equalisation and modernisation to unequal regional and class-based outcomes

The Lisbon Summit in 2000 aimed to put employment and social policies on an equal footing with economic policies, but through investment-oriented rather than redistributive means. The aim was to prevent a ‘race to the bottom’ in social standards, while at the same time modernising labour markets and social protection systems through social investment policies. More specifically, the strategy was linked to the idea of fostering an inclusive and competitive, knowledge-based economy in Europe. Combining high-quality jobs with high labour market participation was to be ensured through continuous upskilling in the workplace and, when workers are unemployed, through active labour market policies (Leschke et al., 2012; Bothfeld and Leschke, 2012). High-quality child care was also key, to facilitate female labour market participation, but also to invest in their cognitive capabilities and social skills (European Commission, 2018). Finally, there was a special focus on ensuring that those at risk of poverty would not be excluded from the labour market or society (de la Porte and Palier, in press; Madama and Jessoula, 2018). Various EU funds – which are distributed at regional level, to areas with high unemployment rates and low growth – supported Member States in developing social investment.

As a result of this strategy, and the activation turn of welfare states, social investments have increased in most Member States during the past two decades, with a pronounced change in the corporatist-conservative types of welfare state in central and southern Europe. The most successful part of this strategy, however, has been to increase employment rates (Dellmuth, 2021; de la Porte and Jacobsson, 2012). But despite the emphasis on high-quality jobs (Piasna et al., 2019), a substantial part of the increase in employment rates has been through the growth of precarious jobs in ‘dualised’ labour markets, in which ‘outsiders’ have fewer possibilities for upskilling or upward job mobility, and less social protection (Emmenegger et al., 2012). And even though social investments have been increasing across the EU since Lisbon – especially early childhood education and care, education and active labour market policies – they do not tackle poverty in themselves. In fact, many of these measures have had pronounced Matthew effects: the primary beneficiaries have been the middle and upper classes, while low and, especially, unskilled labour benefit less from social investment policies (Pavolini and van Lancker, 2018; Cantillon, 2011). While some of the cost containment has been reversed, many structural reforms, for instance pertaining to labour markets, are still intact (Moury and Afonso, 2019; Crespy and Vanheuverzwijn, 2019). Furthermore, countries that had low levels of high-quality skills policies prior to Lisbon, in particular in Central and Eastern Europe, have flexibilised labour markets, but not focused on skill development (Bengtsson et al., 2017). Many of them are also lagging behind on providing accessible and affordable high-quality child care for 0–2 year olds (European Commission, 2018). Even the EU’s funds targeted at regions with high unemployment have rather benefited those that were already better off. This is explained by several factors, including the fact that the co-funding provided by better-off regions is higher (by up to 50 per cent, in contrast to poorer regions, where it is about 20 per cent, on average), but also that the poorer regions – characterised by low institutional capability – have not been able to absorb the funds. Overall, then, even if EU funding has been targeted at tackling socio-economic inequalities within regions, most of the investments benefit middle-income earners in richer regions (Dellmuth, 2021).

These inequalities have been further exacerbated by a series of crises in recent years. Following the financial crisis of 2008 and the sovereign debt crisis that followed, unemployment and poverty increased dramatically, especially on Europe’s periphery. Much of the social investment from the previous decade was stymied by austerity policies, sometimes under pressure from the EU (Pavolini et al., 2015). Furthermore, the COVID-19 crisis has exposed an east–west division of labour, as Central and Eastern Europeans tend to be engaged to a higher degree in precarious work, related in part to the supply needs of western Europe (Szelewa and Polakowski, forthcoming). These developments have led to demands for more Social Europe, especially in countries and regions that have seen few substantive improvements, or even set-backs, since the Lisbon Summit.

The European Pillar of Social Rights (EPSR) and the Porto Social Commitment

It is against this backdrop that the social agenda in the EU has been reformulated, epitomised in the European Pillar of Social Rights (EPSR), formally adopted at the European Council in Gothenburg and confirmed at the Porto Social Summit (European Council, 2021). The main narrative around the EPSR mirrors the main thrust of the Lisbon strategy: social and labour market policies, seen to be ‘productive’, are to go hand in hand with competitiveness and growth-oriented economic policies. Although the focus is on social rights, the EPSR does not denote a new approach to EU social policy (Sabato and Vanhercke, 2017), but aims to modernise the EU’s social and labour market policy in light of the social, demographic and economic challenges. Social investment oriented to the labour market is central to the EU’s strategy: employment rates, closely linked to EMU, are still centre-stage, set to be at least 78 per cent by 2030, as are activation and reskilling. The employment rate aims are nested in constraining processes related to EMU, that put pressure on Member States to keep public expenditure (of which more than half of government expenditure is typically devoted to the functions ‘social protection’ and ‘health’) at bay (de la Porte and Heins, 2015). Meanwhile, policies targeted at fighting poverty are reminiscent of the policies of the Lisbon era; for example, (only) soft targets have been set for reducing the number of people and children in poverty and social exclusion.

