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The European Union. A Significant Player in Labour Policymaking

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Abstract

Grasping the European Union's (EU) increasingly important role in labour policymaking across member states is not an easy task. It is not enough to untangle the complex set of EU institutions, laws, and policies in the field. It is equally important to consider the impact of the European integration process on the balance of power between capital and labour interests. This chapter thus first presents the relevant actors and the way in which they intervene in EU labour policymaking. Then we outline how the EU influenced labour policymaking from the start of the European integration process. This includes an analysis of its internal market programme and monetary union, which exposed workers and businesses to increased horizontal market integration pressures. We also discuss the much more vertical country-specific policy prescriptions that the EU began issuing annually after the 2008 financial crisis. Finally, we outline the recent Covid-19 pandemic and consequent developments.
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Maccarrone, V., R. Erne, and D. Golden (forthcoming)
The European Union. A Significant Player in Labour
Policymaking, in: D. Clegg and N. Durazzi (eds.)
Handbook of Labour Market Policy in Rich Democracies,
Cheltenham: Edward Elgar
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The European Union. A Significant Player in Labour Policymaking
Vincenzo Maccarrone, Roland Erne and Darragh Golden (University College Dublin)
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Abstract
Grasping the European Union’s (EU) increasingly important role in labour policymaking
across member states is not an easy task. It is not enough to untangle the complex set of EU
institutions, laws, and policies in the field. It is equally important to consider the impact of the
European integration process on the balance of power between capital and labour interests.
This chapter thus first presents the relevant actors and the way in which they intervene in EU
labour policymaking. Then we outline how the EU influenced labour policymaking from the
start of the European integration process. This includes an analysis of its internal market
programme and monetary union, which exposed workers and businesses to increased
horizontal market integration pressures. We also discuss the much more vertical country-
specific policy prescriptions that the EU began issuing annually after the 2008 financial crisis.
Finally, we outline the recent Covid-19 pandemic and consequent developments .
Keywords: European Union; labour politics; European labour policy; European social policy,
vertical versus horizontal integration; new economic governance
Introduction
Analysing the role of the European Union (EU) in labour policymaking is no easy task. The
EU is a particular political system that does not work according to established modes of
national policymaking. EU policymaking is based on a much more complex set of institutions
and actors, which act at national and supranational institutional level as well as transnationally
across borders.
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Although the EU is not a state, it has many state-like features. This distinguishes it from
international organizations like the International Labour Organization (ILO). Nation-states that
are ILO members are not obliged to sign up even to the ILO’s core conventions and, even if
they do, there is no supranational court that can enforce implementation (Erne, 2020, Table
14.2). By contrast, EU laws have a direct effect on its member states. In addition, there are
powerful supranational institutions, e.g., the European Commission and the European Court
of Justice (ECJ), that can enforce EU laws even against the will of national governments.
The EU’s supranational institutional structure goes back to the European Coal and Steel
Community (ECSC), which six West-European countries created in 1951 to regulate the
reconstruction of these sectors after World War II. In 1957, the six ECSC states established the
European Economic Community (EEC), which aimed to create a common market and
designated additional fields for supranational interventions, such agricultural policy.
Subsequently, these communities underwent phases of integration (deepening) and
enlargement (widening). Whereas the latter has to do with increasing the number of Member
States, which toady stands at 27, the former implies an enhanced role for the EU institutions,
which increased with each amendment of the European treaties.
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The best example is monetary
policy, which led to the introduction of the Euro. Although national policymakers are still
formally in charge of many aspects of labour policy, overtime the EU became an increasingly
significant player in the field.
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The EU is best described as a multilevel polity, where regulatory interventions can stem from
different levels and different actors (Hooghe and Marks, 2001; Marginson and Sisson, 2006).
That said, the difficulties in capturing the EU’s role in labour policymaking arise not only from
the EU’s multilevel governance structure, but also from the multifaceted nature of labour policy
itself. In contrast to other areas, labour policy is not shaped by government interventions only;
rather, it has its roots in capitalist social relations between different socioeconomic interest
groups, namely, employers’ associations and trade unions. This is important, as the EU and
many European states have granted employers’ organizations and unions an active
policymaking role through collective representation and bargaining outside the ordinary
policymaking channels (Crouch and Streeck, 2006; Erne, 2020; Meardi, 2018). To grasp the
EU’s role in labour policymaking, it is therefore not enough to untangle the complex set of EU
institutions that may be of relevance for the policy field; the EU’s impact on the balance of
power between capital and labour is equally important.
We therefore assess not only EU legislation in the field, but also substantive changes in the
EU’s economic policy framework that reshape the power relations between capital and labour.
The EU’s internal market programme and its monetary union, for example, exposed labour
movements to increased horizontal market pressures, although national industrial relations
systems formally retained much of their institutional autonomy. We must also consider the
annual country-specific policy prescriptions that the Commission and the Council issue within
the new economic governance regime (NEG) that the EU established after the 2008 financial
crisis. The shift to NEG is important for two reasons. Firstly, NEG interventions put workers
and unions under significant vertical political pressures. Secondly, NEG interventions reshaped
labour policies in many member states, although the EU adopted them neither ‘in accordance
with the ordinary legislative procedure’ (Art 153, TFEU) nor in accordance with the European
‘social dialogue’ (Arts 154 and 155, TFEU) that envisages a formal role for organized capital
and labour in the law-making process.
