Labour Market Reforms - Case Study Example

? Flexicurity Introduction The labor market in European Union carry large scale attributes of labor market rigidity (Schomann, Rogowski & Kruppe, 1998, p.1). Unemployment in Europe is forecasted to be exceeding the North American rates by great margins in the coming years with present youth unemployment far exceeding the total unemployment, which is regarded as the most serious problem in the economic environment of the union (Klau & Mittelstadt, n.d., p.8). One of the major challenges faced by the European Union is to make the rules of the labor market more flexible simultaneously delivering utmost social protection which is a long term vision of EU 2020 goal. For the purpose of establishing proper labor market reform, the policy of “flexicurity” has been adapted by the EU policymakers (Karantinos, 2007, p.2). But the criticisms of the policy direct towards the fact that the diversities present at the national level leads to the decline of the ‘one-size-fits-all’ approach that flexicurity model proposes (Muffels, 2008, p.386). The Union has taken various measures for the establishment of the same but question still arise regarding its effectiveness with the outburst of the worst financial crisis in 2008 after the Great Depression in 1930 (Flexicurity: Europe's employment solution?, 2008). The paper will be discussing the flexicurity approach adapted by the European Union along with the discussion of its principles and objectives and with special focus on Germany and Denmark. Highlight will be also given on the youth unemployment problem with reference to the Viking, Laval and Ruffert cases discussing the protection measures of the other countries with respect to the benefits in compliance with Art 3 and 49 of the EC treaty which focuses on the right to establish in any state or that of single market and rights of provision of services across the European Union. Now the subsequent section will be dealing with the concept of flexicurity. 2. Notion of flexicurity In today’s labor market there is a requirement of rigorous levels of flexibility and adaptability both in the interest of the employers as well as the employees for anticipating and responding to the demands of the market (Flexicurity Pathways, 2007, p.3). The crux of flexicurity is an emerging concept in the European Union and has been considered as a significant approach in the labor market and within the employment paradigm (EU Council: Common 'flexicurity' principles adopted, 2008). The policy has been first generated in the Nordic countries for the purpose of solving European Union’s employment paradox. From the studies of Wilthagen and Rogowski in the year 2002 it gets revealed that flexicurity is regarded as the policy that directs towards a synchronized platform that boosts labor market flexibilities, work organizations as well as labor relations with security provision for the weak group of people inside and outside the labor market. The authors highlight that flexibility and security can be achieved through focus on coordination. They stress that initial jolt will be derived from the macro level actors like government and social partners. Implementation will be established on all levels of the economy with different means of flexibility complementing each other with corresponding varied security forms (Meyer, 2009, p.87). From the early 2000s, the European Union policy of flexicurity included an amalgamation of easy hiring and firing rules benefiting the unemployed and following a pro labor market policy (Flexicurity: Europe's employment solution?, 2008). 3. Underlying principles of flexicurity The European Foundation for the Improvement of Living and Working Conditions (Eurofound) has been established in the year 1975 working on the area of working conditions, living conditions and industrial relation ( Agencies and other European bodies, n.d.). The EU body while drafting policies limited itself while applying flexicurity policies with some common principles. The common principles which the flexicurity model proposes is that of “flexible contractual agreements, comprehensive lifelong learning, effective labor market policies and modern social-security systems” (Flexicurity: A brief history, 2008). Flexicurity model also need a climate of trust where all the stakeholders are in the process of taking up responsibility for the purpose of change with a view to socially balanced policies. The public authorities are in the area of retaining overall responsibility but the implementation of flexicurity policies executed through social dialogue as well as collective bargaining is viewed with significant importance. The aim of flexicurity model is to focus on an efficient allocation of costs and benefits between institutions like businesses, public authorities and individuals with special attention to the small and medium sized enterprises (EU Council: Common 'flexicurity' principles adopted, 2008). 