11 December 2013

EP Briefing: Austerity, labour market and international treaties

This EP Library briefing deals with cases of four EU countries in receipt of financial assistance, including the impact this had in terms of labour market reforms, social dialogue and the international treaties (ILOs).

Due to the global financial crisis and the European sovereign debt crisis several European countries (in particular Greece, Ireland Portugal and Spain) were forced to ask for financial assistance. In return they had to commit to implement so-called austerity measures aimed at reducing their budget deficits. These countries also agreed to implement structural changes such as labour market reforms in order to improve their competitiveness. The most recent case is Cyprus which concluded bailout negotiations in April 2013.

Structural reforms of labour markets aim at increasing flexibility with regard to wages, and to hiring and dismissal of workers. Some argue that they exacerbate the negative effects of the crisis while others claim that undertaking these reforms is necessary and will pay off in the longer term.

Furthermore, austerity measures have been criticised for having a negative impact on social dialogue and collective bargaining and human rights. There is also a growing number of observations and recommendations on their conformity with international treaties to which the countries are party, particularly the Conventions of the International Labour Organisation and the European Social Charter.

All four countries have also undergone extensive labour market reforms, on the basis that increasing flexibility would encourage employers to hire more workers and boost economic growth. Such reforms include revising the minimum wage, limiting salary adjustments, decentralising collective bargaining and facilitating the ability of employers to lay off workers. The OECD has considered the structural reforms to be particularly strong in all four countries. In public opinion, austerity and reform programmes are generally unpopular as they tend to lower wages and reduce the quantity and quality of public services and benefits.

Social dialogue

Among observers and stakeholders there appears to be consensus that austerity measures have weakened social dialogue and collective bargaining in all four countries. The European Trade Union Institute argues that the crisis has seen the use of a new tool: abrupt de-collectivisation and de-centralisation of collective bargaining in "problem countries". The rationale of the EC, ECB, IMF and governments was similar to that with labour market reforms: loosening the industrial relations framework aims to increase wage flexibility, which would presumably lead to private sector-led growth. In particular, Greece, Spain and Portugal have had highly developed sectoral agreement structures which covered 80 to 90 per cent of the workforce.

Full briefing

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