We first briefly present the relevant actors and the way in which they intervene in EU labour
policymaking. Subsequently, we outline how the EU has influenced labour policymaking since
the origins of the European integration process. In the last section, we outline recent
developments following the onset of the Covid-19 pandemic.
1. Actors in EU labour policymaking
The European Commission is composed by the College of Commissioners with one from each
member state. Each Commissioner leads a department known as a Directorate-General (DG),
such as the DG for Employment, Social Affairs, and Inclusion. The Commission is not only in
charge of the EU’s day-to-day business as its executive branch but it also has the exclusive
right to propose EU laws in accordance with the EU’s ordinary legislative procedure. The
Commission also proposes country-specific socioeconomic prescriptions and, if necessary,
corrective action plans in accordance with the NEG regime’s procedures. If member states do
not implement corrective action plans, the Commission can propose either financial sanctions
or withhold the disbursement of EU funds (Jordan at al, 2021). The Commission has an
institutional duty to ensure compliance with ordinary EU legislation and can bring non-
compliant member states before the ECJ. Nevertheless, the Commission has a deal of discretion
in deciding whether to use its sanctioning powers (Seeliger and Wagner, 2020).
The European Council is a collegiate body of all the member states’ heads of state or
government. Whilst it has no formal role in day-to-day EU law-making, it defines its overall
direction and plays a decisive role during crises and discussions about the EU’s future,
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including Treaty changes. In EU law-making, it is the Council of the EU (hereafter, the
Council) that acts as co-legislator along with the European Parliament. Meeting in 10
configurations depending on the policy area, the Council is composed of 27 ministers, one from
each member state. Regarding labour policy, the most relevant configurations are Employment,
Social Policy, Health, and Consumer Affairs and Economic and Financial Affairs. Under the
ordinary legislative procedure, Council and Parliament discuss, modify, adopt or reject the
Commission’s draft legislation. In some areas, the two institutions are not on the same footing,
as the Parliament is only consulted. Furthermore, the Council adopts the NEG prescriptions
and approves sanctions for non-complying member states proposed by the Commission.
The European Parliament is the only directly elected EU institution. Initially, its policymaking
powers were quite limited. Over time however, it acquired the role of co-legislator along with
the Council, given popular pressures to rectify the EU’s democratic deficit. The Parliament has
traditionally been dominated by an informal grand coalition of the Christian democratic
European People’s Party (EPP) and the centre-left Socialists & Democrats (S&D). As the
Parliament needs to adopt its positions by an absolute majority to influence law-making, the
EPP and S&D seek the support of other political groups, namely, the liberal Renew Europe,
the Greens, and, at times, even the Left.
Given EU policymakers constant need to reconcile contradictory views, EU law includes
many diplomatic compromises. The definition of the EU as a ‘highly competitive social market
economy’, as stated by Art 3 TEU, is a good example. Such ambiguous wording secured the
adoption of the Maastricht Treaty by both British Conservatives and French Socialists, but it
does not clarify whether economic freedoms or social rights have priority when they conflict
with each other. For this reason, the ECJ, the EU’s supreme court, also plays an important role
in EU labour policymaking. Its rulings have had a significant impact on labour policy, both
through rulings on employment and social policy issues and the Single Market.
The European Central Bank (ECB) also shapes labour policymaking, as it defines the monetary
policy for the Euro. The EU Treaties limit its mandate to monetary policy goals, but its direct
influence in other policy areas, including labour policy, has grown significantly over time.
Indeed, following the 2008 economic crisis, the ECB repeatedly leveraged its monetary policy
powers to demand major structural reforms in other policy areas, including labour policy.
Finally, employer associations and trade unions created their own European organizations. At
the intersectoral level, the European Trade Union Confederation (ETUC) comprises 92 national
union confederations of different ideological orientation from 39 European countries and 10
sectoral European trade union federations. On the employers’ side, there are three
representative intersectoral organizations and around 50 organizations at the level of a
particular industry. The largest organization is Business Europe, comprising 40 national
intersectoral business and employer confederations from 35 European countries. SME United
represents 70 member associations of small and medium enterprises from 30 countries, and
SGI Europe represents public sector employers from 20 EU member states.
These organizations influence EU labour and social policymaking primarily through lobbying
activities. At times however, union federations also engage in more visible forms of
transnational action, including Euro-demonstrations, European Citizens Initiatives, or even
strike action (Turnbull, 2006; Erne, 2008; Crespy, 2016; Parks, 2015; Szabó et al, 2022). In
addition, the EU gives management and labour a formal role in its law-making in the social
field. According to Articles 154 and 155 TFEU, European social partners have to be formally
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consulted by the Commission in the making of social legislation and can also negotiate
agreements on those matters in the framework of the European social dialogue (ESD). Such
agreements can either be implemented by their affiliates at national level or be proposed as
framework agreements that the Commission should transpose through directives. The ESD
influenced EU social legislation in the 1990s, but its salience decreased because of increasing
disengagement on the employers’ side and, most recently, the Commission’s refusal to uphold
some agreements reached by the social partners (Golden, 2019).
