European policy of flexicurity, empirical analysis, political philosophy, and reform proposals Prof. Dr. Dr. Andranik Tangian Hans-Böckler-Foundation, Düsseldorf & University of Karlsruhe SEE economic experts’ meeting, Sarajevo, April 7, 2010

2 Agenda 1.History of flexicurity and the conception of the European Commision 2.Indicators for monitoring, analysis, and policy implementation 3.Political economy and political philosophy of flexicurity 4.Reform proposals

3 Share of atypical employment in 2008 (%)

4 Idea of flexicurity By analogy with the motto of the Prague Spring 1968 "socialism with a human face“: Flexicurity is a flexibilization (= deregulation) of labour markets with "a human face", that is, compensated by social advantages, in particular, for the groups affected

5 History of flexicurity 1995 – 2001 (security for flexibly employed) Period from the first use of the word 'flexicurity' (Prof. Hans Adriaansens, 1995) till the first references to it by the EU Labour market reforms in the Netherlands and launching the academic flexicurity debate Flexicurity is understood as a policy to protect atypical workers against negative consequences of labour market deregulation Social partners do not participate in the debate

6 History of flexicurity 2001 – 2006 (flexibility-security trade-off) Period till Green Paper: Modernizing labour law to meet the challenges of the 21st century (2006) Flexicurity is defined as flexibility-security trade-off EU refers to flexicurity as balance between labour market flexibilization and social developments OECD and European Commission positively mention flexicurity in analytical Employment Outlook and Employment in Europe Social partners start the discussion

7 History of flexicurity 2006 –2010 (security through flexibility) The Commissions' Common Principles of Flexicurity (2007): security through flexibility Flexibility should provide 'more and better jobs', because it improves economic competitiveness and, consequently, facilitates creation of jobs The EU officially adopts the flexicurity approach with emphasis on flexibility and discusses it with national governments and social partners Beginning of public debate

8 The conception of the European Commission No contradictory interests (flexibility = security?) Desired by both employers and employees (internal flexibility = work-life balance?) Guarantees better career chances (changing jobs = promotion?) Security is reduced to employment security reduced further to lifelong learning (security = lifelong learning?)

9 7 families of flexicurity indicators ViewpointCountriesYearsData Neo-liberalEurope OECD +MISSOC Trade-unionistEurope OECD +MISSOC European welfare state Europe OECD+LFS (Eurostat) Precarious workEurope EWCS 2005 Quality of jobs and lifelong learning Europe EWCS 2005 Collective bargainingNetherlands DUCADAM Actual crisisEurope Eurostat + OECD+IMF

10 1. Neo-liberal perspective Social security, in % Strictness of EPL, in % Deregulation is tradable against social security advantages All employees: Deregulation-only instead of flexicurity (except NL and DK in the mid 1990s)

11 Social security, in % Strictness of EPL, in % 2.1 Trade-unionist viewpoint Deregulation is not tradable, improvements for flexibly employed needed Flexibly employed: improvements in social security in a few countries...

Trade-unionist viewpoint Size of employment groups, in % to total employment (Eurostat)... at the price of reduction of the share of normal employment! Layers: 1.Unemployment insurance 2.Public pensions 3.Paid sick leave 4.Paid parental leave 5.Paid holidays

Welfare-state viewpoint Total decline of European social security by 2004 after some peak in 1995 – 2003

Welfare-state viewpoint: Institutional situation No institutional decline of social security in 1995 –2004 (example of Germany, moreover NRR are increasing)

Welfare-state viewpoint: Accounting with mobility Example of unemployment aid: Previously: 90% get 700 EUR/Month (short-term unempl.) 10% get 300 EUR/Month (long-term unempl.) National average = 700 * * 0.1 = 660 Now: Institutional improvement: All get 10% more aid Mobility effect: the groups are 50% and 50% National average = 770 * * 0.5 = 550

Flexibility and precariousness ……………………………………………

Flexibility and precariousness : Factual ≠ institutional flexibility Strictness of employment protection legislation ~ external numerical flexibility (OECD 2004) Work with no contract ~ outside legislation (EWCS 2005) United Kingdom Switzerland Sweden Germany … Turkey of 875 = 15% 26 of 847 = 3% 1 of 968 =0.1% 32 of 911 = 4% … 302 of 454 = 67%

Flexibility and precariousness 1.No country in the flexicurity corner 2.Flexibility- precariousness dependence is statistically certain: Regression on employees with P-value= Conclusion: flexicurity is hardly attainable in practice Flexicurity domain: no country

Flexibility and precariousness: flexibility hits just employability

Quality of jobs: not high and problems with lifelong learning …………………………………………………..

