Workers’ rights and the competitiveness of European business

Term Paper 2002 11 Pages

Leadership and Human Resource Management - Miscellaneous



1. Introduction

2. Clarification of the Statement
2.1 Workers’ Rights
2.2 Competitiveness of European Business

3. The Benefits of Social Policy to Business
3.1 The Need for European Social Policy
3.2 Social Policy – Net Benefit or Cost?

4. Social Policy – An Obstacle to Competitiveness?
4.1 The Concepts of Labour Market Flexibility and Mobility
4.2 Reduced Flexibility through Employment Regulations
4.3 Prevailing Differences between Member States

5. Discussion
5.1 Conclusion
5.2 Future Outlook

6. References

1. Introduction

Nowadays, “unemployment is [...] regarded as Europe’s foremost economic and social problem” (Artis and Weaver, 1997:52); and employment regulations as part of European social policy are a topic of ever-increasing importance.

Social policy does not only seek to provide services and redistribute income, but also regulates and influences the labour market (see Purdy, 1997:270). The concept and understanding of social policy has changed significantly over time. Although the historical development is beyond the scope of this essay, it should be noted that before the 1980s, economic objectives clearly dominated social dimensions, whereas today a more balanced approach is taken to economics and social aspects (see Hantrais, 2000:221).

Here, emphasis will be given to the current situation; nevertheless, the discussion should be perceived in the context of social policy evolution. Furthermore, social policy-making is closely linked to structural changes within the European labour market (see Mercado et al., 2001:204) and is, therefore, an on-going process rather than a static picture.

The first section of this essay will give a short explanation of the statement in discussion. Afterwards, the necessity of European social policy and its benefits to business shall be examined. In the following, potential drawbacks and obstacles to competitiveness will be highlighted. The final part summarises the line of argument and provides a future outlook on the subject.

2. Clarification of the Statement

Before discussing the justification of the above statement, the meaning of two terms shall be clarified.

2.1 Workers’ Rights

The question of ‘workers’ rights’ or, in other words, European Union employment policy, shall be viewed in the context of the broader social policy topic.

‘Social policy’ covers areas like health and safety at work, working conditions and equal opportunities for men and women, and is of major importance and impact on the business environment. One of the main objectives is the harmonisation of workers‘ rights and employment conditions throughout the EU by setting basic standards. (see Mercado et al., 2001:203)

2.2 Competitiveness of European Business

The concept of ‘competitiveness’ has been discussed widely and a number of approaches to definition exist.

The Organisation for Economic Co-operation and Development (OECD) defines the term as “the ability of companies, industries and regions, nations or supranational regions to generate, while being and remaining exposed to international competition, relatively high factor income and factor employment levels on a sustainable basis” (OECD, 1996 cited in Lawton, 1999:3).

Other authors have argued that the term ‘competitiveness’ is not applicable to the state level at all, since nations do not ‘compete’ in the same win-lose sense as companies do. Rather, nations try to increase their productivity, for example through policy influence. (see Lawton, 1999:3f)

In this paper, ‘competitiveness of European business’ will be referred to as the ability of companies in the European Union to increase their productivity, efficiency and profitability within the international market-place. This interpretation is closely linked to the term-definition by the first Competitiveness Advisory Group appointed by the European Commission (see Lawton, 1999:4).

3. The Benefits of Social Policy to Business

This section will briefly outline the underlying reasons for European Union social policy and its advantages to business.

3.1 The Need for European Social Policy

The necessity of European social policy has long been discussed. To summarise the various arguments, two main points clearly justify the existence and growing importance of social policy in the European Union.

Firstly, differing national social regulations between Member States reduce market integration and fair competition within the European Union. For example, high costs of labour in one country due to taxation, social wages and other factors, will drive companies to other Member States where labour is relatively cheaper. This practice called ‘social dumping’ is an important economic argument in favour of social policy. (see Hantrais, 2000:222f)

Secondly, leaving regulation of labour supply and demand to the market would be a slow and ineffective process, and might result in unacceptable conditions. For instance, social regulations demand workers and employers alike to contribute to ‘social insurance funds’ (see Purdy, 1997:270f). Without social policy and employment regulation, people would be less, or not at all, protected against temporary or permanent loss of income.

Consequently, a self-regulating labour market would have negative implications in terms of social dimensions, such as longer working hours, increasing numbers of under-paid and insecure jobs, as well as the potential exploitation of certain groups, like women (see European Commission, 1996:16).



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Ashcroft International Business School Cambridge
Workers’ European Union Industrial Policy



Title: Workers’ rights and the competitiveness of European business