Memorandum by Dr Diamond Ashiagbor
Statement of written evidence on the Green
Paper and EU employment policy: The employment and job-creation
effects of non-standard contracts
1. The European Commission Green Paper has
had a troubled gestation. If one compares the version of the Green
Paper published in November 2006 with drafts from earlier in that
year, it's clear there's been an important change of focus—in
part as a response to some of the fierce criticisms from Member
States, in particular the UK, as well as concerted lobbying from
business organisations, above all UNICE.[12]
Critics of what was perceived to be the Commission's harmonisation
agenda consider there to be a relatively straightforward correlation
between use of non-standard contracts and job creation. The UK's
response to the early draft of the Green Paper put it as follows:
The UK's increase in so-called "atypical
employment" is one of our "Lisbon success" stories:
there are now many more women and older people in the labour market
than in 1997 because these workers have been able to choose to
work flexibly. And there is a lot of good evidence which shows
that when the employment legislation framework is looser, not
only are more jobs created but there are also more transitions
between different types of work contract, and more permanent contracts
in the long run.[13]
2. So, the focus of the final version of
the Green Paper has therefore changed. The starting point remains
a recognition of the increasingly diverse contractual forms of
employment, but the debate is now located much more squarely within
the context of the Lisbon Strategy: to examine how labour law
"can evolve to support the Lisbon Strategy's objective of
achieving sustainable growth with more and better jobs".[14]
3. The Green Paper makes some of the bland
assertions we've come to expect from Commission documents, namely
that there is a clear link between flexibility and jobs growth,
on the basis that more responsive labour markets are more competitive.[15]
This much has been a staple of EU employment policy since the
Lisbon European Council meeting in March 2000: in keeping with
the objective of increasing the employment rate, atypical work
is promoted since it encourages the unemployed or discouraged
to enter the labour market, and arguably, the use of flexible
work patterns and flexible work organisation also increases the
competitive efficiency of enterprises.
4. However, the Green Paper also points
to a less employment-friendly effect of non-standard contracts.
This growth in contractual flexibility has the potential to undermine
the Lisbon goals of encouraging greater labour market participation,
investment in human capital and improved employability. Because
those who are detached from the labour market in some way—whether
unemployed, underemployed or economically inactive—have
a insecure attachment to the labour market which is comparable
to those on non-standard contracts, or informally employed. So,
although certain types of non-standard work may well serve as
bridges to labour market participation and high-quality work,
the Commission acknowledges that others can also operate as traps—routes
to low-quality, low-paid, insecure work.[16]
5. The original version of the Green Paper
identified the need for policy instruments other than labour
law such as life-long learning, active labour market policies
and flexible social security rules as a means of achieving the
desired balance between flexibility and security in labour markets.
This view is reiterated in the final version of the Green Paper
which refers to other policy components of the "flexicurity'
approach.[17]
But I also detect more wariness towards traditional employment
protection legislation, or EPL. Earlier drafts of the Green Paper
referred to the need to modernise labour law, but were silent
on the role of EPL in helping or hindering job creation. In adopting
a critical approach to traditional EPL, the Green Paper draws
heavily on another relatively recent report: the Employment
in Europe Report for 2006, which provides an overview of EU
labour market performance. The Green Paper quotes with approval
from this Report, and in its interpretation of the economic effects
of labour market regulation, the Commission is to a great extent
pre-empting the results of the consultation exercise.
6. The conclusion which the Green Paper
draws is that "stringent employment protection legislation
tends to reduce the dynamism of the labour market".[18]
What does this actually mean? The 2006 Employment in Europe
Report claims that employment protection favours "insiders",
who are predominantly prime age males, at the expense of "outsiders".
It argues there is "ample evidence" that strict EPL
tends to worsen the employment prospects of those groups which
are most subject to problems of entry in the labour market, such
as young people, women and the long-term unemployed.[19]
In other words, those on standard employment contracts benefit
at the expense of the informally employed and the unemployed.
