Two Realistic Proposals for a Social Internal Market
Text: MIRIAM HARTLAPP
Against the backdrop of the current institutional and political dynamics within regulatory social policy, this article presents two feasible problem-solving proposals for building a fair and social internal market: administrative cooperation in providing social protection for freedom of movement and a new instrument for a social minimum income scheme are promising.
European social policy differs in form and content from national social policy. Transfer payments for social issues play a minor role in the EU’s already limited budget and a “soft” coordination approach prevails at European level when it comes to core areas of national social policy such as pensions and employment. Therefore, the nature of EU social policy has initially been described as “regulatory”. (Figure 1)
Two areas of regulatory EU social policy with different dynamics and thematic focus can be identified here: regulations that support the free movement of persons within the single market for the most part and gradually grow in number, and directives that aim to establish minimum standards that correct market outcomes. Their growth starts later and is more volatile – with peaks in the Delors era (1985–1995) and the early 2000s – and seems to be more marked by conflicts of interest and dependent on political majorities (cf. Hartlapp 2019).
Social Union: limits and potential scope for development
The dynamics of these two forms of regulation provide twin insights into the limits to and potential scope for developing a Social Union. First, the development of a common social policy is limited by the treaties. For this reason, more social policy directives were adopted only after the transfer of competences and following the introduction of qualified majority voting through the Maastricht treaties (1993). To this day, however, core areas of national social policy are not covered by the treaties. One example is the explicit prohibition of a minimum degree of harmonisation with regard to pay or the right to strike (Article 153.5 TFEU). When the legal basis for common standards is not in place or unanimous support is required, policy-making in this field can at best be delivered via soft coordination measures. Second, the development of social policy in Brussels is characterised by a complex decision-making process with divergent interests that receives increasing public attention. The heterogeneity of the Member States’ interests has increased, particularly with the most recent EU enlargements (2004–13). While countries in Western Europe are worried that minimum harmonisation could erode national standards, Eastern Europe sees high standards as an unfair limitation of a core competitive advantage in the single market. In particular, these structural conflicts of interest make it difficult to formulate minimum social policy standards. This is reflected in a drop in the number of new directives since 2004. By contrast, regulations that aim to support free movement of persons are dynamically growing even in a more heterogeneous EU.
Overall, the development of regulatory social policy suggests that promising new initiatives for a Social Union are those that are geared towards the fundamental concept of the single market and ensure an internal market that is fairer and more social.1 Freedom of movement is one of the EU’s central achievements but it also presents social policy challenges for countries, businesses and citizens. In the next section, I will describe two of these challenges in further detail and outline how a Social Union could reduce the number of those who see European integration as the reason for growing inequality, income disparities and social injustice.
Proposal 1: Administrative cooperation for the social dimension of freedom of movement
Free movement of persons and services primarily offers advantages for workers and employers and helps reduce shortages of (skilled) labour. Overall, roughly 20 million EU citizens live or work in another Member State, with 1.4 million crossborder workers and 2.8 million posted workers per year – all groups showing an upward trend (European Commission 2019). In some cases, mobile workers such as posted workers or selfemployed persons switch regularly between the social and labour legal systems of different Member States. They face challenges in claiming pension and unemployment insurance entitlements. Businesses, on the other hand, can easily take advantage of loopholes, as can be seen in the transport industry or construction sector.
National authorities such as customs, labour inspectorates and audit services within social insurance administrations can address this problem with an active policy of enforcement, such as in the form of documentation requirements and checks. However, the competent authorities, with their structures and powers, are solely empowered to enforce national standards on national territory. With the increasing mobility of workers, they are facing new challenges such as the imposition of cross-border sanctions and penalties or the portability of occupational pension entitlements. Ultimately, the abolition of borders in the common market has increased the interdependence of administrations. Inefficiencies within an administration2 can facilitate social dumping, which in turn influences other Member States as they compete to remain an attractive business location.
Implementation: few prerequisites but room for improvement
A Community initiative for the social protection of free movement via administrative cooperation could address this issue. It presents few preconditions in terms of institutions and policy. It is about cooperation that preserves national autonomy of action. And as it relies on effective enforcement of existing acquis communautaire as regards coordination of social security systems and posting of workers, lengthy policy-making processes or new majorities are not required. Furthermore, the EU already has a competent institution in the form of the new European Labour Authority, which began operation in Bratislava in 2019. Its role is to consolidate information on cross-border mobility for employers and workers, improve coordination among national authorities, particularly with regard to fighting abuse, organising joint inspections and mediating in cases of cross-border conflict over enforcement. Given growing levels of mobility, it would make sense in the short term to increase the Labour Authority’s funding above the envisaged annual budget of €50 million and strengthen its competences and scope for intervention to enforce existing European law, particularly the new Posted Workers Directive, but also rules on service provision and foreign establishments. In the longer term, linking the Authority with a digitalisation agenda for better dovetailing databases, procedural standards and mutual assistance measures, for example, should prove equally attractive as greater cooperation in placing people in employment and basic/further training. While administrative cooperation at EU-level might not on the whole sound very exciting, it does have direct and indirect distributional implications when it comes to free movement of persons and services. Fostering it is therefore a political task for a Social Union.
