Towards better labour politics

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Weakened and highly defensive trade unions on the one side and a recourse to cheap technocratic arguments by centrist and centre-right governments on the other side make for a bad political cocktail, leading to bad policies.

As I write this, I am speeding through the French countryside on a TGV train. Contrary to what some of the international coverage of the French unrest could make one think, the journey is as smooth as usual. Luckily for me, no strike is slowing me down today.

Rest assured, this will not be another article decrying the French unions’ stubbornness or Macron’s king-like behaviour. Instead, I would like to point to two factors that make the politics of pension and labour reform so difficult in France – ones that will have a similar effect in other European countries.

Weak unions

One of these factors is the declining strength of labour unions. The proportion of French employees that are unionised stands at a meagre 11%. Although this number has not changed much in the past two decades, the proportion was double this in the 1970s – and triple in the 1950s.

This downward trend can be seen in most European countries, but in France the precarious position of labour unions is made worse by the relatively high number of unions that are in concurrence with each other.

Labour unions are not working from a position of strength and self-confidence, from which they could negotiate and find favourable compromises for workers. Instead, they are in a defensive position trying to prove their relevance by enforcing a veto from the street.

Ignorant math

The other factor is the unhelpful way in which right-wing and centrist governments all over Europe like to frame pension reforms. We live longer, that’s why we have to work longer to keep financing our pensions system, they say, boiling the whole question down to one of simple mathematics.

But this view ignores the role of pension systems as a distributional policy, or it narrows the distributional consequences of a pension reform down to its intergenerational axis. In many countries, however, the pension system is one of the most progressively redistributive policies from rich to poor.

As a consequence, reducing pension benefits or lifting the pension age disadvantages the poor in favour of the rich. Moreover, lifting the pension age disadvantages tough manual labour in favour of the office jobs of the well-educated, as workers in physically demanding jobs often start work much earlier in their career and also have a lower life expectancy.

In light of these facts, it’s no wonder that workers will fight tooth and nail against such policy changes if they are not fairly compensated. Technocratic arguments hiding under the veil of rational demographical mathematics will be regarded as an arrogant disregard for workers’ interests, and rightly so.

Only if the distributional consequences of pension policies are acknowledged and tackled head-on, can a constructive debate unfold in which all parties feel like they are taken seriously.

More should be possible

In France, the government now wants to start a discussion on reforming the labour market and increasing workers’ wages. But, as EURACTIV’s Théo Bourgery-Gonse reported, labour unions are unlikely to take the government seriously after the pension reform was forced upon them.

Imagine a government that took the distributional concerns more seriously from the beginning and labour unions that are stronger, more self-confident and less defensive: There would certainly be ways to tackle the real challenges of demographic change in a way that also benefits workers.

What if, for example, we would steadily increase the retirement age while decreasing work hours during the week, maybe moving towards a four-day work week? Workers might be more efficient, stay healthy for longer and have more time for the family – thereby decreasing the cost of childcare and care for the elderly.

One would imagine that some kind of great bargain of this sort should be possible.

Oh well, I have to finish the wishful daydreaming, the TGV has already arrived. Have a nice end of the week!

In the International Monetary Fund’s (IMF) newest World Economic Outlook, the organisation’s researchers devote a chapter to analysing the effects of fiscal consolidations on debt levels relative to economic output (debt to GDP).

Basically, they find that in most situations it does not make sense to cut spending to reduce debt to GDP. In most cases, especially in advanced economies, such austerity measures have led to higher debt-to-GDP ratios because they hurt economic growth more than they reduced debt.

The chart below shows the average effect of fiscal consolidation on the debt-to-GDP ratio in the years following the fiscal consolidation. On average, the ratio increases, meaning that the medicine is worsening the situation instead of making it better.

However, this is no blank cheque to spend all the money you want. The researchers also find that fiscal consolidation can reduce debt-to-GDP ratios in some cases if they are “adequately timed”, meaning in times of economic expansion and certainly not during a crisis, and if they are designed well.

Still, the fact that the IMF, the long-time champion of austerity for public debt problems now openly admits that this approach is often misguided, is an important step towards a more economy-friendly treatment of public debt.

You can find all previous editions of the Economy Brief Chart of the week here.

EU Commission proposes adapted rules for bank failures. The European Commission on Tuesday (18 April) proposed an update to the EU’s bank crisis management and deposit insurance (CMDI) framework, focusing on the resolution of small and mid-sized banks. In the proposed reform, the Commission wants to make it easier for small and mid-sized banks to go into resolution instead of going into regular insolvency. However, the Commission also proposed that in the course of the resolution, more of the bank’s own funds and industry-funded deposit guarantee schemes should be used. Read more.

EU Parliament excludes ‘use’ from due diligence rules before committee vote. MEPs negotiating on the proposed EU corporate accountability rules reached an internal agreement on 18 April solving contentious points ahead of a vote of the legal affairs committee on 25 April. MEPs agreed to exclude the downstream use of products or services from the directive’s scope and a harmonisation provision which would prevent any member states from introducing more stringent due diligence rules than those provided under the EU directive. At the same time, they increased the number of companies subject to the rules.

EU Budget 1 – MEPs reject budget report after right introduces EU funds for border walls. On Wednesday (19 April), MEPs rejected a report on the EU budget guidelines for 2024, following the adoption of an amendment by the right-wing European People’s Party (EPP) and European Conservatives and Reformists (ECR) groups that would have introduced EU funds to build walls to keep out migrants at EU borders. The report, which consists of guidelines for the preparation of the EU 2024 budget, was rejected by a narrow majority of socialists and democrats (S&D), Renew, Greens and The Left lawmakers during the plenary session in Strasbourg.

EU Budget 2 – EU Parliament passes first batch of new own resources in climate levy overhaul. The European Parliament on Tuesday (18 April) approved sweeping reforms to make EU climate change policies more ambitious, including an upgrade of the Emissions Trading System (ETS), that is set to hike the cost of polluting in Europe, and the introduction of the Carbon Border Adjustment Mechanism (CBAM) that should impose a border levy for imported carbon emissions. Part of the income from these levies will go towards the EU budget and is earmarked to help pay back the debt that the EU took on to fund its response to the Covid pandemic. The EU Council is yet to officially approve the policies as well.

EU Budget 3 – EU Parliament Budgetary Committee passes report on second batch of new own resources. While the first batch of new EU own resources should soon be in the books, more will be needed to pay back the pandemic recovery fund. The EU Commission is expected to come up with a proposal on where to get that money from in autumn this year. To influence this proposal, the Parliament is writing its own report, which was approved by the budgetary committee on Monday (17 April). Among other things, the report proposes a tax on crypto-assets, a tax on financial transactions, and a social border levy similar to the CBAM but for working conditions.

Finland’s state gambling monopoly likely to be replaced by a licensing system. The current state monopoly system would not function without regulatory changes, according to a report commissioned by the Interior Ministry that looks at the future of online gambling and recommends a switch to a licensing system. Read more.

Austria looks abroad to address labour shortage. The Austrian Federal Economic Chamber (WKÖ) and the Labour Ministry want to work together to counteract the massive labour shortage in the coming years, Labour and Economic Affairs Minister Martin Kocher (ÖVP) said at a joint press conference on Tuesday. Read more.