4. Challenges and attainment of objectives through flexicurity The context regarding debate of flexicurity direct towards the fact that labor market in the European Union is facing challenges like that of solid economic integration as well as technological progress with greater diversities of individual working and life paths along with demographic ageing (European Union: Flexicurity in the spotlight, 2008). In the labor market, the work force is fragmented into insiders and outsiders i.e. the workers who hold permanent contracts and that of the workers who work on short term contracts with low level of social protection. These countries are predominated with high retirement rates as for instance Spain, Italy, France and Portugal. The aim has been towards attaining a solid distribution of security for the purpose of creating entry points providing employment to newcomers in the economy and also promoting their progress into better contractual agreements. It has been encountered that in countries like Germany, Belgium, Luxembourg and France, a mammoth percentage of big enterprises generate low mobility of job among the workforce and as a solution the commission suggested provision of better and safer intra company transfers. The countries instilled with high unemployment rates have entered into the European Union since the year 2003 and have went through rigorous restructuring giving rise to high percentages of potential workforce being depended on long term benefits. Suggestions have been also given for injecting active labor market policies as well as lifelong opportunities and also benefitting the recipients to move from informal to formal employment (Flexicurity: A brief history, 2008). 5. Cases for Denmark and Germany 5.1 Germany The Chinese labor market has been mainly focused on an export led growth (textile industry) policies and went through serious economic setbacks coupled with rigid employment system. Since 1990s, the Chinese government has been focusing on labor market reform and shift from export led to consumption led growth with the provision of relaxation in the labor market and aiming towards the contract employment system away from the lifetime employment system. But there resulted many delays in the field of various other sectors like that of social security systems as well as education and occupational training schemes deemed to be moving hand in hand with the growth in the labor market flexibilities. This can be related to the European countries of Denmark and Germany and their adoption of flexicurity models (Yan, n.d., pp. 3-4). In Germany although there is implementation of flexibilities in the labor market there still is a paternalistic attitude. Social assistance has been provided in times of requirement and financial help has been higher in comparison with liberal oriented economies like that of United States of America or United Kingdom. There has been high valuation of subsidiarity with existence of conservative traditional family oriented model with less participation of women. After encountering large scale mass unemployment as well as exploding costs in various other welfare systems, in Germany, Chancellor Gerhard Schroder executed a new employment policy which is popularly known as Hartz policy. After the implementation of this policy, the unemployed people were over burdened with receipt of social and unemployment assistance subjected to sharper obligations than before. Duration of financial coverage associated with individuals’ former income has been found to be curtailed. There has been also reduction in the subsequent social assistance. The former policy was of early retirement but the new policy directs towards retaining people for a long period. The official retirement age has been increased from 65 year to 67 years. Although the macro level policies directed towards extending the retirement rates the companies were in the favor of employing young employees. The training assistance of the elder employees was also minimized and there was rare usage of education programs by the elderly employees. The participation in the age based training was at the rate of only 1 percentage. However owing to the high pressure as well as tough working conditions there showed no types of age based job design and individuals were not eager to stay for longer period in the labor market. There has been also a change in the corporate attitudes associated with the elderly people and the government through the policy of “Initiative 50plus” in 2006 directed towards supporting the employment of the elderly people (Meyer, 2009, p.87). 5.2 Denmark The country of Denmark within the EU has been seen implementing the flexicurity model with much success rates. Unlike Germany, it has been found that the employment rates of the older people are more. In Denmark, there has been application of activation measures along with financial incentives for the welfare recipients for finding out employment (Putting Europe to work, 2011, p.17). The development of Denmark finds its history back in and around 1930s and it can be ascribed to the social democratic model which was typically found within the Scandinavian countries with instillation of essence of liberal welfare state. Until year 1989, a Danish employee was fired without providing compensation by the employers. But the presence of generous unemployment insurance led the unemployed person exposed to short span of unemployment. It can be thus inferred that there has been existing elements of flexibility as well as security before the 1990s. The actual modernization took place in the year 1993 with strong emphasis on pro labor market operations. The Danish employment policies considered as the Golden Triangle included the policies of activation, flexibility as well as security which is shown in the following diagram. Fig.1 Danish Golden Triangle (Meyer, 2009, p.92). Due to absence of special regulations for the elderly people in association with job protection legislation, the elderly were exposed to security. But there are constraints within the Danish labor market and they are not covered up by the Danish bargaining model. Denmark’s union density is 67% and coverage rate of collective agreements is 83% but still there is difficulty of the unions in recruiting young people and migrant Polish people from outside Europe. Some groups of people in the Danish model are ending up being involuntary outsiders in association with Danish bargaining model. The voluntary outsiders in association with Danish model include members in the unorganized labor markets or have decided of not joining the union is protected under collective agreement benefits and they act as free riders as they possess the access to the collective agreement benefits. They also do not contribute to the system through membership of traditional unions (Workers increasingly excluded from bargaining model, 2012). 