Quality of jobs: below average in flexible employment

Quality of jobs: Influence of learning and of job stability …………………………………………………

Trends in flexicurity-relevant Duch collective agreements

Increasing share of flexicurity-relevant Dutch CA

Evaluation of CAs Evaluation of collective agreements with respect to fair compensation of flexibility by security

Flexicurity and the actual crisis Institutional flexibility 1. Flexibility of regular employment (- EPL), Score 2. Flexibility of temporary employment (- EPL), Score Factual flexibility 3. Share of atypical employment in total employment, % 4. Incidence of involuntary part-time workers in part-time employment,% Social security 5. Total public social expenditure, % GDP 6. Social security, pay-offs, % GDP Gravity of economic situation by 2010/aggravation Output gap, % GDP 8. Public debt, % GDP 9. Bailout packages, % GDP Gravity of social situation by 2010/aggravation Unemployment rate, %

27 7.2Gravity of situation by 2010 Slope Flex = 0.84 Slope Secur = 0.32 R 2 = 0.70 P F = 0.00 Flexibility and flexicurity are not advantageous Normalization of employment even with social cuts is better

28 7.3Aggravation of situation Slope Flex = 0.94 Slope Secur =-0.18 R 2 = 0.33 P F = 0.01 Flexibility is not advantageous Generous social security – crisis ‘buffer’ Normalization of employment with social cuts is better

29 Summary of empirical analysis 1. Flexibilization is absolutely prevailing 2. Improvements at the price of normal employment 3. Social security is declining 4. Flexibilization increases risks of precarious employment and decreases employability 5. Europeans value job stability most of all and Europe is not ready for lifelong learning 6. Social partnership evolves in the direction of social patronage of employers 7. Flexicurity is not good in the crisis

30 Crises: Ricardo (1817) Cause: credit expansion by banks English industry booms, Englishmen spend more Credit expansion by English banks Prices grow, foreign goods become more attractive English money is less needed but gold Banks fail, no credit, crisis Then again English prices decrease, international demand grows English industry booms, Englishmen spend more No solution

31 Crises: Marx (1867) Cause: overproduction due to exploitation Exploitation = undepaying workers Workers produce more value than can afford To maximize profits, all should be sold out Banks expand credit to purchase the goods Credit charges exhaust the solvent demand Low demand and overproduction, crisis Solution: abolishment of capitalism, revolution

32 Crises: Mises (1912) & Hayek (1930s) Cause: Central bank (= bankers’ bank) Additional cash backs up simultaneous credit expansion of commercial banks (otherwise banks-competitors force imprudent banks to bankruptcy as Ricardo’s countries) Violation of the natural interest rate which encourages/ discourages investments in heavy industry (reciprocally, wages from heavy industry stimulate consumption and production of consumer goods) Crisis is not avoided but postponed and aggravated Remark on Marx: underpayment results in investment (as in socialist economy with no overproduction) Solution: laissez-faire capitalism

33 Crises: Keynes (1936) Cause: Savings Demand is lower than supply (overproduction) Reduction of production and of total income Even lower demand Downward spiral demand – supply – income – demand, and crisis Solution: governmental intervention to increase demand, governmental programs, public works, moderating taxation

34 Crises: Friedman – Schwartz (1963) monetarist approach Cause: Too high interest rate of the central bank Demand is lower than supply (overproduction) Reduction of production and of total income Even lower demand Downward spiral demand – supply – income – demand, and crisis Solution: Reduction of the interest rate even down to the “negative” value (below inflation level)

35 Finances and real economy Banks give more credit than can secure Two harmful implications: Violation of consumption-to-investment ratio Increasing own profits at the cost of constraining economic development (contradiction between GDP 2%-growth and 5%-interest rate, especially bad for SMEs)

36 Promises of financial liberalisation since 1970s Increase living standards in the West by cheap import Enhancing Western presence in the third world by export of technologies Solution of poverty problem by creation of jobs Promoting Western democracy High returns for investors

37 Globalisation outcomes Import is no longer cheap Decline of Western competitiveness Poverty problem in the 3rd world not solved There, no democracy but corrupted regimes But: high returns for investors Even households at the 95th percentile – that is, households richer than 19 out of 20 Americans – have seen their real income rise less than 1 percent a year since the late 1970's. But the income of the richest 1 percent has roughly doubled, and the income of the top 0.01 percent – people with incomes of more than $5 million in 2004 – has risen by a factor of 5. (Krugman 2006)

38 Improving competitiveness since 1990s Industries start to participate in financial speculations Invention of derivatives (financial producs based on other financial products) Invention of Hedge funds: Porsche – 'Hedge fund with a car maker attached (Chang 2009) Expansion of atypical employment No perpetum mobile: But where do additional profits come from?

