Role of the EU Unions in Forming the Labor Market of the EEC: Inequality Management and Economic Convergence in the Neoliberal Epoch

Since 1957, when the EEC was established, the EU has introduced liberal policies to bind together traditionally distinct and antagonistic states through trade. Such policies include a common currency to lower transaction costs, turning borders from sites of protectionist tariffs to those of openness and decreasing the capital controls connected with foreign investment. The net result of these and related EU policies is the encouragement of trade, increased competition amongst workers and a tendency for the welfare state to constrict itself (Beckfield). Workers, once jealously guarded by states that acted as “labor regimes,” now face intensified international competition. Since the beginning of the global economic crisis in 2008, nationalist political parties within Europe have had to increasingly respond to these “old” economic and political conditions to a greater degree.

While Germany, Austria, Netherlands, Denmark currently have youth unemployment rates around 7 to 10%, the rest of Europe hovers around 20% and is as high as 30% in Spain. The dynamic is now such that while an increasing number of people seek welfare state benefits to shelter themselves from the downward turn of the labor market and their gradual evaporation of personal savings, there is an increasing push for austerity programs. Radical right and left parties have sought to electorally exploit these circumstances and the generally poor growth performance over the past two decades to highlight concerns over rising income inequality and the social exclusion and marginalization concomitant with such developments (Burgoon). However these outlier parties, as well as the centrist social democrats, are increasingly limited in their capacity to enact policies to counterbalance re-regulation of wages and labor conditions. This is because social welfare and austerity programs, a competence of individual member states, take place within the framework of a larger economic nexus of European Economic Community (EEC). The EEC’s supra-national composition has numerous spillover effects into the national political realm. The removal and erosion of trade restrictions and barriers means that primarily domestic industries, once protected through various nationalist-oriented regulatory policies, now face increased competition from better-capitalized multi-national companies (MNC). MNC not only promote member state policies that lead to decreased taxation for social spending, widely referred to as austerity cuts, but are also able to exert pressure to alter the very nature of spending and create regulatory changes that redefine pre-agreed upon optimal business practices.

Supra-national political actors and capitalist elites have not been the sole determiners of the structural adjustments enacted within the EEC. Unions have, to varying degrees based upon national location, sector, size, previous level of organizational capacity, adaptive ability to the new international pressures, and availability of political opportunity, sought to limit downward wage pressures and re-regulation that increases work precariousness and the intensification of economic disparity. One significant shift brought about by these dynamics is the adoption in some EU countries of the Ghent system, wherein unions take on a limited role of administering unemployment benefits that were once administered by individual member states. This paper seeks to interrogate some of the causes for differences between regions and sectors where inequality has intensified, where it has decreased and the role, if any, that unions have had in economic convergence within the EEC.

There are many factors that play a role in income inequality. One of them that I expect to find across the EEC is that regions associated with higher levels of unionization will have decreased levels of inequality. The obverse of this presupposition should also hold true, i.e. that those regions characterized by low levels of unionization are likely to be those regions that have increased levels of inequality. It is likely that there should be no direct relationship between the form of labor within a region and its relationship to inequality. Additionally, regions containing industries with discernibly higher levels of capital investment, be it manufacturing, extraction or services, should not necessarily have decreased income inequality. Compiling data from the United Nations International Labor Organization (ILO), National Statistical Yearbooks, and the OECD will provide a net set that illustrates the level of density. Thankfully, some of this research on the composition of labor relations in the EU has already been done and I can state that there has been a net decline in union membership across all EU member states since 2000, with the possible exception of Belgium (Bryson). As projected, with this downward trend to union density, increased economic disparity within countries is evident (Afonso).

Whether or not the particular labor regime of a member country is inclusive, dual or market will also have a marked affect not just on the percentage of union density but also its composition (Schnabel). Factoring this into the net set of data is important as in an atmosphere where MNC have an increased role in determining employment agreements, union density qua itself is unlikely to translate into lowered income inequality. Phrased another way, not all unions are created equal. Each individual union will either orient their administrative capabilities and capacity to mobilize the rank and file for massive demonstrations of political preference based upon what they perceive to best suit their particular rather than the needs of the national workforce or do see via political party influence due to their importance in the national economy (Lindvall). As union identities shift away from nationalist conceptions to individualist or “European” ones, national solidarity strike actions are likely to decrease. Instead, attempts at sectoral co-ordination amongst unions of similarly skilled workers in various regions should increase. Regardless of this, however, given the legal framework of the EEC it is likely that either attempt at imposing labor conditions will be difficult. This is because unions have to face a motley assortment of contradictory national labor laws. Indeed, “at the intersectoral and sectoral levels: only three and six agreements respectively, in more than 20 years” have transitioned from bargaining table to functioning legal agreement (Ales 96). Thus while my projections are clearly felicitous to EU reality, to better map the capacity of unions to decrease income inequality I would combine the categorization of form of the particular labor regime to surveys of the labor force and union leadership as well as datasets from the ILO database to determine respective strengths. This would allow a relative determination of which states are generally supportive to unions and further determine which sectors are prioritized by their respective legal systems and thus most able to inform the prerogatives of MNC.

