New Posting of Workers’ Rules: Much Ado About Nothing?

By: Katarzyna Sidło, Political Economist & Klaudia Wolniewicz-Slomka, CASE Economist

Last week (19 March 2018) the European Council (EC) and the European Parliament (EP), after over a decade of debates reached an agreement on pay and working conditions of posted workers, or employees sent (‘posted’) from one EU country to another by their employer ‘to carry out a service on a temporary basis’.

According to the provisional agreement, enforcing the ‘equal pay for equal work in the same place’ rule, posted workers will need to receive remuneration equal to that of the host country’s workers and the costs of their travel, accommodation, and board will not be deductible from their salaries. Another important change regards the posting period, which will be limited to twelve months (with a possibility of extension for another six months). After that time, posted workers will be able to continue their work in the host country but all the local labor code rules will apply to them. After some discussion the negotiators moreover agreed that applicable to posted workers will also be all collective agreements ‘representative in a specific geographic area or profession’. As noted by a Member of the European Parliament, Danuta Jazłowiecka, this provision is problematic because the texts of the collective bargains ‘(…) frequently are several hundred pages long, are not always publicly available and their translations into official EU languages are not available’.

While before the new rules enter into force, they still need to be approved by Member States’ permanent representatives and EP’s Employment and Social Affairs Committee, as well as formally confirmed by the full EP and the EC, the deal can be mostly considered as sealed. Among the countries particularly unhappy about this fact are Poland and Hungary, which see the agreement as undermining ‘the single market, the freedom to provide services, the freedom of movement for workers’ and an imposition by more powerful MS states such as France on the poorer EU members.

Source: De Wispelaere, F. & Pacolet, J. (2017) Posting of workers Report on A1 Portable Documents issued in 2016

Contrary to what the harshness of reactions and amount of political (and media) attention dedicated to the issue could suggest, the debated rules will apply only to a tiny fraction of the European work force. According to the latest available data, in 2016 there were around 2.3 million posted workers in the EU, a number equal to roughly 1% of all workers on the common labor market (less than 0.5% in full-time equivalents). However, over half of those were sent by Poland (almost 514 thousand), Germany (260 thousand), Slovenia (164 thousand), Spain (over 147 thousand), and France (close to 136 thousand). On the receiving end were Germany (440 thousand postings), France (203 thousand postings), and Belgium (178 thousand postings). Overall, the number of postings in the EU increased almost threefold between 2005 and 2016, but it is numbers in particular countries that really allow to understand why the postings may be a sensitive issue.

In Belgium, for instance, posted workers make up 25% of all employees in the construction sector or 4.5% of the entire workforce. In Poland, outgoing posted workers constitute 3% of the total employment, in Slovenia — almost 7% (or 46% of all construction workers) in 2016. Equally important are salary differences in the EU, as cost competitiveness plays a crucial role on the posted workers’ market. Currently, the highest to lowest average wage ratio is 7.6 to 1 (Denmark/Bulgaria). Countries opposing new regulations argue that imposing equal pay could deem large number of postings unprofitable and as a result harm their economies by virtue of increasing unemployment and depleting their social security budgets. One study by CEPS shows that for Slovenia, the cost of new regulations could amount to as much as EUR 500 million. Proponents of the changes to the Posting of Workers Directive, on the other hand, assert that new rules will significantly improve the situation of posted workers themselves, granting them rights equal to those of their ‘local’ colleagues. More importantly, though, they hope to secure the wellbeing on their own workforce, protecting it from an unfair wage competition (or ‘social dumping’).

Source: De Wispelaere, F. & Pacolet, J. (2017) Posting of workers Report on A1 Portable Documents issued in 2016

What will the actual impact of the pending changes on the labor market of the EU and its individual Member States be is difficult to assess (not least because not all relevant data is available). However, it is unlikely that all or even the majority of postings will become unprofitable. Workers are sent to other countries not exclusively because they are cheaper, but also because they possess qualifications that their host country labor market is missing. Close to half (45% in 2016) postings are in construction sector predominantly for that reason. On the other hand, some previous studies (e.g. Social harmonization and labor market performance in Europe conducted by CASE) suggest that upward social convergence may have an adverse effect on the employment of some of the disfavored groups in the labor market (e.g. older workers) and overall levels of employment in the EU.

Overall, the upcoming changes are not likely to greatly affect the European labor market as a whole — if only due to the small number of posted worker on the EU scale. While their impact on net sending MS may be greater, the only thing they and their economic operators can do now is to use wisely the two years of transition period they were granted to adjust to the new rules and develop good adaptation strategies.

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