2. How the EU became a key player in labour policymaking
The evolving EU governance of labour policy can be reconstructed chronologically by
distinguishing between four main phases according to the prevalence and the orientation of
different modes of labour policy integration. As stated above, a key distinction is made between
horizontal and vertical modes of integration. Horizontal integration means increasing
interconnectedness through transnational market relations, whereas vertical integration refers
to direct interventions by a ‘supranational political, legal or corporate authority’ (Erne, 2019,
346). EU labour policy interventions can also be assessed according to whether they have a
commodifying or a decommodifying orientation, with commodification simply defined as a
process that increases workers’ dependence on the vagaries of the market. The distinction
between vertical and horizontal integration is important, as the two modes of EU integration
offer labour movements different levers for countermovements against the commodification of
labour and social policy.
Horizontal integration pressures result from increased market transactions across borders.
Although commodities are produced by human labour, they seem to acquire a life of their own
once they are traded on the market. This makes it difficult for unions and their political allies
in parliaments to politicize the mechanisms behind these pressures. Consequently, the
increased horizontal market integration unleashed by the EU’s internal market programme
exerts commodifying pressures on labour policy, even if European policymakers have at times
tried to curb them through the adoption of countervailing social and labour laws. By contrast,
vertical interventions may have either a commodifying or a decommodifying direction, as in
the case of the commodifying draft EU Services Directive of 2004 or the decommodifying EU
Directive on Adequate Minimum Wages of 2022, respectively. In addition, proposals for
commodifying vertical EU laws are more tangible and thus easier to politicize by comparison
to commodifying horizontal integration pressures. If, however, social political forces fail to
render liberalizing draft EU laws more social before their final adoption, liberalizing EU laws
will increase horizontal market pressures in turn (Szabó et al, 2022, 636). Overall however,
horizontal integration constrains countermovements against the commodification of labour
policies, whereas vertical integration attempts can act as a catalyst for it (Erne, 2008, 199200;
Erne and Nowak, 2022).
Parallel trajectories: creating national welfare states and a Common Market
In 1951, six Western European countries
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agreed to create the ECSC. This included a high
authority, the latter-day European Commission, which was tasked with overseeing the
integration of these sectors. Steel and coal were essential for political as well as economic
reasons, not least given their important role for the military and the integration of West
Germany into the Western world.
In 1957, the six ECSC member states signed the Treaty of Rome establishing the EEC.
Although the EEC created a common market and customs union, its member states also agreed
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‘upon the necessity to promote improvement of the living and working conditions of labour so
as to permit the equalisation of such conditions in an upward direction’ (Art 117 EEC Treaty).
Notwithstanding, the supranational dimension of EEC labour policy was flimsy, as the
Commission’s role was intended only ‘to promote close collaboration between Member States
in the social field’ (Art 118 EEC Treaty).
At national level, we see the institutionalization of relations between capital and labour. This
post-WWII class compromise became known as embedded liberalism (Ruggie, 1982), where
the construction of welfare states at national level was accompanied by trade-barrier
liberalization at international level, albeit still allowing for state interventionist policies
(Milward, 2000). For the EEC’s founders, there was thus no contradiction between the ‘market’
and the ‘social’ and no need for a supranational social dimension, as the latter would have been
guaranteed by the expanding national welfare states, relying also on the proceeds from
economic growth resulting from the Common Market (Milward, 2000). Even so, the EEC
Treaty still guaranteed some social rights at supranational level, namely, rights directly linked
to the making of the common (labour) market (Giubboni, 2006). The Treaty therefore tasked
the Commission to propose legislation giving mobile EEC workers equal access to the social
security systems of their host countries.
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Other Treaty articles stated that EEC member states
should ensure equal pay for equal work between men and women and maintain equivalence
with respect to their regimes of paid annual leave. This reflected the preoccupation of the
French employer association, which feared that relatively advanced labour law provisions in
France could negatively affect French companies’ competitiveness within the Common Market
(Allais, 1960). Even so, the Treaty provision on equal pay remained a dead letter until the 1970s
(see below).
Overall, the embedded liberalism regimes seemed to hold well in the first two decades after
1945, underpinning steady economic growth. Such was the success that, by 1973, the EEC had
grown to include Denmark, Ireland, and the United Kingdom. Throughout the 1970s however,
the economic situation in Western Europe worsened, with decreasing growth rates and rising
inflation. In a context characterized by strong organized labour and a high degree of labour
conflict, trade unions and social democratic parties which were in government in many
European countries sought to respond to this challenge not only at national level, but also by
pushing for the establishment of a regulatory framework at Community level. From its
foundation in 1973, the ETUC focused on the issue of regulating multinational companies
(MNCs), which were increasingly responding to falling rates of profits by shifting production
to lower-wage countries (Petrini, 2013; Degryse and Tilly 2013). Pressure from the ETUC bore
some results, as the Commission adopted two Directives aimed at guaranteeing rights to
workers subject to collective redundancies (1975) and transfer of undertakings (1977). With
the rise of feminist movements after 1968 and women entering the labour market en masse, the
issue of equal pay and equal treatment between men and women resurfaced. In 1975 and 1976,
the Council adopted two Directives on equal pay and equal treatment.