Proposal 2: New EU instrument for a social minimum income scheme
A second challenge for a social internal market arises with regard to the interplay between large differences in prosperity and free movement of people. Prosperity is unequally distributed between and within the Member States. Extreme poverty is particularly apparent in the economically weakest countries in Southern and Eastern Europe, as the European Union’s Social Scoreboard3 indicates. In these regions, an above-average proportion of the population does not have access to basic supplies in daily life (Benz 2019) and minimum income schemes fail to provide the degree of protection that prevents poverty (Höpner 2019). Therefore, it should come as no surprise if not only well-qualified workers and job-seekers take advantage of the mobility available in the single market but also that the poorest of the poor follow on their heels.
Empirical studies show that the number of those claiming generous welfare benefits remains relatively small where the labour market also offers low-skilled workers sufficient employment opportunities (Martinsen and Werner 2018). Nevertheless, the relationship between the prosperity differences and free movement is a politically charged issue, as illustrated by discussions in Germany on alleged “benefit tourism” and “poverty immigration” or debates on welfare benefits (supposedly) claimed by EU nationals within the Brexit referendum. To be clear: extreme poverty primarily affects those who lack the most basic of life’s requirements. When it comes to free movement, however, the lack of prospects faced by many EU citizens also becomes a common EU challenge.
A new EU instrument for a minimum income scheme could be the answer to both these issues. Such a scheme would offer protection at the bottom level of existing schemes if no income can be earned and other welfare benefits do not apply. It therefore aims to prevent extreme poverty. There have been poverty reduction initiatives in the EU since the mid-1970s. With the Europe 2020 strategy, the Member States committed to lifting at least 20 million people out of poverty and social exclusion and the open method of coordination is used to pursue the reduction of poverty (measured on the basis of 60 per cent of the median equivalised income) as a Community objective. These efforts have by and large failed to propel progress (Copeland and Daly 2012), not least because the poorest Member States bear a disproportionate amount of the costs of adjustment. To address this problem, a new initiative for a minimum income scheme should go beyond minimum standards and include solidarity-based fiscal transfers. Concrete proposals have been put forward in this connection. For example, Martin Höpner (2019) is in favour of cross-border help in developing minimum income schemes in the poorer Member States in the form of a new structural fund or as part of the ESF+. Benjamin Benz (2019) proposes legal minimum standards that are based on international agreements and ILO conventions and could be implemented as a package with funding from the ESF.
Favourable institutional and political conditions
Admittedly, a solidarity-based instrument for a minimum income scheme would come with many more preconditions than the proposal for administrative cooperation. That said, from a governance perspective the conditions appear favourable. First, an instrument of this kind is feasible from an institutional standpoint. The actual treaty basis would depend on the exact formulation. For example, Article 175 Treaty on the Functioning of the European Union (TFEU) provides a basis for fiscal transfers, and minimum standards could be justified through the active integration of persons excluded from the labour market (Article 153.1 h TFEU, cf. Benz 2019). For short- or medium-term implementation, funding would need to be set aside within the Multiannual Financial Framework (2021–27) such as through the ESF. Second, there is political potential in accommodating different interests – despite all the difficulties involved in mobilising support for transfer instruments. For example, in the Council, some of the countries in Eastern Europe that have recently been critical of higher EU social standards might welcome a guaranteed subsistence minimum in their country. They would also indirectly benefit from the solidarity-based transfer of funds via improved automatic stabilizers and activation. An instrument for a minimum income scheme could therefore counter increasing inequality between the Member States. In the European Parliament, the current party-political make-up could deliver new and potentially fluctuating majority coalitions in which the (pro-European) Greens and Renew Europe would be key when it comes to social policy initiatives. Such majorities seem likely given current findings of comparative opinion research. They demonstrate that a substantial proportion of the population in the Member States is strongly in favour of social policy instruments based on the principle of solidarity. This also applies to transnational solidarity and holds sway in economically strong Member States (cf. Baute in this volume).4
Combined, the initiative to support enforcement through administrative cooperation and a new instrument for a minimum income scheme would result in a fairer and more social EU single market. They build on the free movement of persons as a central accomplishment and offer institutionally and politically realistic answers to concrete problems. They are therefore suitable solutions to strengthening cohesion and upward convergence in Europe.
- Benz, Benjamin. (2019). Ohne Fundament? Perspektiven verbindlicher Mindeststandards für die Mindestsicherung. Berlin.
- Copeland, Paul and Mary Daly. (2012). Varieties of poverty reduction: Inserting the poverty and social exclusion target into Europe 2020. Journal of European Social Policy 22 (3): 273–287.
- European Commission. (2019). 2018 Annual Report on Intra-EU Labour Mobility. Brussels.
- Ferrera, Maurizio and Alessandro Pellegata. (2018). Can Economic and Social Europe Be Reconciled? Citizens’ View on Integration and Solidarity. RESCUE Mass Survey Report.
- Genschel, Philipp und Anton Hemerijck. (2018). Solidarity in Europe.
- Hartlapp, Miriam. (2019). Revisiting patterns in EU regulatory social policy: (still) supporting the market or social goals in their own right? Zeitschrift für Sozialreform 56 (1): 59–81.
- Höpner, Martin. (2019). Eine Strategie für das Soziale Europa. Makroskop. Kritische Analysen zu Politik und Wirtschaft (April).
- Martinsen, Dorte Sindbjerg and Benjamin Werner. (2018). No welfare magnets – free movement and cross-border welfare in Germany and Denmark compared. Journal of European Public Policy 26 (5): 637–655.