Strengthen labour market policies along flexicurity principles

Employment & Income,Inclusive Economy19 Jun 2014Teodora Tchipeva

The adverse effects of increased economic integration on job quality can be mitigated by flexicurity policies.

Technological progress and the further removal of barriers to free and fair trade are strong drivers of economic growth, as are foreign direct investment and migration, and closer integration of national economies at the European level. Opening up to world markets strengthens countries’ opportunity to exploit their comparative advantages, thereby strengthening their overall potential for productivity growth. But is this growth job-rich and inclusive; are the costs and benefits equally distributed?

While globalization has a strong potential to increase the number of jobs and overall job quality (particularly to increase earnings through increases in productivity), labour market policies are needed to correct or prevent adverse outcomes, and to strengthen positive outcomes.

Greater integration of countries can have adverse outcomes in several ways. Increased international competition from firms located in countries with lower job quality standards may lead to increased job insecurity (e.g. due to layoffs in the face of offshoring, restructuring, etc.), poorer worker conditions (e.g. in terms of maintenance of hygiene, occupational health and safety norms, etc.), cuts in non-wage labour benefits (e.g. severance pay, individual and collective dismissal procedures) and lower wages, i.e. “social dumping”. Furthermore, the costs and benefits of globalization will not necessarily be distributed in an equitable way, as it is to be expected that most of the burden of adjustment will be borne by workers performing routine tasks in the production of tradable goods and services. Globalization may then have a persistent adverse impact on their job quality to the extent that they do not have the opportunity to move up to better jobs and remain trapped in low-quality jobs.

In order to mitigate such adverse developments in job quality, labour market institutions and policies should be strengthened along flexicurity principles so as to strengthen the upward mobility of the most vulnerable workers. In particular, adequate social protection combined with efficient activation policies (ALMP), skill formation and removal of obstacles to intra-EU labour mobility (including increased cross-border portability of pensions and other social security benefits) can be envisaged in this respect. The European Social Fund and the European Globalization Fund provide support to facilitate workers’ adjustment.

Nevertheless, not all workers will have the ability to upgrade their skills to meet the requirements of the new knowledge- and technology-intensive activities and will remain employed in jobs that are subject to international competition from countries with lower quality standards for jobs. In such cases a minimum floor for job quality could be set by appropriately designed labour market institutions in close collaboration with social partners. A level playing field with trading partners should also be assured by including provisions in Free Trade Agreements covering minimum working conditions, enforcing national labour laws, and monitoring and enforcing labour standards. Such a strategy would strengthen good practices already in place in some Free Trade Agreements. For instance, the ILO reports that since the mid-1990s growing awareness of the social and employment effects of trade liberalization leads to a substantial growth in the number of trade agreements featuring labour-related measures.

Disclaimer: The opinions expressed are those of the author only and do not necessarily represent the European Commission’s official position.