1. Design Charles & Ray Eames - Hang it all © Vitra An overview of posting and the free movement of services in the construction industry in Europe Frederic De Wispelaere and Prof Dr Jozef Pacolet HIVA – KU Leuven 17 May 2016

2. Types of intra-EU labour mobility, 2012-2013 Intra-EU labour mobility has different faces: labour migration, cross-border commuting and ‘temporary’ stay through posting of workers; ‘limited’ extent of labour mobility in Europe; Posting of workers: The PD A1 is a formal statement on the applicable social security legislation. It proves that a posted worker or a person employed in more than one Member State pays social contributions in another Member State. 2 TypeFlows/StocksNumber%Year Total stock EU/EFTA migrants at working age Stocks 3.1% of total EU-28 population of working age 2013 Flow of EU/EFTA migrants at working age Flows1.8 million 0.5% of total EU-28/EFTA population of working age 2012 Of which ‘return migration’Flows714,000 0.2% of total EU-28/EFTA population of working age 2012 EU migrants working and living in another MS other Stocks7 million3.3% of total EU employment2013 Cross-border workers in EU-28 Stocks1.3 million0.6% of total EU employment2013 Of which ‘frontier workers’Stocks814,000 2013 Posted workers in EU28/EFTA (number of PD A1) Flows1.34 million ± 0.2 to 0,6% of total EU/EFTA employment 2013 Source Based on LFS; Eurostat data on migration, Cannetta et al., 2014; Pacolet and De Wispelaere, 2014

3. Typology of posting of workers (Art. 12 of Reg. (EC) No 883/2004) 3 Source Pacolet and De Wispelaere, 2015 Marginal impact: misperception? Not the best indicator

4. 4 In absolute terms: -Main sending countries: Poland, Germany and France; -Main receiving countries: Germany, France and Belgium. Not only from EU-13 to EU-15 but also across EU-15: -86% of the PDs A1 received by the EU-15; -44% of the PDs A1 issued by the EU-13; -Approximately 52% of the posted workers are issued to a neighbouring Member State. Posting period: - On average 103 days; - One person is posted 1.7 times during the same year; - Impact of the 183 days rule? Typology of posting of workers (Art. 12 of Reg. (EC) No 883/2004)

5. 5 Breakdown by economic activity: -Varies amongst sending EU-15 and EU-13 MSs; -Two ‘types’ of posting: Low to medium skilled workers posted from low labour cost to high labour cost MSs, mainly in labour-intensive sectors; Medium to high-skilled workers posted in qualified occupations. -Construction industry: 43.7% of total PDs A1 issued. Mainly provided services in the construction industry: CZ, EE, HR, LT, HU, PL, PT and SI. Mainly received services in the construction industry: BE, LV, LU, AT, SI, FI, SE and LI. Typology of posting of workers (Art. 12 of Reg. (EC) No 883/2004)

6. Economic value of posting for sending countries 6 The ability of posting to increase export of services, to increase employment, to decrease unemployment, to increase household incomes and labour tax revenues in the sending MS are important features. Source De Wispelaere and Pacolet, 2015b EU-13: 1.4% of total labour tax revenues -> create ‘social’ convergence

7. 7 Some Members States, and within these Member States some specific sectors, in particular the construction industry, are in relative terms confronted with a significantly high percentage of outgoing and incoming posted workers; Estimated impact of posting: –Cross-border services represent an overall share of total turnover in the construction industry of ‘only’ 0,8%; –National registration tools (BE: LIMOSA, DK: RUT, FR: Déclaration préalable de détachement, etc); –Share of posting in total employment FR: 5% (2014); DE: 5% (2014); DK: 10% (2014). Impact of posting on the construction industry

8. 8 Source De Wispelaere and Pacolet, 2016 based on NBB and LIMOSA High number of available job vacancies: ‘bottleneck jobs’ In FTE: ‘lower’ impact