7. But the difficulty with traditional responses
to the demand for more contractual variety is that they tend merely
to "increase flexibility on the margins". Partial deregulation,
it is argued, whilst keeping stringent rules for regular contracts
largely intact,[20]
leads to creation of a dual labour market, where insecure temporary
jobs coexist with highly protected or inflexible regular jobs.[21]
And in such a two-tier labour market, the brunt of adjustment
to shocks falls on workers under non-standard contractual forms,
such as fixed-term contracts.[22]
The Spanish government's liberalisation of the use of fixed-term
employment contracts in the mid-1980s is given as an example of
the "perverse" macro-economic effects of partial reforms
of EPL.[23]
8. Another problem the Employment in
Europe Report identifies with traditional employment protection
legislation is that it can slow down the flow of labour between
different jobs, making the labour market less dynamic and increasing
the average duration of unemployment spells. This is problematic
for the Lisbon goal of facilitating mobility, and the response
of the Green Paper is therefore to question established approaches
which seek to protect "insiders" in the context of one
particular job. Instead, the Commission canvasses the adoption
of a "lifecycle" approach to work, with flexible EPL
and revised unemployment assistance protecting workers over the
course of their engagement with the labour market, and enabling
them to make transitions between jobs, and in and out of employment.[24]
9. Given this portrayal of EPL[25]—that
it inhibits the labour market attachment of outsiders, reduces
dynamism in the labour market and lowers employment transitions—the
Commission looks to alternative means of protecting workers against
labour market risks whilst ensuring flexibility for enterprises.
In its Employment in Europe Report, and also in this Green
Paper, the Commission comes out in favour of "well-designed"
unemployment benefit systems and active labour market policies,
rather than reliance on employment protection legislation. Whilst
the economic orthodoxy holds that generous levels of unemployment
benefit tend to increase unemployment, the Employment in Europe
Report posits that this can be offset by a limited duration
of entitlement and by introducing elements of compulsion and conditionality—what
the Report refers to as an effective "activation" strategy
with monitoring of job search efforts, participation in ALMPs
and provision of effective assistance to the unemployed. Finally,
in response to the "security" side of the flexicurity
equation, the Employment in Europe Report asserts that
benefit schemes and active labour market policies designed along
those lines don't hinder labour market adjustment and seem to
perform better than EPL in enhancing workers' perceived
security. This is because social security is arguably more efficient
at providing insurance against labour market risks, and high EPL
is considered to lower the chance of re-entering employment once
unemployed.[26]
10. With regard to employment policy, therefore,
the shadow of the Lisbon Strategy looms over the questions asked
by the Green Paper. The background debates and assumptions which
inform much of the Commission's thinking suggest that "flexicurity"
principles are the best response to the changing labour market,
and further, that reform packages adopting such principles, should
assign a greater weight to carefully designed unemployment benefit
and active labour market policies and less importance to EPL.[27]
The argument here, essentially, is that that EPL is undesirable,
active labour market policies and modernised social security are
better ways to achieve the desired flexicurity approach.[28]
11. In this respect, the Green Paper finds
strong echoes with UK labour market policy, at the centre of which
lie the "Jobseeker's Allowance", and the "New Deal",
designed to develop the employability of the unemployed. The "stricter
benefits regime" of the previous Conservative governments
has been continued under the New Labour Government, but with greater
state assistance with job search and skills upgrading, as well
as better resourcing than previous active labour market policies.
Instilling the work ethic is an important part of the New Labour
government's employability strategy, as is ensuring that people
remain attached to the labour market. Thus the active job search
requirements of the New Deal are being extended to groups traditionally
exempt from such active labour market policies, such as lone parents,
and people on disability benefits.
