Works on revising the Posting of Workers Directive are already well underway. It is often argued, that limiting workers’ posting in the EU would put many jobs, especially in Central and Eastern Europe in jeopardy. While the European Parliament still debates a set of compromise solutions, our expert, Marek Benio prepared a short evaluation of possible outcomes.
All data are taken from the Country Fact Sheets for posting of workers published by the European Commission and refer to the situation in 2015.
Growth projection for postings in EU13
The so-called EU13 refers to the group of Members States which joined the European Union in a series of enlargements in 21st century. All of them, with the notable exception of Malta, were sending each year more employees than they received.
Based on the Commission’s data, the total number of postings from EU13 in the year 2015 reached 914 062. This means that the aggregated growth of postings in the period between 2010 and 2015 reached 105,97%. If this rate persisted until 2020, workers from these countries would be posted over 2 mln times a year.
|Member State||year2015||growth||2020 (est.)|
|TOTAL EU13||942 635||aver growth in 5 years 106%||2 083 504|
The presumption of constant growth can obviously meet a few obstacles. Unemployement rate in the biggest countries of Central and Eastern Europe is hitting record low. Also the costs of labour in the ‘new’ member states are catching up with the West. On the other hand, with growing interdependence of European economies and improving infrastructure one could expect companies to increase their footprint in other countries of the EU.
Sources of cost hikes from the PWD ammendment
According to Mr. Benio, two of the proposals for ammending the posting directive would soon lead to the biggest increase of costs for cross-border services. First of them is adding the article 2a which limits the time of posting on the basis of the sending country’s labour law. It is still unclear, if all or just the core (non-negotiable) principles of hosting country’s law would apply to the employees for longer terms (e.g. over 24 months). Even the calculation of the posting period itself could be based on different methods, depending on the legal regime and each worker’s individual situation. The risk of applying the wrong system of labour law would mean high uncertainty for all parties involved in any cross-border project, which would likely increase the financial burden for businesses.
The second provision causing a headache, especially for Eastern-European companies, is replacing the current obligation to provide local ‘minimum rates of pay’ with the concept of ‘renumeration’, which would include all benefits paid under the local regime. Components of renumeration may vary, not only in their value, but more importantly in requirements for eligibility, often resulting in significant differences in pay, not just between countries, but also between specific regions, branches, or age groups.
It must be stressed that paying the elements of remuneration required by the host country does not preclude the obligation to pay the mandatory elements of remuneration of the sending member state’s regime.
Projecting the increase in the cost of labour
The leading principle of the amendment is ‘equal pay for equal work’. It’s proponents present an oversimplified view that this would raise posted workers’ wages from minimum to average rates according to the country where they perform work. This hike would be quite difficult to estimate.
A good indicator for such projection could be the ratio of minimum rates of pay to average wage. In high wage member states this indicator is relatively high and varies from 60% in Luxembourg to 75% in Sweden. If, for instance, in Belgium the minimum rate of pay is 70% of the average wage, the Commission will safely assume that workers posted to Belgium will be paid the remaining 30% of average pay after the targeted revision is applied. This would mean a 43% pay rise. Of course, the real growth is impossible to predict. In the Belgian example the growth would be 43% only if a workers’ basic wage is equal to minimum rates of pay and all mandatory elements of remuneration make up for remaining 30%. If however the local Belgian worker earns a higher basic wage plus mandatory elements, we would not be able to correctly calculate their earnings.
We do not have appropriate data to assess cost elasticity of these exact job positions but an overnight increase of labour cost would certainly increase wage pressure for most of CEE companies operating on the cross-border market. Potentially, most of today’s about 1 mln posted workers from the region, and even more of the expected 2 mln in 2020 would face some increased risk of job loss.
Naturally not all posted workers will lose their jobs. Nevertheless, the final price of cross-border services will inevitably grow jeopardising external competitiveness of the EU. The most likely to lose their jobs are care givers, who may be pushed to bogus selfemployment or to grey economy. In case of highly qualified manual workers, eg. in construction services, the most probable scenario is permanent migration of the specialists to the high-wage member states.
Either way the differences between low wage and high wage countries will be deepened. In such case, the final effect of ammending the directive would bring results contrary to what the Commission had set out for.