Report reignites labour row

Date: 28/03/1996

By Michael Mann

A EUROPEAN Commission report rejecting the idea that deregulation of the labour market is the key to cutting unemployment has injected new life into the debate over the future of EU social policy.

With the fight against unemployment and calls for an end to the UK's opt-out from the Maastricht Treaty's Social Protocol high on the agenda of the IGC, the study will be used to boost the arguments of those who want a stronger commitment to social measures enshrined in the revised treaty.

The report's findings sharply contradict UK Prime Minister John Major's claims in a keynote speech last week that governments in continental Europe had “priced their workers out of jobs” and the minimum wage and the social chapter were “a guarantee of higher unemployment”.

And while European Trade Union Confederation General Secretary Emilio Gabaglio views the report's findings as evidence that there is “not a proven correlation between economic and employment performance and the deregulatory approach”, his counterpart at the employers' federation UNICE, Zygmunt Tyszkiewicz, has described it as “a very bad document because it gives the illusion of being scientific analysis”.

The report, drawn up by the Commission's DGV (the Directorate-General for employment) concludes that there has been no increase in employment rates in the Union since deregulation and that “member states which have lower levels of regulation, or which have deregulated more, have not had a significantly better economic or employment performance relative to others”.

Employment growth rates were higher on average in less regulated countries, but the fastest growth rates of all were found in the highly regulated economies of Portugal, Spain, Ireland and Finland.

While the employment rate in the UK, the most ardent champion of deregulation, is in the top third of EU countries, its performance was found to have declined since 1975.

Although the study found employment conditions were largely independent of labour market systems, “the least regulated labour markets in the developed world - the US and the UK - have shown the sharpest rise in income differentials”.

Furthermore, the paper argues that deregulating job markets may force standards to be set in other ways, particularly through the courts, which increases both costs and uncertainty.

It also suggests that measures which seek to remove the bond between employers and workers could undermine firms' ability to adjust to structural changes.

In a clear snub to those who view a reduction in restrictions on employers as the key to improved employment, the report concludes that member states should not be encouraged to build their policies around the assumption that the benefits of deregulation are proven. Rather, regulations should support social and equality objectives and assist the process of European integration by avoiding the “rush to the bottom” in standards.

Stressing that the text would not be allowed to form the basis of discussion in the Social Dialogue Committee, Tyszkiewicz claimed that DGV had “decided what it wanted to say and found pseudo-scientific reasons to back it up”.

There were, he claimed, very clear examples of how cutting red tape in the employment market had helped create jobs. “But we must stress that we don't want to get rid of all regulation. What we need is re-regulation.”

The vast majority of the rules which cause problems for business are set at a national level, he added, and the job of the Commission should be to act as a catalyst to encourage laws to be streamlined wherever possible.

But Gabaglio was delighted that the Commission had apparently quashed the “illusion that deregulation is the key” and had, “for the first time, adopted a non-ideological, pragmatic and serious approach to the problem”. But he accepted that there was a need to adjust certain rules by means of negotiation between the social partners, rather than by allowing national governments to dictate them.

According to Gabaglio, Commission President Jacques Santer's 'confidence pact for employment' must take account of several other factors, not least macro-economic policy, innovation, research and development and training.

Meanwhile, the Commission this week confirmed the creation of a so-called employment and labour market policy committee to act in support of the Social Affairs Council. The committee represents the practical application of employment monitoring efforts first decided upon at the December 1994 Essen summit.