In 1980, the Commission proposed a draft Directive on workers’ information, consultation, and
co-determination rights within MNCs. This initiative nevertheless failed because of staunch
opposition from transnational business associations on both sides of the Atlantic (Petrini, 2013;
Streeck, 2019). The defeat reflected a shift in the general political climate in the early 1980s
away from the traditional social democracy towards neoliberalism, which also altered the
balance of power within the Council. This ideological shift also changed the relationship
between European integration and national labour policy. Whereas until the 1970s the two had
developed essentially in parallel, with few vertical interventions but also limited horizontal
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pressures, from the 1980s the relaunch of EU integration as market integration increasingly
encroached on national labour policy.
Horizontal market pressures and social EU laws: the Single Market and monetary union
In the 1980s, three new member states joined the EEC: Greece (1981), Portugal, and Spain
(1986), following decades of military dictatorship. However, the most relevant development
for the EEC was a further deepening of the European integration process, after many years of
relative stagnation. The EU integration relaunch centred on the completion of the internal
market. The Treaty of Rome had favoured the liberalization of trade via the elimination of
tariffs, but other barriers to economic integration remained in place. In 1985, the Commission
headed by a former French finance minister and Christian trade unionist Jacques Delors
published a white paper entitled Completing the Internal Market, establishing ‘a detailed policy
agenda of about three hundred measures aimed at eliminating all remaining nontariff barriers
within the Community’ (Jabko, 2006, 16). With the endorsement of national governments, this
led in 1987 to the Single European Act (SEA), which introduced qualified majority voting
(QMV) in the Council on policy areas that would facilitate the completion of the internal
market. In 1992, governments went a step further and adopted the Treaty of Maastricht, which
established the EU as an overarching body with new competences in additional policy areas
(e.g., external affairs) and launched the Economic and Monetary Union (EMU) that led to the
introduction of the Euro in 1999. Changed geopolitical circumstances in the 1990s, following
the fall of the Berlin Wall and the collapse of the USSR, led to a further widening of EU
borders. Austria, Sweden, and Finland joined in 1995 and thirteen, mostly Central and Eastern
European, countries acceded to the EU in various rounds throughout the 2000s,
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leading the
number of EU member states to rise to 28, before the exit of the United Kingdom in 2020.
From the signing of the SEA until the outbreak of the 2008 economic crisis, one can distinguish
a two-fold influence of the EU on labour policy. On the one hand, deepening market integration
with the establishment of the Single Market and the EMU led to indirect but strong horizontal
commodifying pressures on wages and workers’ rights. Indeed, the intensification of interfirm
and interstate competition, following the completion of the Single Market, exerted significant
pressure on national industrial relations to become more competitive (Marginson and Sisson,
2004). Furthermore, the Maastricht Treaty imposed strict convergence criteria on member
states’ public finances, inflation, exchange, and interest rates as a condition for Eurozone
membership. To achieve the low inflation targets set by the Maastricht criteria and to increase
the competitiveness of their economy, many governments, unions, and employer associations
concluded competitive corporatist pacts (Rhodes, 2000). That happened even in some countries
without a strong social partnership tradition, e.g., Italy, Ireland, and Spain (Erne, 2008; Meardi,
2018; Grote and Schmitter, 1999). These social pacts gave unions a say in socioeconomic
policymaking, but they also moderated wage growth. After 1993, workers failed to obtain real
wage increases matching productivity growth in almost every state that adopted the Euro in
1999, as Erne (2008, Part II) documents based on official EU figures.
The horizontal adjustment pressures on wages and workers’ rights did not diminish after the
completion of monetary union in 1999. In the absence of the possibility to devalue the national
currency, labour costs became an important adjustment mechanism for countries seeking to
remain competitive within the EMU. Furthermore, the ECB’s restrictive monetary policy
contained wage growth. Recognizing the transnational downward pressure on wages, European
trade unions first in the metalworking industry and then at cross-sectoral level sought to
coordinate wage bargaining across borders to avoid a race to the bottom caused by competitive
beggar-thy-neighbour strategies. These initiatives consisted of issuing benchmarks to affiliated
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unions, whereby bargained nominal wage increases were to be at least equivalent to the sum
of productivity growth and inflation. Although affiliated unions committed to following the
ETUC guidelines in principle, the coordination attempts largely failed in practice, primarily
because of their non-binding nature (Erne, 2008).
In other social policy areas however, EU policymakers did recognize that increased market
integration had to be complemented by legally binding supranational social flanking measures.
