Mr. Massimo M Beber Fellow in Economics Sidney Sussex College Cambridge CB2 3HU European Economics Lecture 3 EMPLOYMENT RELATIONS: FROM JOBLESSNESS TO FLEXICURITY (Provisional Version: last updated 22 h October 2007) M.Phil. in Contemporary European Studies 2007/8 ©Massimo M Beber 2007

Lecture Outline The employment contract between economic efficiency and social objectives The disappointing historical and comparative performance of Europe’s labour market Explanations of persistent unemployment National differences in labour markets institutions A European employment policy?

Unemployment – Key Facts Inversion in long-term labour market performance between USA and Europe since the 1980’s Aggregate EU performance dominated by “bad 4” Some notable success stories (Ireland, Finland, Spain, UK, Nordic countries)

Labour market: economic issues Imperfect information (insiders and outsiders; efficiency wages) Human capital formation (firm-specific knowledge etc.) Power imbalance between the parties Direct impact of unemployment on socio- political stability

Labour Market: ethical issues Discrimination (gender, age, race, education…) Fairness (minimum wage, working conditions) Identity (joblessness, status of job held) Thus both economic and ethical reasons make employment relations an institution-rich economic arena, including specifically –trade union involvement –statutory protection of individual workers’ rights

Basic Definitions and Yardsticks Redefining the “working age”: the advantage of smooth transitions Workforce and Population of Working Age (PWA): the Participation Rate Unemployment and Workforce: the Unemployment Rate Employment and PWA: the Employment Rate Unemployed and Inactive and PWA: the Non-employment (Inactivity) rate

Explanations of Persistent Unemployment European experience since the 1980’s –increase in unemployment –cross-country heterogeneity Dissatisfaction with the “New Classical” explanation –monetary misperception could lead to temporarily higher unemployment during disinflation; –but inflation had stabilized at relatively innocuous rates by the mid-1980’s

NAIRU EXPLANATIONS a “competing claims” theory of involuntary unemployment when inflation is stable an implicit “policy menu” of –labour and product market reform –improved public services –stable terms of trade (but see commodity shocks)

Hysteresis (or: History matters) Cyclical deviations may have persistent effects through –insiders becoming outsiders –workers becoming discouraged –capital scrapping

Europe’s Labour Market Models Continental Model (Austria, Belgium, France, Germany) Mediterranean Model (Portugal, Spain, Italy, Greece) Nordic Model (Scandinavian Countries, Netherlands) Anglo-Saxon Model (Ireland, UK) A Central European Model?

Source: OECD DELSA Newsletter, no. 3 (October 2006).

EU Labour Market Objectives

EU Employment Policy-Making: the three-pillar structure 1) Employment rights through Community legislation 2) “Law via collective agreement” as a pre- negotiated alternative to 1); 3) the European Employment Strategy Major lift through the Amsterdam Treaty Employment Title (1997), then Lisbon (2000) Nevertheless “a Cinderella of the European integration project”

The EES: a Typology

Pillar 1: EU Legislation main obstacle the structural one of national differences original treaty basis in discrimination SEA added QMV and “Social Protocol” covering health and safety, working conditions, and equality at work Amsterdam added consultation rights Right of association, strikes and lock-outs remain explicitly outside Community Competence

Pillar 2: law via collective agreement Derived from the 1980’s Commission “sporadic” support for Euro-corporatism Legally based on TEU (1991) allows social partners to request a Council decision on a collective agreement matter also allows for directives to be implemented via collective agreements and “national practice”

The European Employment Strategy Open Co-ordination (peer pressure in the absence of treaty competence) Activation and Mutual Obligation Employment Guidelines, Recommendations on Employment Policies National Action Plans Joint Employment Reports An “innocuous exercise in Euro-Verbosity”?

Conclusions Europe’s aggregate labour market performance compares unfavourably both internationally, and with some notable internal success stories. National institutions still play a significant role, reducing the scope for a European employment policy. The focus of policy responses has shifted from financial support of unemployment to active labour market policies (welfare into and with work)