Structural reforms and macro-economic policy European Trade Union Confederation Structural reforms and macro-economic policy avec le soutien de la Commission Européenne with the support of the European Commission European Trade Union Confederation overview Introduction – Reiner Hoffmann 5 Part I : Structural reforms: What has been done so far? 9 ■ Lack of structural reform and low growth performance in the euro area – Ronald Janssen 11 ■ Labour markets in transition: Combining flexibility and security 15 in Central and Eastern Europe - Sandrine Cazes and Nesprovova Alena. ■ The trade union’s view on labour market policies: 21 the case of the Czech Republic – Pavel Janicko ■ Labour market reforms in Italy – Claudio Treves 23 Part II : Structural reforms : The way ahead 25 ■ A trade union agenda for structural reform – Ronald Janssen 27 ■ The Open Method of Coordination six years on: 37 From flamboyant promises to unrealistic expectations – Niklas Noaksson ■ Labour market reform: A perspective from Sweden – Åke Zettermark 48 ■ Getting trapped in low wage jobs: The experience from France – Emmanuel Mermet 51 Part III : Structural reforms and the European macro-economic 53 policy regime ■ Monetary policy and structural reforms in the euro area –Ad Van Riet 55 ■ Potential output: A questionable concept – Gustav Horn 62 ■ The Stability and Growth Pact: 69 Stability without growth? – Cathérine Mahieu and Henri Sterdyniak ■ The euro area drifting apart – Jörg Bibow 76 ■ Labour market re-regulation in the UK – Richard Exell 87 Order form 93 / 3 PART I: introduction Reiner Hoffmann ‘Reforms, reforms, reforms’, that is the conven- tion of the different interventions that were made at tional wisdom of many European policy makers this conference. when discussing the dismal growth performance of the European economy. In this view, Europe’s main A first part focuses on the state of play concerning problem is labour markets institutions which would structural reform in Europe. Is it really the case that prevent the economy from adapting fast enough to Europe and its member states have been sitting idle the realities of globalisation and technological in the face of globalisation? On the basis of data change. from the OECD, the IMF and the European Commission, a first paper from Ronald Janssen However, two key questions are rarely addressed by (ETUC) finds that many European member states this conventional wisdom. The first one is how the have implemented reforms of key labour market agenda of structural reform of European labour institutions since the mid-nineties. Employment market should exactly look like. Will any reform of protection for specific groups has been loosened up; labour market regulation do the job? Or do we need taxes on labour have been cut, while unemployment to distinguish between reforms that are conducive benefits systems have been eroded.This sheds doubt to productivity and innovation and between reforms on the claim that Europe is facing a slump in growth that destroy the knowledge basis by subjecting because of its perceived irresponsiveness to struc- workers to precarious working conditions? The tural change. second question is whether labour market reforms are enough. Will labour market reforms produce Sandrine Cazes and Alena Nesporova (International higher growth and more and better jobs all out of Labour Office) complements the picture by looking their own? Or is the helping hand of growth- friendly at the central and eastern European countries in macro-economic policy necessary? particular.The transition from a planned to a market economy has implied major transformations for To address these questions and to raise more aware- these countries and they now have loose employ- ness amongst policy makers of the importance of ment protection and low unemployment benefits these issues, the ETUC organised on 20and 21 March which cover only a relative small part of registered 2006 a conference on structural reform of labour unemployed. However, this increase in labour market markets and macro-economic policy making in flexibility for business was not matched by an Europe. The papers collected in this book are a selec- increase in workers’ security: Access to active labour / 5 Structural reforms and macro-economic policy market policies as well as decent income support in It appears the reform of the strategy to deliver unemployment remained too limited. At the same structural reforms is copying the strategy used by time, good economic growth did not translate into the OECD. As a result, bilateral contacts between much job creation, thereby reducing job prospects Commission and member states take a more for retrenched workers. Finally, Cazes and Nesporova prominent role. Also, the role of country specific call for a true social dialogue to rebalance the mix of policy recommendations has been reduced. To flexibility and security in Central and Eastern Europe. improve delivery of reforms, national social partners and parliaments should