Indeed, a new EU social dimension was fundamental to getting social democrats and trade
unions on board with the relaunched integration process (Erne, 2008; Jabko, 2006; van
Apeldoorn, 2002). Thus, first the SEA and then the Maastricht Treaty extended the possibility
of EU vertical interventions over labour policy, leading to new directives with an overarching
decommodifying direction. Initially, the SEA had extended QMV in a seemingly technical
area, health and safety (H&S) where ‘national business associations and trade unions shared
an interest in eliminating low-quality competition by enacting mandatory standards for Europe
as a whole’ (Streeck, 2019, 124). This led to various directives on issues such as exposure to
dangerous chemicals (Martinsen, 2020). Nevertheless, the not-so-technical nature of H&S
provisions soon became evident. In the 1990s, on the basis of the H&S provisions, the
Commission proposed a Directive on the organization of working time, despite opposition from
the UK government (Martinsen, 2020). After three years of debate, the Council adopted by
QMV a working time Directive that introduced various decommodifying provisions, such as a
ceiling on maximum work hours per week, minimum guaranteed paid holidays and rest breaks,
and restrictions on excessive night work, albeit with significant opt-outs to address British
concerns.
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Between 1991 and 1992, the Commission made use of H&S provisions to advance
Directives granting equal treatment rights to precarious workers and pregnant women
(Hantrais, 2007).
The Maastricht Treaty extended QMV to other areas, including working conditions and
workers’ rights to information and consultation, with a Protocol on Social Policy attached to
the Treaty, after an impasse provoked by the British government’s opposition. The Protocol
also institutionalized the ESD. The UK opted out, to then join in 1997 under the government
led by Labour’s Tony Blair, leading to the incorporation of the Protocol in the Treaty of
Amsterdam (1997). These changes led to the signing of decommodifying directives throughout
the 1990s and the early 2000s (Marginson, 2020). The ESD produced three Directives on
parental leave (1996), part-time work (1997), and fixed-term work (1999). However, the issue
of workers’ information and consultation rights in MNCs remained a red line for employers,
and they refused to negotiate. Thus, the Delors Commission decided to act unilaterally, leading
to the European Works Councils Directive in 1994. The latter applies to large companies
operating in more than one member state, albeit with a less ambitious scope than the 1980 draft
Directive. This was followed by two Directives on employee involvement in European
Companies (Societas Europaea, SE) in 2001 and on information and consultation of
employees at local company level in 2002.
Other EU decommodifying interventions covered both individual and collective worker rights.
Beyond revising and extending the Directives adopted in the 1970s on equal treatment,
collective redundancies, and the transfer of undertakings, the Commission, with the Posted
Workers Directive (1996), attempted to address fears of social dumping related to the free
movement of workers. The Directive provided that those workers temporarily sent to a member
state (posted) by employers based in another country would be at least covered by a core of
social rights granted by the host country’s labour provisions, such as minimum wage,
maximum working hours, health and safety rules, and so on.
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Other key areas pertaining to labour policy, namely, wages and collective bargaining, were not
(yet) subject of EU directives, as the corresponding provision of the Social Protocol, now
incorporated in Art 153(5) TFEU, excluded pay, the right of association, and the right to strike
from the remit of EU laws that can be adopted by QMV. As shown by the adoption of the
Working Time Directive however, EU labour policymakers at times succeeded in overcoming
legal limitations to EU competences, when there was a political willingness to do so. On wages
and collective bargaining, the Commission did not (yet) act, as these were even more sensitive
policy areas.
Commodifying labour: open method of coordination, the Services Directive, and the Laval
Quartet
By the end of the 1990s, although social democrats held the majority in the Council, the impetus
for decommodifying EU laws in the field of employment and social policy faded away. With
supply-side economics becoming popular among Third-Way social democratic parties, there
was little appetite for new decommodifying EU labour laws (Menz, 2015). EU legislative
activity in the social field was limited mostly to the revision of existing Directives, such as the
European Works Councils Directive (2009). Moreover, increased employers’ opposition to
binding EU employment regulation shifted the output of the ESD towards non-binding texts.
Instead of hard EU laws, soft EU mechanisms to coordinate member states’ social and
economic policies gained prominence. First, in 1993, the Maastricht Treaty tasked the
Commission and the Council of finance ministers to issue broad economic policy guidelines
(BEPGs) to coordinate member states’ economic policies and to monitor their implementation.
As the BEPS are not legally binding, their scope could be very large. BEPGs therefore included
recommendations in areas where the EU had no formal competences, such as wage policy, to
keep wage growth below productivity developments (Bchs, 2007).
To counterbalance the primacy of economic concerns, some centre-left governments and the
Commission’s DG Employment succeeded in integrating employment policy aims into EU
policy coordination processes. This led to the European employment strategy (EES), which
was integrated in 1997 into the European treaties by the Treaty of Amsterdam and then in 2005
into the BEPGs (Raveaud, 2007, 428). The EES also consisted of the issuing of country-
specific policy recommendations and their surveillance by the Commission and the Council of
labour ministers. In terms of content, the EES pursued a Third-Way approach (Ferrera et al,
2001). Thus, EES policy recommendations placed the emphasis on supply-side-oriented
factors, namely, wage moderation, employability, and workforce activation, but also on equal
opportunities between men and women or the quality of work (Raveaud, 2007; de la Porte and
Palier, 2022).
At the Lisbon summit in 2001, the Council and the Commission launched the open method of
coordination (OMC), which expanded the soft policy coordination approach to other areas,
such as pensions, healthcare, and social inclusion (Armstrong, 2010). EU leaders identified the
OMC as a complementary tool to implement the Lisbon Strategy, which aimed to make the EU
the most competitive and dynamic knowledge-based economy in the world. Because of the
lack of enforcement mechanisms other than peer pressure however, the direct impact of OMC
recommendations was quite limited. At times, OMC recommendations nevertheless influenced
policy debates, as they gave national political leaders additional arguments in favour of reforms
that they supported (Bchs, 2007).
