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Labor Markets Occasional Paper.Pmd Labor Law, Policy and Mobility: Europe at the Crossroads Jonas Malmberg Jan Ottosson and Lars Magnusson Sandrine Henneron Foreword by Johan Lembke Occasional Paper July 2006 Labor Law, Policy and Mobility: Europe at the Crossroads Jonas Malmberg Jan Ottosson and Lars Magnusson Sandrine Henneron Foreword by Johan Lembke Published by: © European Union Center of Excellence, 2006 Annenberg Presidential Conference Center Texas A&M University College Station, TX 77843-1245 Tel: +1.979.862. 6701 Fax: +1.979.862 .6705 Email: [email protected] Production: Lucero Carranza © All rights reserved. We would like to acknowledge the generous support of the European Commission to this publication. Table of Contents Foreword by Johan Lembke ....................................................................... i Labor Law in The Economic and Social Union of Europe ............................................................................................ 1 Bridging The Gap Between Policy And Markets? Two Methods of Policy Coordination ......................................... 17 Economic Growth in Europe Through Free Movement of Labor? ....................................................................... 34 About the Authors ....................................................................................... 48 i Foreword Johan Lembke An increasingly integrated, competitive and dynamic world economy and external pressures from the current wave of economic globalization – connected to advances in information and communication technology, globally integrated production and distribution systems, liberalized international capital flows, and the growing cross-border tradeability of the service sector – add an important dimension to the structural, fiscal and demographic challenges that European economies and labor markets are facing. In this context, it is important to raise awareness and analyze labor market law and policy in the European Union and how they interact with and balance the basic efforts within the European Union to foster growth by facilitating free movement of production factors (capital and work) and products (goods and services). The European Union is expected to enjoy a momentum of economic recovery. European enlargement has bolstered growth and trade in the European Union and labor migration from Central Europe has been beneficial to recipient countries in older EU member states that did not impose restrictions on the free movement of labor. The European Union as a collective entity with a home market of around 450 million people faces a wide array of large-scale challenges, though: high long-term employment, a rising proportion of employees on short-term contracts and more part-time working in some countries, exclusion of a large number of people from the labor market (especially young people with less professional experiences, opportunities, and training), poor productivity in important employment sectors and declining labor productivity and living standards relative to the United States, real wage deflation and falling pensions in many countries, growing international competition from Asia, demographic changes (especially an ageing population and its associated economic costs) and a declining share of the world’s population, fiscal strains, and the need for better-performing institutions of higher education. The European Commission, the EU’s executive arm, is giving priority to greater spending on research and development, innovation and education, active labor policies to create flexible job markets, support for small and medium-sized enterprises, and the creation of a competitive energy market. On the other side of the Atlantic Ocean, the overall American economy has experienced and continues to benefit from relative high economic prosperity, labor productivity, and standards of living that support the appeal of the American model. The United States, however, is also facing a number of challenges associated with economic globalization and structural changes at home. One development, which can have long-term consequences for the American economy, is the growing external financial dependency of the country as demonstrated by the increasing amount and share of the publicly held debt (more then 40 percent and more than $4.5 trillion) – and the burden of interest payments for the American economy and future generations of Americans – held by central banks, hedge funds and others around the world. Other developments in the United States include rising health care costs (health care insurance is highly linked to employers in the United States, a system without direct equivalents in advanced western industrialized countries, and more than forty-five million Americans lack basic health insurance), real wage stagnation (also common in Europe) and growing disparity in income. The issue of economic security (or economic insecurity) is a concern not only for many blue-collar American workers but also for many professional, skilled and white-collar workers. Median wages (the middle fifth of Americans in employment), for instance, have stagnated by 3.8 percent since the late 1990s, which is part of a Foreword ii longer trend in the American economy. This trend threatens to aggravate the situation for average Americans and can also affect American international and foreign economic policy orientation. This monograph examines European labor markets from three different angles: the history of labor law at the European level, the development of new policy mechanisms and the role of policy action in fields such as the development of a European employment strategy, and European crossborder labor migration, as well as the shift in balance of power between capital and work poses questions about the role and function of labor law in a globalized economy and whether the European Union reconciles free trade and social justice. The European project has evolved in an incremental manner from economic cooperation from the late 1950s to an economic and social union in the twenty-first century with treaty-based goals to promote economic and social cohesion and progress (together with sustainable development) through crossborder economic integration and a high level of employment. Labor law and the protection of workers have over time become more supranational and harmonized. The actions of policy makers play a significant role in the shaping process of central mechanisms and strategies in the context of the evolution of an economic and social union. This monograph also provides an analysis of the development of the European Monetary Union convergence criteria and the European employment strategy, which represent issues that straddle the economic and social spheres, in order to increase our understanding of the role of policy actions and political transactions costs. This monograph is also concerned with labor migration in Europe, which has assumed center stage in the debate on European enlargement and integration and the future of the European project. The free movement of workers is considered one of the fundamental pillars of the ambition to complete the creation of a European internal market (together with capital, goods and services), which is not yet a reality (for instance, in terms of labor mobility, energy, and financial services). The approximation and harmonization of national labor laws and employment rights (such as prohibiting discrimination on the basis of nationality as a fundamental right) are main elements in the pursuit of for the free movement of workers in and the competitiveness of the EU in light of external and international challenges. Both the European Union and the United States economies, and the broader institutional-political- social framework in which they evolve and operate, are facing significant external and domestic challenges. This monograph offers an important contribution to our understanding of issues and challenges related to labor law and policy and migration in the European Union from both a current and historical perspective. Johan Lembke Director European Union Center of Excellence Texas A&M University Chapter 1 Labor Law in the Economic and Social Union Of Europe Jonas Malmberg Introduction We are witnessing a rapid integration of economic activities across borders. Economic integration is to a large extent connected to the information and communication technology revolution, which has provided new opportunities for global production systems. Economic globalization is facilitated through the increased mobility of products, services and capital provided for in international and regional agreements or institutions, such as the World Trade Organization (WTO), the North America Free Trade Associations (NAFTA), and the European Union (EU). The globalization of the world economy is likely to contribute to economic growth. It has also without doubt shifted the balance of power between the national state, workers and employers, to the benefit of the latter. There are several exit routes for employers dissatisfied with the labor market or labor market regulation in many countries. They may, for instance, offshore some parts of the production or simply move it to another country. The mere threat of such a “strike by capital” is a strong argument in any discussion on wages and working conditions (Hepple 2005, p. 9). The shifted balance of power between capital and work poses questions on the role and function of labor law in a globalized economy. In this context the EU represents an interesting attempt to reconcile
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