The Janus’ face of Europe’s new social rulebook

László Andor, Robin Huguenot-Noël 05 May 2021

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The Action Plan released by the European Commission on 3 March 2021 proposes three headline targets following the principles set out in the 2017 European Pillar of Social Rights (EPSR). The first headline target proposes that the employment rate of the 20-64 be increased to 78%, from 72.5% in 2020. In line with this, the gender employment gap should be halved, and the share of young people not in employment, education or training (NEETs) reduced to 9%, from 12.6% in 2019. 

Aiming to revive the employment agenda in the EU through concrete targets is a valuable move. The pandemic has led to major distortions in the labour market and added debt burden to the public purse. Tapping into the job growth potential of countries long mocked for their ‘inactivity traps’ could bring much welcome welfare and fiscal gains. Besides, the Commission’s plan to achieve this goal suggests a return to the concept of ‘social policy as a productive factor’ that the EU institutions promoted at the time of the Amsterdam Treaty. The proposed minimum standards on adequate minimum wages and new rules on working conditions of platform workers show indeed that, at long last, social protection is no longer seen as a drag on jobs and competitiveness.

This shift in perspective is welcome. Contrary to long-held beliefs, there is now extensive evidence that expanding social provisions in the form of gender empowerment, active labour market policies, or life-long training boosts employment growth. Germany’s widely unexpected turn towards ‘active family policy’ facilitating the return of women to the labour market is a good example. Following a decade of reforms from 2000 to 2007, the female employment rate surged from 64% in 2005 to 76% in 2018 while it remained ‘frozen’ at lower levels in other major EU economies such as France or Italy, where reform had stalled (Hemerijck and Huguenot-Noël 2021).

Figure 1 Female employment in Western Europe, 2005-2018

Tapping the employment growth potential where it lies

In its second ‘headline target’, the Commission opted to set a focus on human capacity: At least 60% of all adults should participate in training every year (up from 37% in 2016), bringing the share of adults with basic digital skills up to 80%. While this target is surely well-intentioned, the attention dedicated to this dimension alone questions nevertheless why other critical aspects related to human capital development, including care arrangements, working time, work-life balance, or social dialogue, did not attract such level of political ownership – be it through similar targets or, at least, in the updated Social Scoreboard (see below). Additionally, focusing on increasing workers’ participation in training alone could risk shifting all the responsibility in job creation to the supply side (i.e. employees). To correct this, the Commission should first detail how it intends to help enhance the quality of public employment services in order to improve the ‘matching’ of individuals’ working aspirations with existing and new work opportunities. 

Adopting a life-cycle approach to learning has never been more relevant. The Commission should specify how it aims to support the build-up of life-long learning capacities and stimulus systems in member states, building on existing (and successful!) targeted schemes such as the Youth Guarantee or the socialisation of promising national schemes such as the individual learning account (ILAs) recently launched in France (Fernandes and Kerneis 2020).

The employment developments since 2005 also reveal a picture of growing divergence across EU countries. This snapshot points to obvious shortcomings of an aggregate target for the EU as a whole. In the next phase, countries already performing well relative to their neighbours should be asked to make a reasonable contribution to the common target. More importantly, though, the EU as a whole should acknowledge that its highest (job) growth potential largely lies at its periphery. Achieving this objective should push EU resources to be most effectively targeted to specific challenges such as youth unemployment in Spain, female participation in Italy, or Roma exclusion in Bulgaria. 

Stepping up the game on poverty reduction 

In its Action Plan, the European Commission further draws light to a number of existing and new initiatives aimed at improving social cohesion in the EU. The main initiative in this respect lies in the third ‘headline target’ setting that the number of people at risk of poverty of social exclusion should be reduced by at least 15 million by 2030, of which 5 million should be children. In 2019, an estimated 22.5% of children (aged less than 18 years) in the EU27 were at risk of poverty or social exclusion, compared with 21.5% of working-age adults (aged 18-64 years) and 18.6% of older people (aged 65 years and over). Setting a specific target for children is hence precious, yet we also know that poverty is far from being only a material issue. The Social Scoreboard should hence integrate more multidimensional indicators of child poverty, including access to education, health, nutrition, housing, or primary care. 