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Although the EU virtually stopped adopting decommodifying hard laws in the field of
employment and social policy in the 2000s, the same cannot be said for commodifying vertical
EU interventions. In 2004, the Commission proposed a Services Directive that aimed to
liberalize the entire services sector, both public and private (Crespy, 2016). The disruptive
potential of the proposed Directive for national labour policy was based on the country-of-
origin principle, which moved the responsibility for regulating service providers from the host
country, where the services were being provided, to the service provider’s home country. Even
with the core of minimum rights granted by the Posted Workers Directive, this would have
given a competitive advantage to providers from states with lower labour costs. Crucially, the
draft Directive was published in the context of the EU’s Eastern enlargement, which would
have soon led to the accession of a pool of countries with lower wages and weaker employment
protection legislation. The Commission’s ambitious cross-sectoral liberalization drive
backfired however, as it triggered unprecedented transnational countermovements. Unions and
social movements promoted major Euro-demonstrations against the draft Directive in Brussels
and Strasbourg (Crespy, 2016; Parks, 2015), and the debate on the Services Directive played
an important role in the referendum campaign that led to French voters’ rejection of the EU
Constitution in 2005 (Béthoux et al, 2018). Focusing their campaigning efforts on the
Parliament, entrusted with the role of co-legislator, opponents of the Directive obtained
significant amendments in the final text adopted in 2006, including the removal of the country-
of-origin principle. Nonetheless, between 2007 and 2009, that principle made a partial
comeback through four successive ECJ rulings, which became known as the Laval Quartet
(Dølvik and Visser, 2009). In its rulings, the Court found that key rights guaranteed by national
labour law, such as the right to strike and collective bargaining, can be in violation of EU
legislation if they constitute a ‘disproportionate’ restriction to the freedom to provide services
guaranteed by EU Treaties. Moreover, in the rulings, the ECJ offered a restrictive interpretation
of the Posted Workers Directive as posing a ceiling, rather than a floor, of rights (Höpner and
Schäfer, 2010, 354).
Commodification by new means: EU economic governance after the 2008 financial crisis
Crises offer formidable opportunities to alter the status quo. It is therefore hardly surprising
that EU executives used the opportunity provided by the 2008 financial crisis to make
significant changes leading to the establishment of the EU’s NEG regime. NEG increased EU
executives’ capacity to request policy changes in key areas of labour politics such as wage-
setting mechanisms (Jordan et al 2021; Erne, 2012), even if these had hitherto been largely
shielded from EU interventions.
On the one hand, as the financial crisis unfolded, several EU member states were forced to rely
on loans issued by the EU and the IMF, as they became unable to refinance their public debt
on international bond markets. These loans were conditional on the approval of commodifying
structural reforms, including significant deregulatory interventions on labour market
institutions. Even countries that were not formally subject to a bailout, such as Italy,
implemented deregulatory labour market reforms under the implicit conditionality exercised
by the ECB (Sacchi, 2015). On the other hand, the Commission, the Parliament, and the
Council used a latent Treaty clause on multilateral (macroeconomic) surveillance (Art 121 [6]
TFEU) to set up a new, much more vertical, EU economic governance regime (Erne, 2019).
New EU laws, known as Six Pack and Two Pack, strengthened the fiscal constraints of the
Stability and Growth Pact (SGP) while enlarging the scope for EU interventions in labour and
social policies, through the introduction of a macroeconomic imbalance procedure (MIP)
whereby EU member states can be fined for failing to address excessive macroeconomic
imbalances. As Erne (2015, 473) notes, ‘the definition of “excessive imbalances is so
11
encompassing that no aspect of economic policy making can be excluded from its scope a
priori’. Thus, the prescriptions issued under the MIP cover a wide range of areas, including
housing, public finances and taxation, financial sector, network industries, public
administration and, crucially, wage policy and employment protection legislation.
These measures complemented the EU’s Europe 2020 strategy, the successor of the Lisbon
Strategy, with its agenda of pursuing smart, sustainable, and inclusive growth through a
coordination of national social policies. As all three facets of this new regime are
interdependent, the EU introduced, in 2010, the European Semester, a yearly cycle of country-
specific recommendations (CSRs), surveillance, and enforcement that integrates all EU
interventions relating to the SGP, the MIP, and the Europe 2020 strategy in one document
(Erne, 2015: de la Porte and Heins, 2015: Jordan et al, 2021). Thus, the development of the
NEG regime entailed a further leap from horizontal integration driven by competitive
transnational market pressures towards vertical integration, where workers and unions are
constrained by direct interventions by a supranational authority (Erne, 2019). NEG and the
annual issuance of CSRs are problematic not least because unlike the ordinary legislative
procedure NEG prescriptions do not require parliamentary approval. This makes it more
difficult for labour movements, and their allies in the Parliament, to contest them. Scholars
have documented the largely commodifying impact of the labour policy prescriptions issued
under the NEG regime in the first years of its existence (Marginson and Welz, 2015; Schulten
and Müller, 2015). As the Commission’s DG for Economic and Financial Affairs and the
Council of finance ministers (counterfactually) identified growing unit labour costs as one of
the main causes of the increasing macroeconomic imbalances among EU member states, wage-
setting institutions and employment protection legislation were a clear target of commodifying
EU interventions in labour policy through the NEG regime. By contrast, the attempts of the
Commission’s DG Employment to adopt significant, decommodifying labour interventions,
e.g., the introduction of a European Unemployment Insurance System, failed to get the
necessary support (de la Porte and Palier, 2022).