That is why the intention of the EPSR, as proclaimed in Gothenburg and confirmed in Porto, is – at least rhetorically – on social rights. High hopes are placed on the EPSR to address the dualisations and inequalities that have crystallised since Lisbon. The Porto Social Commitment, signed by representatives from EU-level unions, employer organisations and civil society organisations, as well as EU policy-makers, underscores the commitment to a ‘strong, sustainable and inclusive economic and social recovery and modernisation that goes hand in hand with strengthening the European Social Model, so that all people benefit from the green and digital transitions and live in dignity’ (European Council, 2021). The current emphasis on formal rights, in particular via EU-level regulation, contrasts sharply with the Lisbon era, when the main EU-level instrument to tackle policy challenges was voluntary policy coordination (open method of coordination) (de la Porte and Jacobsson, 2012; de la Porte and Palier, in press).

The problem is, however, that more EU regulation in the social policy area can create regulatory tensions with Member States, and could potentially undermine national institutions, especially where regulation is the prerogative of social partners, as in the Nordic countries (de la Porte, 2019). Regulatory tensions could also emerge regarding the financing of new social rights, because EU social regulation aimed at upward social convergence entails a financial cost. These tensions with regard to subsidiarity and financial constraints are best captured by the notion of an ‘EU regulatory welfare state’. The ‘EU regulatory welfare state’ can impinge upon national modes of policy-making at the welfare state–labour market nexus (de la Porte et al., 2020), and top-down regulation without redistribution can impose significant costs at a lower level of governance (Member State level) (Levi-Faur, 2014). This cost – or financial constraint – must in practice be carried by the (welfare) state, employers and employees (in collective agreements), or social insurance schemes (de la Porte et al., 2020; Falkner and Leiber, 2004). Yet, despite the focus on formal social rights, it is to be noted that the EPSR will not be implemented through hard regulation in all areas. This is because Member States decide on financing, governance, organisation, access and generosity, as well as the delivery of social and labour market policy. For instance, all areas related to social protection – half the principles of the EPSR – will still be governed by soft law.

In areas of shared EU-national competency, concrete legislative initiatives that have emerged from the EPSR are leading to some contestation. The following section looks at two such examples of the EU as a regulatory welfare state and examines the possible regulatory and financial tensions, as well as the possible outcomes of these initiatives. The initiatives are the Work-life Balance Directive ¹ , and the proposed Directive on fair minimum wages (European Commission, 2020).

Work-life Balance Directive: towards de-gendered social rights?

The Work-life Balance Directive – agreed between the European Parliament, the Council and the European Commission in June 2019 – replaces the Parental Leave Directive of 2010. It supports the EU’s aims of high labour market participation, together with gender equalising policies in conjunction with child-birth. The Directive requires Member States to introduce paternity leave for fathers/equivalent second parents, of at least 10 working days, to be paid at least at the level of sick pay. Another central gender equalising provision of the Work-life Balance Directive is the earmarking of two months of parental leave, which is an extension of the requirement in the 2010 Directive, in which one month of leave was to be earmarked to each parent, but with no requirement for payment. The 2019 Directive combines the regulatory requirement of two months’ earmarked leave with payment; and while the level of payment is decided by Member States, it should ‘facilitate the take-up of parental leave by both parents’. ² When the level of pay for parental leave is high, fathers are more likely to take up leave, as demonstrated by evidence from countries with a high proportion of well-paid earmarked leave, such as Sweden. This has a gender equalising effect in the private sphere, though even in Sweden there is a pronounced Matthew effect, signifying that more educated men have a higher propensity to take leave than lower educated men (Cederstrand and Duvander, in press).

Countries that already have a long (albeit gendered) parental leave, with generous compensation, can earmark two months’ leave for fathers from the existing parental leave, without incurring additional financial costs. Even in such countries, such as Denmark – and even Sweden – the Directive has caused regulatory tensions. Prior to the adoption of the Work-life Balance Directive, the social partners and the minority government in Denmark opposed the Directive out of fear that EU regulation would undermine the social partners’ authority on labour market issues. Once the Directive was adopted, however, the social partners changed their positions, in order to retain authority over labour market issues vis-à-vis the government. In September 2021, the main trade union organisation, Fagbevægelses Hovedorganization (FH), with the Danish employers’ umbrella association, Dansk Arbejdsgiverforening (DA), made a proposal to the government to earmark 11 weeks for each parent (FH and DA, 2021). ³ In their proposal, there is no specification of the level of payment, but it is expected, for those not covered by a collective agreement, to be at the level of unemployment benefit and to be collectively negotiated for the sectors that do not already offer earmarked leave with full wages. This signifies that in the Danish case, the regulatory tension, mainly around the issue of subsidiarity, appears to be resolved in the shift from the pre-adoption phase of the Directive to the current implementation phase.

