Social dumping. An issue dividing the East from the West
27 December 2019 /
This article was first published in the n°31 print magazine of Eyes on Europe.
Fifteen years after the “Big Bang” enlargement, social dumping remains one of the most contentious issues of the European Union. Western countries are blaming Eastern countries of creating unfair competition by dropping low wages, whereas Eastern countries are accusing the West of wanting to protect its labour market. The dividing issue is making it difficult for Europe to unite.
Social dumping is a popular term in political debates, often used by nationalist leaders and anti-EU supporters. Often seen as a side effect of open borders and free movement of workers, Westerners are afraid of the negative impact social dumping has on their welfare systems. Eastern European countries, such as Hungary, Bulgaria, Poland, and Romania, have far lower minimum wages than all Western countries. The situation makes Eastern countries an attractive place for foreign direct investment and for the hiring of cheap labour.
During the European elections of 2019, nationalist parties ran on that issue, demanding increased protections of their national workers. Also in an attempt to fight social dumping, certain European parties, especially centre-left, supported the idea of a European wide minimum wage. However, the proposal is being met with high scepticism as it would be difficult to agree on a middle ground with such a deep gap between West and East. According to Eurostat, Bulgaria’s minimum wage is as low as 250 euros a month, whereas Luxembourg’s is almost eight times higher.
Same pay for same work
With a public growing uneasy on the issue of social dumping, it became evident that steps needed to be taken. In 2016, France took a leadership role in reforming the posted workers directive. Posted workers are hired from national firms and posted in a foreign country to deliver a service for a limited amount of time, therefore not being subjected to host countries’ labour law. France being one of the biggest receivers of posted workers, along Belgium and Germany, its president Emmanuel Macron faced high political pressure to bring reforms to the directive.
In his state of the union speech of 2017, Jean-Claude Juncker claimed: “in a Union of equals, there can be no second class workers. Workers should earn the same pay for the same work in the same place.” It was clear that with his statement, Juncker was siding with the protection of Western workers. Initially, posted workers were only required to be paid the host country minimum wage. With the same pay for same work principle, employers would have to pay posted workers a salary equivalent to national workers.
Although posted workers account for only 2 million European citizens, reforms were met with strong opposition. However small, the reform attempts show how dividing the issue was, with a European Parliament being split between the East and the West. Hungary and Poland called the reform Western protectionism, arguing that the new rule would only burden their economy. In the end, President Macron did manage to bring about some changes to the directive, which will come into force in 2020. Yet, critics argue that the reform was beside the point and will do little to resolve the issue.
Closing the gap
In order to resolve the issue of social dumping, one solution is clear: wages must go up. Nevertheless, wage-settings have to be done in a way that do not affect the economy of those poorer countries. Eastern countries having fewer resources, they must remain competitive in order to attract direct foreign investments. As a result, those countries have been locked in a vicious cycle of low wages, although showing the highest level of productivity.
Recently, leaders from these countries have been raising minimum wages. Poland’s conservative party has announced in September a plan for raising the Polish monthly minimum wage to PLN 2,600 (about 6oo euros). Wage increases are also experienced in the Czech Republic and Hungary, due to high levels of productivity.
While economists applaud the increase in wages, others warn of the long-term negative effects. Some of the negative consequences concern potential bankruptcy of small businesses and automatization replacing human workers. Simply raising wages is not enough, Eastern workers need to gain higher skills in order to compete with Western workers. In other words, investment has to be made in workers’ education and not just in their wages.
Closing the pay gap between the East and the West might suppress the problem of social dumping inside the European Union, yet will it be sufficient to sustain working places in the East?
Kristin Heidebroek is a first year Master student in European Studies.