1 COMPARING AND QUANTIFYING LABOR STANDARDS IN THE UNITED STATES AND THE EUROPEAN UNION Richard N. Block Peter Berg Karen Roberts Michigan State University

2 Labor Standards at the EU Level and US National Level US and EU are the largest economies in the world –About US$/ € 10 Trillion –Another US$/ € 380 billion with new EU members in 2004 Labor standards may have effects on economic competitiveness and consumer demand

3 Quantitatively Analyze Labor Standards in the EU and US Levels –Federal in US –Community in EU Basis for comparing one country with a political and economic union of sovereign countries –EU becoming increasingly economically integrated since 1950’s –Political Integration –EU exercising economic and political power like a sovereign state GE-Honeywell Merger WTO complaint on US steel tariffs Microsoft

4 Differences and Similarities Differences –EU – Subsidiarity; Treaty-Based –US - Federal Supremacy; Constitution-Based Similarities –EU directives on range of labor and employment issues questions of uniformity and roles of member states and community –US Federal labor and employment law preempts states Historic and continuing controversy on proper role of states and federal government in regulating employment –Pre 1935 – interstate commerce –Post 2000 – state sovereignty

5 Views on Employment United States – Market creates optimal labor market outcomes – Minimal government regulation EU –Unregulated markets create an imbalance of power between employer and employee –Government must create countervailing power A naturally occurring experiment –Differences in regulatory views –Importance of measuring differences in the regulation of the labor market –Differences in economic outcomes

6 METHOD OF MEASURING LABOR STANDARDS Based on Block and Roberts (2000) and Block, Roberts, and Clarke (2003) ANALYSIS OF THE SUBSTANCE OF EACH STANDARD STATUTORY PROVISIONS NATURE OF ENFORCEMENT DEVELOPING AN INDEX NUMBER BY –MEASURING THE STRENGTH OF VARIOUS PROVISIONS AND –WEIGHTING THE IMPORTANCE OF A PROVISION WITHIN A STANDARD

7 DEVELOPMENT OF AN INDEX (GENERATING A NUMBER) TWO PARTS OF EACH INDEX –SUBINDEX THAT IS GREATER THE GREATER THE PROTECTION GIVEN TO EMPLOYEES –A WEIGHT GIVEN TO EACH PROVISION WITHIN A STANDARD

8 PROVISION SCORING EACH PROVISION GIVEN A SCORE BETWEEN 0 AND 10 –10 = STRONGEST POSSIBLE PROTECTION AMONG ALL JURISDICTIONS –0 = NO PROVISION OR NO PROTECTION –BETWEEN 0 AND 10 FOR PROVISIONS OF INTERMEDIATE STRENGTH

9 Labor Standards Defined and Analyzed A governmentally established term or condition of employment that is mandatory – imposed and enforced by government Do not consider –Charter of Fundamental Rights Debates over whether it is binding –Differences in enforcement national level

10 Six Possible Regulatory Schemes ( 1) regulation at the community level in the EU and at the national level in the United States (2) regulation at the community level in the EU but no regulation in the United States (3) regulation at the national level in the United States but no regulation in the EU (4) regulation at the community level in the EU and at the state level in the United States (5) regulation at the national level in the United States and the country level in the EU (6) regulation at the country level in the EU and the state level in the United States.

11 Levels Included Limited to standards common to highest governmental level –(1) regulation at the community level in the EU and at the national level in the United States – (2) regulation at the community level in the EU but no regulation in the United States – (3) regulation at the national level in the United States but no regulation in the EU Did not consider analyzing standards regulated at state/country level –Weighting scheme on percentage of US or EU workforce covered by legislation

12 Standards Analyzed Minimum Wage Working Time Paid Time Off Collective Bargaining Anti-Discrimination Occupational Safety and Health Advance Notice of Large-Scale Layoffs Employee Involvement Parental/Family Leave Changes of Ownership

13 Scoring Summary Assumes all standards equally important Total Scores –US = –EU = 68.05

14 Minimum Wages US –Has a minimum wage EU –No minimum wage directive –Prohibited by Treaty of Amsterdam Scores –US = 9.5 –EU = 0

15 Overtime and Working Time Different Models –US Overtime penalties and incentives –EU Direct regulation Direct Regulation stronger protection –Employees in U.S. can be forced to work overtime Scores –US = 3.5 –EU = 5.5

16 Paid Time Off US –No required paid-time off –Some holidays but no pay requirement EU –Four weeks paid annual leave Scores –US =.83 –EU =7.5

17 Collective Bargaining US –National legislation protecting collective bargaining EU –No community-level legislation –Charter of Fundamental Rights Scores –US = 6.67 –EU = 3.33 Caveat –A case where national differences may matter Do not address laws or traditions in EU countries

18 Anti-Discrimination Both EU and US prohibit discrimination based on race, gender, age, disability, religion, national origin EU also prohibits discrimination based on sexual preference and considers comparable worth a factor in pay equity Scores –US = 9.35 –EU = 10

19 Occupational Safety and Health EU –requires employers to consult with employees on on safety –To provide information to employees –To provide training US –General duty provision Scores –US = 3.5 –EU 8.0

20 Notice of Large-Scale Layoffs Amount of Notice –EU – 30 days –US – 60 days EU covers small firms Scores –US = 8.25 –US = 8.75

21 Information and Consultation US –No rights for nonunion employees to be independently involved in decisions EU –European company directive requires establishing committee –Community Scale undertakings Scores –US = 0 –EU = 10

22 Parental Family Leave Generally comparable, but with different structures US –12 weeks of unpaid leave during a 12 month period for personal or family-medical reasons EU –Maternity – 14 weeks –Parental – three months of each child up to age 8 US permits more leave, but for narrower reasons US=EU=5

23 Ownership Changes EU –Protection to employees, new owner must honor the employment contract US –No general statutory protection –For unionized employees a bargaining obligation if Successor Hires a majority of predecessor’s employees Scores –US =.75 –EU = 10

24 Conclusions Overall, EU labor standards at the community level higher than US standards at federal level –Assumes all standards equally important EU higher than US on –working time, paid-time off, occupational safety and health, employee involvement, and changes of ownership/transfer of undertaking. US higher than EU on –minimum wages and collective bargaining Approximate Equality on –Discrimination, large scale layoffs, parental/family leave

25 Analysis Consistent with a priori notions Different conceptions of the employment relations –US - reliance on labor market outcomes, assumption of equality of bargaining power, skepticism of government intervention –EU – skeptical about labor market outcomes, assumption of inequality of bargaining power, reliance on government intervention

26 A Massive Social Experiment EU –Capitalist system and private property with relatively heavily regulated labor market US –Capitalist system and private property with relatively lightly regulated labor markets Which works best?