Regrettably, the poverty target is the least ambitious of the three targets proposed by the Commission. This is not only puzzling with regards to the Europe 2020 Strategy, where the EU strove towards a reduction by 20 million, against 15 million today. More concerning is the contrast between the levels of ambition in the employment and the poverty targets. In 2018, one in ten employed people aged above 18 years in the EU were found to be at risk of poverty, bringing the number of ‘working poor’ to 20 million. While this issue has clearly gained in salience in EU policymaking, there are risks that high employment targets unmatched by sufficiently high poverty reduction targets put insufficient pressure on governments to effectively address this issue. Here again, the next phase should aim to target country-specific issues – be it insufficient minimum wage coverage in Hungary, youth discrimination in access to benefits in France or the Netherlands, limited unemployment benefits in Germany – and identify where the ‘blind spots’ of envisaged recovery plans enacted in the wake of the pandemic lie. 

Although lacking ambition, the poverty reduction agenda can nevertheless be seen as full of potential. The Commission’s proposal to establish minimum standards across the EU on minimum wages, first announced in October 2020, clearly goes in that direction. Individual countries’ resistance may stand in the way. While countries such as France and Germany see this as a means to reduce risks of social dumping from their Central and Eastern European neighbours, right-wing governments in the latter have expressed concerns about it slowing down much wished-for socioeconomic catching up.  At the same time, repeated mentions of the proposal being made “in full respect of national traditions and the autonomy of social partners” reveals an attempt to address Nordic countries’ concerns of a competency grab in this area. In this context, the Commission’s proposal to reinforce coordination across EU countries is undoubtedly a brave move to strike a balanced compromise between EU governments. More importantly, its relevance should not be undermined in an environment where the Covid-19 pandemic could lead to the kind of race to the bottom on social standards observed, for example, in the wake of the Great Recession.

Finally, the revised Social Scoreboard, used as a key monitoring tool in the European Semester, could also positively contribute to rebalancing coordination in favour of social indicators of a process otherwise overly concerned with macroeconomic stability. The new scoreboard indeed reveals growing awareness of the need for indicators linked to the quality of employment, such as people at risk of poverty in work, involuntary temporary employees, or transitions rates from temporary to permanent contracts – all of which should be more actively monitored in the context of the Recovery and Resilience Plans. Although a positive initiative overall, next steps should now focus on improving the levels of disaggregation, providing, for example, additional data on the socioeconomic structures of populations with access to specific social services (as recently proposed by Antonucci and Corti 2020).

In search of a more employment-friendly growth model 

There is, finally, an elephant in the room. In the Economic and Monetary Union (EMU), promoting employment and equity at the same time requires a comprehensive macroeconomic policy mix including fiscal policy (beyond welfare spending), monetary and industrial policy. To be sure, EU legal and financial means to support national employment policies are limited, as highlights the limited size of the EU budget amounting to about 1% of the overall European GNI. Yet this reality should not serve as a disclaimer to downplay the important role of the nature of the EMU framework in favouring or hindering national developments strategies. 

EMU fiscal rules were designed in the 1990s so as to incentivise EU member states to move away from demand-side management and look up to the export-led growth model, independently of whether or not countries’ long-term economic structures allowed for such a macroeconomic shift. Accordingly, it should come as no surprise that employment rates grew faster in ‘coordinated market economies’ such as Austria, Germany or the Netherlands, where regimes of wage coordination, incremental innovation, and para-public skill formation systems were already in place. By contrast, adaptation to the EMU framework clearly proved more challenging for the ‘mixed-market economies’ of France, Italy or Spain, which usually relied on fiscal policy and monetary devaluation to re-establish their competitiveness or tackle unemployment. The pandemic is set to reinforce divergence across EU countries. Against this background, it is high time for the EU’s policy framework to refocus more strongly on the EU’s once unquestionable ambition of fostering convergence on socioeconomic outcomes, be them employment, life-long learning or poverty reduction (Andor 2020).