9. 9 Social dumping: not equal to social or fiscal fraud; Two types of social dumping are defined by Abler and Standing (2000):  The first type of dumping occurs without state intervention for instance by the displacement of high-cost producers by low-cost producers,  The second type of dumping is a result of state intervention by reducing labour costs or by reducing social security provisions. For instance, in order to remain competitive, Member States with a high labour tax wedge could opt for a tax shift towards non-labour tax bases;  Both types have a negative impact on the financing of the welfare state! Social dumping and displacement effects

10. 10 Social dumping and displacement effects Competitive advantage Source De Wispelaere and Pacolet, 2015a Minimum pay levels in high-wage MSs exceed average take-home pay in the sending MS (ratio of 1:10 between lowest and highest min. wage); Price level differences: higher purchasing power. Taxes at the level of the sending MS Revised Customer’s point of view: lower price offer

11. 11 Social dumping and displacement effects Competitive advantage Source De Wispelaere and Pacolet, 2015a based on EC – DG ECFIN – Tax and benefits indicators database Average tax wedge of the EU-13 quite similar to the average tax wedge of the EU-15; No correlation between differentials in social security contributions and the share of outgoing posted workers in total employment of the sending MS

12. 12 Displacement effects Source De Wispelaere and Pacolet, 2016

13. 13 Evolution of the investments in the construction industry Source De Wispelaere and Pacolet, 2016 based on EC, European Economic Forecast Upturn of the investments in construction in the Bismarck oriented – central region after the dip of 2009

14. 14 Evolution of the value added in the construction industry Dual employer’s market? Source De Wispelaere and Pacolet, 2016 based on Eurostat Evolution nuances the impact of posting; Employers still have an operating surplus!

15. 15 Evolution of the amount of social security contributions collected in the construction industry Source De Wispelaere and Pacolet, 2016 based on Eurostat No negative impact on the collected social security contributions in the main receiving MSs; Main sending MSs show a negative evolution.

16. 16 Registration: PD A1 versus national registration tools; Fight against it: EU platform against undeclared work and the enforcement Directive; Role of social partners in sending and receiving MSs; Raising awareness of customers and native contractors (mainly large construction companies); Higher labour tax revenues: sending MSs benefit from respecting minimum wages and the effective payment of the proper amount of social contributions and income taxes. Some recommendations

17. 17 At EU-level: Assessment of the impact of the transitional period; Avoid social dumping AND create upward ‘social’ convergence Proposal: tax harmonization based on the ‘source principle’: paying taxes at the taxation level of the receiving MS in the sending MS; Duration of posting: why distinction between social security coordination (max: 24 months) and taxation law (183 days rule)? At national level: Innovation; No or limited reduction of labour tax rates: avoid ‘race to the bottom’ price sensitivity of the sector; Increase growth: fight against undeclared work (from informal to formal labour); Higher ‘reservation wage’: (higher) minimum wages for ‘protectionist reasons’; Invest positive ‘operating surplus’ in higher wages and employment. Some recommendations

18. References De Wispelaere, F. and Pacolet, J. (2016), An ad hoc statistical analysis on short term mobility – Economic value of posting of workers. The impact of intra-EU cross-border services, with special attention to the construction sector, HIVA – KU Leuven, commissioned by DG EMPL. Pacolet, J. and De Wispelaere, F. (2015), Posting of workers – Report on A1 portable documents issued in 2014, Network Statistics FMW&SSC. De Wispelaere, F. and Pacolet, J. (2015a), ‘Posting of workers: the impact of social security coordination and income taxation law on welfare states’, HIVA Working Paper, KU Leuven. De Wispelaere, F. and Pacolet, J. (2015b), ‘Posting of workers as stabilising mechanism. An enlarged notion of labour mobility as a prerequisite for an optimal currency area’, HIVA Working Paper, KU Leuven. 18

19. Contact frederic.dewispelaere@kuleuven.be 19