Whereas the commodifying orientation of NEG labour policy prescriptions in the first years of
the Eurozone crisis is relatively uncontested, supporters of the socialization hypothesis (Zeitlin
and Vanhercke, 2018) have argued that, over time, and especially since the start of the Juncker
Commission in 2014, recommendations under the European Semester became more socially
oriented, in terms of both the increased share of CSRs in the social field and their overarching
policy orientation (Zeitlin and Vanhercke, 2018). However, critics of the socialization
hypothesis have highlighted that, notwithstanding Junckers discursive turn away from
austerity, and despite the increased share of CSRs in the social field, the overall orientation of
CSRs pushed for further market integration rather than correcting market failures (Copeland
and Daly, 2018; Crespy and Vanheuverzwijn, 2017). Indeed, scholars who have analysed the
content of NEG policy prescriptions within the context in which they have been issued,
conclude that between 2009 and 2019 the NEG policy interventions in the area of industrial
relations and labour market regulation continued to be dominated by a commodifying agenda
(Jordan et al, 2021).
Although the 2010s were characterized by commodifying EU labour policy interventions by
new means, there were also some decommodifying interventions via the ordinary legislative
procedure. These nevertheless took the form of revisions of existing Directives, rather than an
advance of the EU social agenda. These interventions included a revision of the Posted Workers
Directive, which had been undermined by the Laval Quartet. The revision process happened in
two steps: first, through an Enforcement Directive, agreed in 2014, that aimed to prevent a
12
circumvention of the posting rules, and then a revision of the entire Directive, which was
finalized in 2018. The revised Directive extended the core of employment rights granted to
posted workers from minimum wage to all aspects of remuneration. However, to secure an
agreement, the EU executives excluded the transport sector from its remit (Szabó et al, 2022).
Other legislative interventions led to the Transparent and Predictable Working Conditions
Directive and the Work-Life Balance Directive, both in place since 2019, which revised the
Directives agreed in the early 1990s granting rights to precarious workers and women during
pregnancy. These represented a limited extension of workers rights. For instance, the Work-
Life Balance Directive introduced 10 days of paid paternity leave for fathers, five days of
carers’ leave per year, extended parents’ right to request flexible working arrangements, and
ensured that two out of the four months of EU parental leave are non-transferable between
parents and compensated at a level that is determinated by the member state. Both Directives
were implemented in the framework of the European Pillar of Social Rights, a non-binding
declaration of 20 social principles jointly proclaimed by the Commission, the Council, and the
Parliament in November 2017. Although the approval of the Pillar can be contextualized within
the Juncker Commission’s rhetorical shift away from austerity, its initial effects on EU labour
and social legislation were quite limited, except for the two revised Directives, with the bulk
of legislative initiatives being delegated to the member states.
3. What’s next: EU labour policy after 2019
Most recently, the EU labour policy governance regime has been subject to further changes.
These changes have taken place along two main lines: first, a reshaping of the post-2008 NEG
regime, and second, some new attempts by the Commission to expand the EU social dimension
via the ordinary legislative procedure.
The first line of change was driven mainly by the outbreak of the Covid-19 pandemic, with its
huge social and economic consequences, and a growing awareness of the negative effects of
austerity measures on essential public services. This led to the unprecedented decision of EU
leaders in March 2020 to activate the general escape clause of the SGP, effectively suspending
EU fiscal constraints. EU leaders also created a temporary EU fund, called SURE, namely,
€100bn in loans to mitigate the unemployment risks in the emergency by supporting the
financing of short-time work schemes in member states. Most importantly however, in 2021,
the Commission, the Council, and the Parliament adopted the Recovery and Resilience Facility
(RRF) Regulation, which established an EU recovery fund to be financed by a joint EU bond
issue. The RRF will run until 2026 and is endowed with €723.8 billion (in current prices) in
grants and loans. As its allocation criteria reflect the scars left by the previous financial crisis,
the countries benefitting more are those with weaker economies, which are also those
experiencing rising Euroscepticism (Armingeon et al, 2022).
As the main EU instrument of economic and social policy coordination, the EU Semester was
obviously affected by these developments. The CSRs issued in 2020 reflected the new
pandemic reality, asking member states to focus their efforts on supporting their national
economies and strengthening the resilience of their healthcare systems. In 2021, no CSRs were
issued, as member states focused instead on drafting their National Recovery and Resilience
Plans (NRRPs), through which to apply for funds under the RRF. Nonetheless, the Semester
remains relevant, because in drafting their plans, national governments should address ‘all or a
significant subset’ of the CSRs issued in 2019 and 2020.
