26 October 2017

On Monday, the Council of Ministers of the European Union reached a deal on a proposed reform of the Posted Workers Directive (PWD). The reform, the final shape of which will now have to be negotiated with the European Parliament, is strongly backed by France, with the support of Germany, Belgium, Luxembourg, the Netherlands and Austria.

The agreement also received the crucial backing of some Eastern and Central European countries (Slovakia, Czech Republic, Bulgaria and Romania most significantly), after French President Emmanuel Macron embarked on substantial diplomatic efforts over the summer. As stressed by officials at the Elysée, Macron spent more time engaging in discussions with countries such as Romania and Bulgaria, previously “neglected, ignored by France,” than French presidents had done in the previous ten years. The symbolic dimension of these efforts should not be underestimated, but the French President is likely to have reached a compromise with these countries on other dossiers – so expect some trade-off to come to light later on.

Reported by French and European media as a success for the French President, the deal reached within the Council has significant political implications. Coming after months of tensions among EU countries on the issue, and against the opposition of Poland, Hungary, Latvia and Lithuania – the UK, Ireland and Croatia abstained – it will feed divisions among the different Member States, further deepening the already existing divide between Western and Eastern countries.

The Posted Workers Directive, which came into force in 1999, is designed to reduce barriers to internal cross-border trade in services, while at the same time preventing “social dumping” by ensuring that working conditions and pay in effect in a Member State should be applicable both to workers from that State, and those from other EU countries “posted” to work there. The Directive includes provisions on minimum rates of pay, minimum holiday entitlements and health and safety to ensure employees’ minimum protection in the country in which their work is performed.

 

The reform

Following the EU enlargement to the East in 2004, a reform of the PWD has become necessary, according to its supporters, in light of the increased number of posted workers. This has raised concerns over the issue of “social dumping” and “undercutting”, with workers from countries characterised by lower wages competing with local workers in richer countries. Figure 1 provides an overview of the number of posted workers in the different countries in 2015 (author’s adaptation of European Commission’s data).

 

Figure 1 – Posted workers by country

 

In order to limit “social dumping”, the bulk of the proposed reform revolves around two key issues. First, the deal provides for a reduction of the posting length. The duration limit under which workers can be “posted” will be 12 months, which can be extended for another 6 months (to a total of 18 months). This is a reduction compared to the 24-month limit suggested by the European Commission in its proposal and has been considered an important success for France and for President Macron, who had pledged to reduce the posting length during the last French presidential campaign.

Second, the deal foresees the equal treatment of temporary agency workers and local workers. This crucially encompasses the application of universally applicable collective agreements to posted workers across all sectors, including bonuses and allowances, whereas as it currently stands the PWD provisions are mainly limited to applying the national minimum wage and minimum holiday entitlement of the host country to posted workers.

 

Why the suggested reform is problematic

Although posted workers represent only 1 percent of the EU workforce (around 2m people), the issue is politically sensitive. It has been a long-running issue in French political debate about the EU. It touches indeed on core provisions of the Single Market and creates a clear division between countries with high labour costs and those with low labour costs (see Figure 2), further deepening the divisions between Western and Eastern Member States, already existing on issues such as immigration.

 

Figure 2 – Estimated hourly labour costs, 2016 (EUR)

 

Interestingly, once labour costs are divided between wages and additional employment costs incurred by the employers, it is striking to see how the proposed revision of the PWD was overwhelmingly supported by countries with high levels of employers’ expenditure on personnel.

As an aside, this illustrates why the United Kingdom’s concerns over free movement would not be addressed by the suggested stricter measure for posted workers. As stressed by Alan Beattie on the Financial Times, since “Britain typically has no industry-wide wage agreements to be undercut and relatively low national insurance (social security) contributions, the incentive to post workers to the UK is small.” It therefore attracts a lower number of posted workers compared to countries like Germany, France, Belgium, Austria and the Netherlands. Instead, EU citizens are employed directly in the UK labour market.

Meanwhile, the countries that oppose the reform see it as the introduction of protectionist measures, which clash with the principles of the Single Market. Last month, the Polish Prime Minister Beata Szydło said that “It really worries me that the French president is currently undermining the pillars of the European Union and trying to introduce protectionism, striking at the free market and the circulation of people and services.”

In particular, the reduction of the posting term can be seen as a new obstacle to the achievement of a Single Market in Services and shows that, provided political willingness exists in key Member States, the provisions of the four freedoms can be flexible. This flexibility contrasts with the difficulty the UK encountered when trying to secure reform to free movement under David Cameron. This might be explained by the fact that the UK has a uniquely (with the exception of Ireland) flexible labour market and universal welfare model, whereas, in this case, the founding members of the EU’s interests are aligned.

This contrast is underlined when considering that the push for the suggested reform is essentially a political one. The reform indeed is expected to make only a small difference in economic terms, but has long been a main target of French Presidents before Macron.

Finally, the terms of the deal are also politically problematic for internal EU politics because they reflect the different weight of the various countries within the EU. The issue of road transport is a good case in point: provisions on transport workers, mainly truckers, have been partially excluded from the proposed revision. Applying stricter rules on transport workers would threaten the interests not only of Eastern European countries, but also crucially those of Spain and Portugal. The compromise reached on this issue, whereby France gave up on its demands, shows therefore that when the interests of a big western country (i.e. Spain) are at stake they are likely to be accommodated.

With a number of hot dossiers on the EU table including the crucial one of immigration and asylum, don’t expect some Eastern European Member States to be any more accommodating to Brussels in the upcoming months.