The EU’s Action Plan is surprisingly quiet on how a reformed EU growth model should contribute to the long-term development goals it is calling for. True, the Action Plan refers to the Resilience and Recovery Facility and hints at (long-awaited) developments linked to EU’s industrial policy. Yet, most salient questions remain unanswered – or actually barely raised. How could a review of the EU’s fiscal rules more effectively support governments’ efforts to boost employment growth? How could political guidance be improved to better inform the ECB’s expected contribution to the secondary objectives of “full employment and social progress”? It is somewhat irritating to see EU institutions set new development targets for the Union without reviewing the most obvious means at their disposal to support progress towards these objectives. Today, the lack of a more comprehensive approach from the Union as a whole remains in stark contrast with fiscal and monetary developments recently observed in the US. 

Learning from Washington on the road to Porto

In the last months, a paradigm shift with regard to employment growth has been taking place in the US In the wake of the Covid-19 pandemic, the newly elected President Joe Biden enacted the $1.9 trillion American Jobs Plan, while Treasury Secretary Janet Yellen called for a minimum tax levy on corporations around the world. In August 2020, Federal Reserve Chairman Jerome Powell had stressed the need to find new pathways to address shortfalls of employment from its maximum level. Judging by the European Commission Action Plan alone, this debate would not seem to have crossed the Atlantic yet. Rather, EU institutions seem to remain trapped in a ‘Janus-faced’ position, like the Roman god looking both at the past and the future. Have ordoliberal ideas engrained in the EMU structures inherited from the 1980s not yet clearly shown their limits? Aiming to write a new page by setting development targets is wise. But better tools will be needed to achieve them.

How should we move from here to there? The Social Summit in Porto organised by the Portuguese Council Presidency on 7–8 May 2021 provides the opportunity to give fresh impetus to a more fundamental discussion between EU member states on how to reach the employment and equity targets proposed by the Commission. This Summit should be an occasion for EU Heads of State or Government, EU institutions, social partners and other key stakeholders to renew their commitment to implement the Social Pillar. German Chancellor Angela Merkel and other EU leaders have shown their openness to the idea of Treaty change. A welcome move would be to use this opportunity to add further legal clarity in favour of solidarity and EU level safety nets.

Should the proposed targets then be agreed as such or modified? For the sake of coherence, we argued here that the employment target may need be revised downwards if heads of governments fail to agree on revised EMU rules. The quantity should not prevail over the quality of jobs. The poverty target should be uplifted. Then, the uncertainty remaining with regards to how the pandemic will unfold should encourage EU leaders to take a step back and better link targets to the evolution of the much-needed debate on the review of the EU’s economic governance framework. These discussions should start with clarifying positions on the EU’s growth strategy, including through the introduction of new processes discussing what would be an appropriate fiscal stance for the EU as a whole – thereby considering how this could help in tapping the EU’s employment growth potential where it is the highest. Only once such agreement is reached will targets make sense. And Europe’s new social rulebook be able to constructively contribute to the audacious “Future of Europe” debate.

References

Andor, L (2020), “Europe in 2020”, Progressive Post. 

Antonucci, L and F Corti (2020), “Inequalities in the European Semester”, FEPS Policy Study, Foundation of European Progressive Studies.

Fernandes, S and K Kerneis (2020), Towards an individual right to adult learning for all Europeans, Notre Europe Institut Jacques Delors and Foundation of European Progressive Studies.

Hemerijck, A and R Huguenot-Noël (2021), Resilient Welfare States in the European Union: In Search of Capacitating Solidarity, Agenda Publishing.

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Topics:  Covid-19 EU policies

Tags:  COVID-19, European Commission, Social Pillar Action Plan, EU social rulebook

Secretary General, Foundation for European Progressive Studies; former EU Commissioner

Researcher, European University Institute

Events

CEPR Policy Research