To assess whether these changes will effectively mark a socialization of the EU’s NEG regime,
we will have to observe how effectively the CSRs will be implemented through the national
13
plans and how the RRF funding will be spent. In this sense, the marginalization of national
parliaments and labour actors in the design of NRRPs, as recognized even by supporters of the
socialization hypothesis (Vanhercke and Verdun, 2021), does not bode well. Moreover, much
will depend on possible reforms to the SGP and the MIP, which are currently under discussion,
and new CSRs are being issued again from the summer of 2022.
The second line of change pre-dates the pandemic and relates to the Commission’s attempts to
intervene in new labour policy areas via the ordinary legislative procedure. At the start of her
mandate in autumn 2019, the new Commission President Ursula von der Leyen announced the
intention to introduce a legal instrument to ensure that every worker in the EU has a fair
minimum wage (von der Leyen, 2019). Eventually, in 2020, the Commission decided to
propose a legally binding Directive, based on the EU’s competences on working conditions
(Art 153(1) TFEU), as it lacks them on pay, showing once again that the EU Treaties can be
interpreted very flexibly, if there is a political willingness to do so.
The new EU Directive on adequate minimum wages, scheduled for final approval in September
2022, is based on a two-fold approach for securing adequate national minimum wages. First, it
defines the procedures and reference values, ‘such as 60 per cent of the gross median wage and
50 per cent of the gross average wage’ (Art 5(3) Directive 2022 XXXX), which member states
need to consider when setting statutory minimum wages. Second, it requires all member states
with a collective bargaining coverage lower than 80 per cent to establish an action plan to
increase such coverage, especially at sectoral and cross-sectoral level. Although the Directive’s
concrete effects will depend on its implementation, its approval marks a major shift in the
orientation of EU wage policy, recognizing, albeit implicitly, the negative impact of
commodifying NEG prescriptions on workers’ living standards.
Another area subject to new EU interventions is work on the platform economy, which has
been on the rise in the last few years. In 2021, the Commission proposed a draft Directive that
aims to clarify the employment status of platform workers, making it harder for companies to
make use of bogus self-employment. Thus, overall, these new vertical legislative initiatives
seem to indicate a possible reorientation of EU labour policy in a decommodifying direction,
after a decade when commodifying vertical interventions by EU laws and NEG prescriptions
dominated the picture. Nevertheless, it remains to be seen to what extent these new
decommodifying interventions will be able to counterbalance the strong commodifying
pressures still exerted by the ongoing horizontal market integration processes.
4. Conclusion
Our chapter shows that we can no longer ignore the EU’s role as a major player in labour
policymaking. The EU affects labour policymaking directly through EU legislation in this field.
This is important, as all EU laws have a direct effect on national employment relations. The
EU has shaped labour policy by other means also, namely, through the making of the European
Single Market and the EMU, which put labour policymakers under increased horizontal market
integration pressures. After the 2008 financial crisis, the EU further increased its influence by
adopting an NEG regime that allows country-specific EU policy prescriptions in labour policy
and other areas hitherto largely shielded from vertical EU interventions.
Even so, most studies in the field are based primarily on country-by-country comparisons. This
is hardly surprising, given the dominance of methodologically nationalist approaches in the
field, for example in terms of varieties of capitalism, trade unionism, or welfare regimes (Erne,
2019). Given the increasing role of horizontal (market) integration and vertical (political)
14
integration pressures however, research designs based exclusively on national variables are no
longer able to adequately capture the trajectory of labour policymaking in Europe. This does
not mean that we should stop doing research at national level, but it obliges us to take also
transnational factors into account.
Notes
1
We acknowledge the funding from the European Research Council under the EU's Horizon
2020 programme (grant agreement No 725240, https://www.erc-europeanunions.eu). We also
thank Daniel Clegg and Caroline de la Porte for their comments and Catherine O’Dea for
making the chapter more readable. Corresponding Author: Roland.Erne@ucd.ie.
2
Eurofound’s European Industrial Relations Dictionary is a very useful educational resource:
https://www.eurofound.europa.eu/observatories/eurwork/industrial-relations-dictionary
3
The EU’s primary law is specified in two treaties. Whereas the Treaty on the European Union
(TEU) sets out the objectives and principles of the EU, the Treaty on the Functioning of the
European Union (TFEU) provides the organizational details and outlines the EU’s policy areas.
The TEU is an amended version of the Maastricht Treaty signed in 1992, and the TFEU is
basically an amended version of the EEC Treaty.
4
Belgium, France, Italy, Luxembourg, the Netherlands, and (West) Germany.
5
The ensuing European laws harmonizing migrants’ access to healthcare in another member
state fostered individual workers’ rights, but also had unintended consequences. The European
Health Insurance Card, for example, increased social inequalities between the richer and poorer
EU member states and between the social classes (Stan et al, 2021).
6
2004: Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia,
and Slovakia; 2007: Bulgaria and Romania; 2013: Croatia.
7
This notwithstanding, the UK government challenged the legal basis of the Working Time
Directive at the ECJ, which in 1996 ruled in favour of the Commission (Martinsen, 2020).
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