be associated Pavel Janicko (CMKOS) confirms the previous more closely and the European Union structural analysis from the point of view of the Czech funds should be used to encourage those member Republic. There is too much focus on labour market states that comply with the Lisbon guidelines. reforms deregulating workers’ rights and weakening trade unions and insufficient focus on the social Ake Zettermark (SACO) describes how trade unions dimension of transition and structural change, on a in Sweden handle structural reform. Trade unions well-functioning employment service, on investing and workers in Sweden are found to be quite open to in human capital and on ensuring decent wages. change, as illustrated by the fact that 80% of Swedish and Danish workers actually are of the Claudio Treves (CGIL-Italy) describes how the opinion that changing jobs every few years is a good previous government pushed through labour market thing to do. However, this is no coincidence. reforms weakening workers’ rights and spreading Economic policy and labour market policy are very insecurity throughout the work force while the real much supporting workers when confronted with problem of Italy’s overspecialisation in medium-tech structural change: Unemployment benefits are high, sectors was ignored. jointly run social partner funds provide retrenched workers with immediate assistance in looking for a In a second part, the question is addressed which new and productive job from the moment they kind of structural reforms are necessary for the receive notification of dismissal, and the so-called European economy. Ronald Janssen (ETUC) starts out industrial collective agreement focuses wage forma- from the basic principle that globalisation requires a tion on the objective of creating new jobs and well functioning labour market promoting upward decreasing unemployment. (as opposed to downward) flexibility of workers. Put differently, Europe can and should not compete with Emmanuel Mermet (CFDT) stresses that France China by cutting wages and working longer but by provides the counter-example of how structural upgrading the economy and its workforce.Therefore, reform and macro-economic policy should not be a trade union agenda for structural reform has two done. In France, the emphasis is on expanding the basic pillars: One pillar is to set decent working stan- low wage sector by artificially subsidising low paid dards so that business has to resist to the tempta- jobs. Jobs paying between the minimum wage and tion of addressing competition by going down the 1.6 times the minimum wage enjoy substantial cuts wrong route of simply exploiting its work force. The in social security contributions. However, this unbal- other pillar is to invest more and massively in the anced focus on low wages works to create a ‘low new social agenda of skills, upward mobility and wage trap’and comes at the expense of the incentive gender. to invest in education, training and to raise produc- The paper also argues that the two pillars are tivity. Moreover, in trying to push for lower job closely interlinked with each other and that the way protection, the French government has simply to reform is to build the new social agenda of skills ignored the role social partners and social dialogue and mobility on the basis of robust workers’ rights should play in implementing reforms such as these. guaranteeing fair wages and working conditions. Mistakes have also been made on the macro- economic policy side.Tax cuts have benefited the rich Niklas Noaksson (former ETUI-REHS) focuses on the who have mainly used the money to save more. method that is being used in Europe to deliver France has raised government deficits by cutting more structural reforms. After describing the open taxes but this has done little to boost domestic method of coordination, as it has been used in the demand. European Employment Strategy since 1997, Noaksson draws attention to the reforms intro- The papers of the third and final part make the link duced by the 2005 relaunch of the Lisbon strategy. between labour market reforms and macro- / 6 Introduction economic policy. Ad van Riet (European Central Bank) offering member states the choice of an inflation provides the point of view from the side of monetary target between 1.5 and 5%. The European policy makers. Here, the focus on price stability is Commission and Finance Council is then responsible considered to be essential. On the one hand, the for watching over the compatibility of these national focus on price stability allows the ECB to react to inflation targets with euro area wide price stability those structural reforms which have an impact on (defined between 1.5 and 3.5%) as well as for the medium-term outlook for inflation. On the other watching over the fact that each country respects its hand, a stable level of prices creates transparency, engagement on delivering its contribution to price making the need as well as the potential benefits of stability.