Posted Workers in the EU: Social Dumping vs Competitive Advantage

There are concerns that posted workers in the EU dump working conditions and have a depressing effect on salaries. These individuals are temporarily sent abroad for work purposes, and are often seen as “unfair” competition, a phenomenon that has been called social dumping. The recent revision of the 1996 Directive on Posted Workers aimed to address these issues, and resulted in the adoption of new regulations to promote the “same pay for the same work in the same place” principle across Member States. President Macron has made the revision of posted workers a symbol for his agenda to reshape Europe according to French interests.

However, these divisive reforms hurt the competitive advantage of certain Member States, especially in the east, and go against the open and free principles of the EU Single Market. While agreeing with the original elements of the Directive on Posted Workers, the concept of ‘social dumping’ is increasingly being used to advance protectionist measures. The reformed Directive goes exactly in this direction, implementing protectionist measures and principles under the pretext that fairness and equality was not being respected. Rather than pushing for the streamlining of different social security systems in the EU, the issues to be tackled are the concept of social dumping itself and the proper implementation of the 1996 Directive on Posted Workers.

What is alleged as Social Dumping?

Although no legal or officially accepted definition of social dumping exists, the concept usually refers to alleged unfair or uncompetitive advantage gained due to differences in social protection, social regulations and social conditions between sectors and countries^[1]. Somehow, social dumping can only occur across borders and never by people who holds same nationalities. Given such a loose and generic definition, it ought to be a frequent practice in the EU due to the open borders and, the easy access to markets and labor forces.

A European Parliament report singles out three practices as social dumping, namely; regulatory evasion, regulatory arbitrage and regulatory conformance. Regulatory evasion is the violation of regulations, and concealing violations vis-a-vis regulatory authorities. Regulatory arbitrage is the exploitation of benefits generated from differences between national systems. Finally, regulatory conformance is the manipulation of regulatory rules, despite the compliance with these rules, to generate benefits.

Social dumping is particularly controversial in the context of posted workers. The European Commission defines a posted worker as an employee that is temporarily posted overseas by his employer in order to deliver certain services. While in a host country, posted workers are legally entitled to a range of core working rights. However, as they remain employed by the sending country, workers also remain subject to the laws of that country. Through the posting of workers, companies are alleged to take advantage of benefits to be gained from regulatory arbitrage – differences social security systems, wages and working rights, payroll tax levels. Workers from countries with more advantageous regulations for companies are temporarily posted to deliver a service in less advantageous countries. This practice is deemed to be social dumping by France and other countries in favor of the reform.

In 2015, 2.05 million people were sent to other Member States for work purposes. This accounts for a mere 0.9% of the total EU workforce, yet is an increase of 41.5% since 2010. The majority of posted workers (85%) are sent to Western European countries, such as Germany, France and Belgium while the most common sending countries include Poland, but also ironically, Germany and France. The sectors with the most posted workers are typically labour intensive, such as construction (42%), manufacturing (21.8%), health and social services (13.5%) and finally, the business services (10.3%).

The EU Directive on Posted Workers

The previous 1996 Directive on Posted Workers is the legal framework governing the rights and working conditions of posted workers in the EU. The Directive, if abided to, ensures that posted workers are subject to the legal basis of host countries in relation to:

• maximum periods of work
• minimum resting periods, paid holidays and rates of payments, including any overtime
• hiring conditions
• health, safety and hygiene regulations within work environments
• protective regulations with regards to the employment of pregnant women or women who have recently delivered a child
• non-discriminatory and equal treatment regulations

The new Directive strongly reflects the advocated ‘same pay for the same work in the same place’ principle. Revisions include the remuneration according to host countries rules, posting period of 12-month (with some exceptions to 18-months), application of collective agreements and, the equal treatment of local and posted workers.

However, the revised initiative will have little to no impact on the majority of workers. In the initial Directive, posted workers were already subject the to minimum wage rules and laws of host countries. The new remuneration proposal will not change the minimum wage requirement. While local workers are paid higher wages – it will merely ensure that posted workers receive the equivalent non-wage remunerations as their local counterparts. The 12 to 18 month posted period will simply increase the turnover rate of workers for certain companies. The average posting anyway only lasts between 4 to 8 months, with workers being posted on average 1.9 times a year – an average which is now likely to slightly increase.

The Future of Posted Workers in the EU

Posted workers account for such a small percentage of the total EU workforce: 0.9% in total employment but only 0.4% when measured by full-time employment. The debates and discussions on posted workers have painted a negative and problematic picture of the topic, identifying it as a major issue in the EU. However, to what extent can such a minor proportion of the EU workforce have, allegedly, such a bit impact on economic sectors, competition and wages? It cannot and it does not.

Posted workers are not a source of unfair competition, they are a force for further Single Marker integration. Differentials in social security systems and wage levels are normal. Using the notion of social dumping to legitimize protectionist measure in relation to these differentials is detrimental to competition. If ultimately extended further, the ‘same work, same place, same pay’ principle is a major threat to countries who have very little means to compete except by more productive workers.

Finally, posted workers should not be confused with individuals involved in illegal or undeclared work. What the term social dumping should be used to describe is unfair competition resulting from undeclared work, which may be domestic as well as foreign. The EU should focus on implementing tighter controls on these issues, while maintaining the elements of the current Directive on Posted Workers. This would ensure fairness that not only puts countries and sectors on a level playing field, but also maintains competitive advantages.