39 Profits from financial liberty European science, engineering, culture, education, and even private property are historical achievements, 'European heritage‘ If European economy remained closed then all the gains would be redistributed within Europe The financial openness means that the European advantages work only for few private investors rather than for the European population

40 Profits from atypical work European Commission’s concept of flexicurity is an indirect governmental donation to firms from the tax-payers’ money: Labour flexibility is profitable for employers All expenses are recovered by the state Governmental budget originates from tax-payers

41 Innovation in employment relations Old capitalism Individual employer-worker exploitation: surplus value due to purchase of the capacity to work rather than end products Modern capitalism Circular relations: employer–worker–state– employer with a money loop through legislation, social security and tax systems Collective exploitation: extended to relations of all employers and all employees; income is redistributed through all these systems

42 Consequences of financial liberty Unfair income distribution Crises, losses from not produced values Foreign investments mean export of jobs: Unemployment Flexible and precarious employment Worse working conditions Loss of control over labour markets: Employers are given a legal instrument for pressure on European governments: ‘If you do not flexibilize employment, we move jobs abroad’

43 Consequences of flexible employment Bad career prospects and income insecurity Mobility of workplace → complications of family life Demographic problems and additional immigration Increasing inequality (Brasilianization), vanishing middle class (clan society), increasing social tension, and criminality Short tenure → lower manufacturing quality → lower competitiveness of European economy (which occupies the market niche of top-quality products)

44 Trade unions: No tradability of labour rights The default assumption that everything can be bought and sold, or exchanged, is wrong: Social health (= the right to remain at work) is exchanged for a treatment (= social security): give your hand, and get a prosthesis instead Every single compromise can look fair, but not their sequence (tale about exchanges of horse for cow, cow for sheep,…) The whole history is the struggle for rights (political, human, labour, authors), not single advantages

45 Towards a majority-friendly Europe: Change of political philosophy Economic priorities are good primarily for employers (increasing inequality, precarious work, in-work poverty, decline of welfare state) → Actual sustainable development with economic priorities is good for employers (minority) rather than employees (majority), and is therefore non- democratic → For a majority-friendly Europe, sustainable social development is required (paradigm shift) It needs a change of political philosophy

46 Instruments: 1 Flexinsurance Employer's contribution to social security is proportional to the flexibility of the contract –Compensation of unemployment risks –Motivation to hire employees more favorably with no rigidly restricting labour market flexibility –Flexible instrument to regulate deregulation: adjustments need no new legislation –Moral aspect: social justice Prototypes of “dismissal taxes” –Progressive: American experience rating –Flat: Austrian Abfertigungsrecht

47 Instruments: 2 Workplace tax / bonus The worse working conditions (“social pollution”), the higher the tax paid by the employer –Stimulation of improving working conditions, particularly of flexibly employed –Instrument to improve production quality –Compensation of health and safety risks at work and of bad working conditions Prototypes: –French precariousness premium at the end of a temporary contract (10% of total earnings) –Green tax which stimulates enterprises to consider the natural environment (social environment)

48 Instruments: 3 Basic income A flat income paid by the state to all citizens regardless of their earnings and property status –Security measure / administrative simplification –Measure against bad jobs –‘Positive’ measure to make work pay –Discharging social tension Prototypes: –Kindergeld in Germany paid to all parents –Solidarity pensions in Switzerland and Chile –Minimal wage

49 Instruments: 4 Politicization and internationalization of unions No strong left parties with strong political claims easing collective bargaining on economic issues → political engagement of unions, or creating union’s parties Multi-national companies are unattainable for national unions → creation of union multi- nationals (e.g. Coca-Cola union, Ford union) Accounting of bargaining outcomes, monitoring of collective bargaining

50 Instruments: 5 Systemic reforms Removing finances from the market: restricting private sector to real economy, public (non- profit) finances Decommodification of labour and nature

51 Instruments: 6 Separation of politics from economy Putting social (majority) values beyond economic (employer’s) values Economy as instrument of politics but not its driving force Prohibition of politician’s profits from economy