Another factor to include in the determination of the EEC’s affects on income inequality and determining if unions assist in greater wage parity is the domestic capacity of various states to ameliorate inequality through welfare programs. Across Europe typical welfare state disbursements have diminished due to the reorganization of capitalist production that was part and parcel of the original EEC agreement and was accelerated following its eastward expansion into the former Soviet bloc. Based upon the framing of regional development directives and the European Commission’s promotion of flexicurity, a portmanteau combination of flexibility and security that refers to the weakened reformulation of the national rights of workers amidst the conditions created by the EEC, it is to be presumed that while at the national level spending on traditional welfare and work assistance programs are cut or externalized onto others, a la the Ghent system, on the supra-national level similarly styled spending will be directed towards projects that facilitate the expansion of economic regionalism and increasing of the rationality of state services disbursement. This particular dynamic is important for understanding how the EEC affects wage inequality, for in addition to the goal of decreasing variation in quality of European governance by raising state capacities, it should also show investment preferences to projects and sectors endogenous to specific areas that have production or transportation advantages.

Indeed, the EU Cohesion Fund distinguishes three different categories for its investments: investments to improve the productive environment, investments in human resources and investments in infrastructure. This three part classification is misleading, however, as “investments in human resources are assumed to lead to an improvement in labor productivity in all the activities” (Bayar 31). With this in mind, it becomes clear that such investments are primarily concerned with underwriting projects that maximize the sectorial and regional needs of European capitalists. Thus while the European Commission’s Regional Development policies seek to positively contribute to economic growth, social welfare and quality of life they serve primarily to reinforce the capitalist system driving regional wage inequality in the EU. By analyzing at the European Research and Development Fund (ERDF) and Cohesion Fund projects it will be possible to categorize the form and intent of investment. As it relates to the composition of project spending, the Center for Industrial Studies (CIS) has already done much of this work in preparing evaluations for the European Commission. General data that shows a decline of social welfare spending can be obtained from the OECD. These unto themselves, however, would not be sufficient in determining unions’ effect on wages and labor conditions. A country-by-country analysis of disbursement regulations would be necessary to further understand the end point of such spending. Comparing the relative national/sectoral strength of unions determined from the previous research combined with the content of Cohesion Fund spending will determine whether Cohesion Funds are directed to regions with low or high union capacity in the sectors related to the investment. In this environment of diminishing union power and increasing atomization and fragmentation of unions, it’s likely that such spending is to go to those regions with the lowest union density.

In summary, downward wage pressures are not net but are uneven across countries and sectors (Botwinick, Ezcurra). While not quite a speedy race to the bottom, with the exception of Greece, Hungary and Italy, the national Gini rate has increased in every EU country from 1995 to 2008 while union membership has decreased (Fredriksen). As trade barriers and national subsidies can no longer protect non-optimal industries once solely associated with a particular country, it is easier for corporations to seek cheaper, non-local labor, to impose new forms of industrial relations, to move production elsewhere, or simply to divest from non-competitive industries. MNC capacity in this regard is limited. While able to influence and promote Science, Technology, Engineering and Math (STEM) education policies in individual counties that transform populations once categorized as not having enough skilled workers into places for potential relocation, such policies are long-term in orientation. This means that existent, embedded industries are likely to remain in place, at least in the short term, as such in order to avoid costs associated with fragmentation and potential loss in quality. While analysis of the composition and percentage of public expenditure on educational spending in order to determine its influence on the common market wage and labor conditions, considering the numerous other secular factors that could condition these this is not likely to be a viable route of operationalization. Instead, it would be preferable to look towards management practices and technology transfers as well as recapitalization of non-optimal production sites, which are likely to be located in Eastern Europe. To address the former a qualitative research survey would likely be the best mean of determining changes while for the latter it would consist of UNCTAD and IMF data on Foreign and Direct Investment.

Another important area for discovery on the common markets effects on wages is found is in the growing “flexible” labor market. Summarizing multivariate analyses on patterns of employment and union recruitment in the EEC, Claus Schnabel summarizes that:

“the employment share of standard full-time jobs has fallen in the last decades while atypical employment (such as part-time jobs, fixed-term contracts or temporary agency jobs) has been on the rise. This poses recruitment problems for unions since atypically employed workers usually have weaker ties to their current workplace and are more difficult to recruit and keep as union members” (Schnabel 7).

This increased level of part-time employment translates into higher organization costs for unions and decreased capacity to press for increased wages. The effects of this on national tax bases should be significant, and will be illustrated in national tax revenues. The general effect of the EEC on national tax schedules is also likely to shift in such a manner as to increasingly benefit their capitalist class. Indeed, we find this to be true and “Many OECD countries have seen a decline in the progressivity of the tax schedule at the upper tail of the income distribution over the past decade due both to a decline in top marginal tax rates and an increased income threshold from which rates apply” (Fredriksen 8). The upper deciles within the EEC have increased their relative share of wages and savings, most often at the cost of the lowest ones. Given the increased need for finance to seek and capture new investments in an international context, this is required for otherwise non-national capitalists could purchased shares or controls of domestic companies and transfer profits abroad. This greater cost burden for workers ironically occurs at a time when the state is offering them less. Contrasting the changing national level of tax schedules with the percentage of flexible workers would give insight into the percentage of the most precarious workers while the with the previously determined levels of union strength by sector would give insight into the percentage of the reserve army of labor that is quickly able to be transitioned into the workforce and thus placing downward pressure on wages.

As EU labor markets become increasingly specialized and regionalized to suit the needs of European capitalists, austerity cuts matched with increasing emphasis to flexicurity, and supra-national expenditure going to bolstering sectors deemed most competitive, those not in the primary industries will continue to face increasingly powerful downward wage pressures and layoffs. This combined with the long-term trends toward increasing education and skilling of under-developed regions and increasing cross-national productive organization will exacerbate this situation and the capacity of unions to respond. Analysis of these myriad national and supra-national effects of the common market rules helps explain why there has been a general increase in wealth disparity at the same time as there is a right turn in the direction of European political parties. 


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