Even in Germany, where earmarked paid leave already exists at the level of sick pay, the Work-life Balance Directive has been moderately controversial, but for different reasons. More specifically, the Work-life Balance Directive could give rise to extra costs in Germany, as it stipulates paternity leave at the beginning of the leave period. Germany’s father-specific paternity leave of 10 days, at the time of the birth of the child, does not comply with the provisions set out in the EU Directive. The Ministry of Finance, however, prompted by industry and employers’ organisations, has argued that, despite the different regulatory system, Germany does comply. The Ministry of Finance is against new additional paternity leave (on top of the pre-existing earmarked parental leave) as it would give rise to extra costs, while the German Trade Union Confederation (DGB) argues that such a new paid paternity leave should be added to the existing system (de la Porte et al., 2021).

There are also many countries where earmarked parental leave exists, but is mostly unpaid. In these countries, such as France, the main regulatory tension is likely to be around the additional costs, as the Work-life Balance Directive requires a relatively long period of leave, to be compensated financially. Thus, reaching an ‘adequate’ level of payment that encourages fathers and other second carers to take up leave is expected to be a long battle in these countries. While some regulatory tensions can be tackled in planning the implementation of the Directive, the issue of costs is likely to be difficult to solve, especially for countries with fewer resources. Thus, it is likely that there will be differentiated implementation of the Work-life Balance Directive across Member States, with especially the numerous Member States currently with (long) unpaid leave experiencing challenges. Another sensitive issue concerning this Directive pertains to gender, as actors with traditional views on gender are likely to be reluctant to implement the provisions of the Work-life Balance Directive in full. This is showcased, for example, by the case of Poland, where the government holds traditional gender views, and sees the Directive as a violation of family rights (de la Porte et al., 2020).

The Directive on minimum wages: upward social convergence at the lower end of the income scale?

The Directive on EU regulation of minimum wages has the purpose of increasing standards of living and protection of workers across the EU. Substantial differences in standards of living – of which wages are an important component – are a major challenge between EU countries. The level of relative poverty (measured at 60 per cent of median income), as well as material deprivation (Dellmuth, 2021) is very high in some countries, particularly in Romania, Bulgaria and the Baltic countries. To address this challenge, the EU is aiming to improve living standards through a directive setting up a framework for minimum wages. The Commission argues that all workers should have access to adequate minimum wages either through collective agreements or through statutory minimum wages. Across the EU, 21 out of 27 countries already have a minimum wage, including Romania, Bulgaria and Lithuania, but minimum wages (for full-time work) are so low that they are insufficient to raise workers out of poverty. In such cases, the Directive aims to raise the level of payment and to increase workers’ access to minimum wage protection.

The Directive also aims to strengthen the social partners, as it stipulates that 70 per cent of the workforce should be covered by collective bargaining. This is an attempt to counter the trend towards working poverty, and falling trade union membership. It is also a way to avoid regulatory tensions by accommodating countries, in particular the Nordics, that do not have a statutory minimum wage and have been sceptical towards an EU initiative to that effect. Such countries are not required to implement a minimum wage, as long as at least 70 per cent of their workforce is covered by collective agreements. In terms of financing the initiative, however, it is not clear whether the EU regulatory initiative will effectively lead to higher minimum wages, and thus be able to raise people out of poverty. Some eastern European countries, such as Poland, have already been increasing minimum wages, in order to counter labour migration and in particular the brain-drain. In countries that see the business model as being based on low labour costs, however, such a directive could possibly cause regulatory tensions and financial constraints with their business model. A second possible challenge of the proposed Directive is that it covers employees with regular contracts, but not those in the growing atypical employment segment.

Conclusion

The EPSR, adopted in November 2017, embodies the EU’s future direction and framework for social and labour market policy, and promotes social rights across all Member States. Trade unions, but also social NGOs, especially from countries in financial difficulties, are keen that the EU should develop more policy and regulations on the social dimension. Employers’ organisations, on the other hand, are sceptical, as they fear that a regulatory turn via the EPSR could be detrimental to competitiveness. Member State governments support the underlying aim of the EPSR, reaffirmed at the Porto Social Summit, to address inequalities between and within EU countries. Countries experiencing financial difficulties, which would like stronger regulatory and financial intervention in social and labour market issues, are at odds with countries in better macroeconomic health, which would like the EU to rely exclusively on soft law. The countries in financial difficulties have few resources to devote to new social expenditure, and would also be more constrained by the EU deficit and debt rules in the Stability and Growth Pact. Thus, there is a risk that the regulatory initiatives requiring new financial expenditure – such as earmarked paid parental leave from the Work-life Balance Directive and adequate minimum wages, as proposed by the Commission in the framework for minimum wages – could be implemented unequally. This means that countries with fewer resources will probably be able to implement the provisions only minimally, in contrast to those with more resources. To complicate matters further, countries with weak institutional capabilities, which are most in need of these initiatives, are unlikely to be able to implement them in line with the intentions. There may thus be an increase rather than a decrease in inter-EU inequality, while some provisions may lead to Matthew effects. Nevertheless, the EPSR initiatives – through hard but also soft law – are a step in the right direction, although attention should be paid to ensuring that they are implemented in line with the desired intentions.