6. Viking, Laval and Ruffert cases Article 3 and 49 state that any European state is committed in promoting them and are subjected to application of becoming a member of the Union with prior notification of the European and the national parliaments. The admission conditions and adjustment in the Treaties on which the Union is being founded will be subjected to agreement between member states and the applicant state (Article 49, n.d.). The Viking, Laval case was referred by the Court of Appeal to the European Court of justice (ECJ) in 2005. The case is of importance in the trade unions within the European Union. The ECJ was called for deciding the relationship between the rules of free movement associated with the fundamental rights of workers in taking collective action which includes industrial and strike action. Viking Line is a Finnish passenger shipping company which owned and operated a ferry with Finish crew benefiting from collective agreement. The proceedings initiated when Viking took the decision of being better off if the ferry was registered as an Estonian ship crewed by the Estonian seafarers on lower wages. As an outcome following the ECJ ruling on December 11, 2007, the court welcomed the clear recognition of the right in taking collective action being guaranteed by the international and community law. But the judgment does not protect clearly the rights of organized labor within a modern transnational and expanding global economy (Viking case, 2005). 7. Youth unemployment The European Union is under the realms of significant challenges whose future vulnerabilities are much more intense. In the early 1990s, the unemployed persons were 23.5 million in the EU. For reaching the target of 75% employment rate requirement of job creation is around 17.6 million with more than 22% of the young population being unemployed in the current situation which requires immediate remedial interventions (Work Programme of the European Social Partners 2012-2014, 2012). 8. Modifications and pacts On July 11, 2007, the European parliament (EP) adapted a resolution to modernize the flexicurity approach. EP requires the creation of flexible as well as secure contractual arrangements in association with modern organization of work with the establishment of four labor law reform within the member states of European Union. Between varied situations of employment and unemployment the law reform should be facilitating transition. There shall be also assurance of appropriate protection for the workers within the non standard employment forms. There should be also clarification in the dependant employment situation and the grey areas amongst self employment and employees with the establishment of a dependant relationship through the actions taken against various undeclared works (European parliament: MEPs contribute to 'flexicurity' debate, 2007). Youth pact and gender pact are also established by the European Union in the year 2005 for the purpose of tackling the youth unemployment and gender gaps in unemployment (as found in Denmark). The pacts leads to the promotion of a life cycle approach to work for the purpose of generating employment corridors for the young people, eliminating gender gaps in employment, developing inclusive labor markets for benefiting the job seekers as well as the disadvantaged people, optimal investments in human capital and adjustments of education and training systems in accordance with the requirement of new skills. pact helps the youth in providing a better understanding as well as expanded knowledge of the youth with respect to areas like “employment, integration and inclusion, entrepreneurship, mobility, recognition of youth work” (European Youth Pact, 2005). Measures also aim at providing greater security to around 14 million European workers changing jobs every year (Social partners wrestle over 'flexicurity' definition, 2007). The importance of flexicurity policy is highly significant with Jos Kester’s (policy coordinator at Employment directorate) stated that flexibility as well as security are not antagonistic and he stated that it would be mutually beneficial for employers and workers ('No one-size-fits-all approach to flexicurity', 2007). 9. Conclusion Flexicurity has been adopted in EU but there are dilemmas pushing hard on the youth employment and the migrants are being neglected from benefits of the policies and gender gap in employment. In Denmark it can be said that an apparently successful implementation of flexicurity policy has been established extending its legacy from historically derived institutional system. In Germany also there has been a dilemma on employment scenario with policies empowering the old but preferring the young in recruitment. The Viking case also casts discriminatory shades on flexicurity policies. 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