12. Parallel developments in welfare state
reform are being urged within European Commission discourse, both
within this Green Paper, and also in economic policy: in particular,
the 3-yearly Broad Economic Policy Guidelines urge Member States
to ensure that tax and benefit systems make work pay, by reducing
labour taxes and high marginal effective tax rates, especially
for low paid workers and addressing incentive effects, duration,
eligibility and enforcement of benefit schemes to make them more
employment-friendly. The supply-side agenda adopted in the UK
gives rise to labour market policy which seeks to equip individuals
to compete in the market, emphasising employability over social
protection. Such developments in labour market policy shed light
on what a "modernised" or "active" welfare
state, as envisaged at Lisbon, might look like, and give an indication
of one possible future direction of the supply-side agenda adopted
by the Employment Strategy in its post-Lisbon stage. As one of
those Member States which adopted deregulatory policies from the
1980s onwards, there are marked similarities between British discourse
on labour market policy, and EU-level discourse on the need to
remove labour market "rigidities". This similarity goes
some way towards explaining the apparent willingness of the UK
to comply with the "soft law" obligations imposed by
European employment policy.
30 March 2007
12 Union des Industries des pays de la Communauté
européenne (the European association representing private
sector employers and employers' organisations). UNICE views the
Green Paper as an opportunity to have a "debate on flexicurity
instead of EU harmonisation": Euractiv.com, 10 October 2006,
http://www.euractiv.com/en/socialeurope/debate-flexicurity-eu-harmonisation/article-158635. Back
13
"Very initial UK views on draft Labour Law Green Paper"
available at
http://www.euractiv.com-/29/images/UKposition-17sept06-tcm29-159857.pdf Back
14
The streamlined Lisbon Strategy now contains only two headline
targets: investment of 3 per cent of Europe's GDP in research
and development by 2010 and an employment rate (the proportion
of Europe's working age population in employment) of 70 per cent
by the same date. Back
15
Green Paper, final version, p 4. Back
16
Green Paper, final version, p 8. Back
17
Ibid, p 4. Back
18
Ibid, at 8. Back
19
CEC, Employment in Europe 2006, p 83. Back
20
"Reforms tended to increase flexibility `on the margins'",
ie introducing more flexible forms of employment with lesser protection
against dismissal to promote the entry of newcomers and disadvantaged
jobseekers to the labour market and to allow those who wanted
to have more choice over their employment. The outcome has given
rise to increasingly segmented labour markets": Green Paper,
at p 5. Back
21
Ibid, at 89-90. Back
22
Ibid, at 13. Back
23
Ibid, at 90: "On the one hand, the lower firing costs associated
with fixed-term contracts have contributed to employment growth
but, on the other hand, there have been less desirable effects
on employment and growth such as inadequate investments in human
capital, higher wage pressures, lower labour mobility and higher
wage dispersion".... "In response to these adverse outcomes,
a series of labour market reforms have been implemented in Spain
since the mid-1990s... to loosen employment protection for regular
workers, while at the same time tightening the use of temporary
contracts." Back
24
CEC, Green Paper, at 9-10. Back
25
The EiE Report 2006 does recognise, on the plus side, that strict
EPL does have a positive effect on job tenure; it also encourages
investment in firm specific human capital or skills; and can lead
to productivity improvements from workers who are more incentivised
to cooperate: CEC, Employment in Europe 2006, at 86-7. Back
26
CEC, Employment in Europe Report 2006, at 88-89. Back
27
"On the other hand, a generous UB tends to increase unemployment,
but this can be offset by a limited duration of entitlement and
by an effective `activation' strategy with monitoring of job search
efforts, participation to ALMPs and provision of effective assistance
to the unemployed. Finally, UB/ALMPs designed along those lines
do not hinder labour market adjustment and seem to perform better
than EPL in enhancing workers' perceived security. This discussion
suggests that reform packages adopting `flexicurity' principles
should assign a greater weight to carefully designed UB/ALMPs
and less importance to EPL": CEC, Employment in Europe
2006, at 112. Back
28
"A flexicurity approach is consistent with... loosening
EPL to some extent in exchange for more generous UB and higher
spending on ALMP": CEC, Employment in Europe 2006, at
94. Back
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