The EU should not commit unnecessary labor market regulation

Job creation and productivity growth, not new labour market regulation, should be at the top of the new European Commission’s agenda, writes Martin Laurberg.

‘The future of work’ is a hot topic. How will robotization, artificial intelligence and digital work platforms affect European labour markets? How do we secure good working conditions in the future? And, perhaps more importantly, how do we ensure that Europe creates jobs and growth in order to stay competitive in an ever more aggressive global business order? These will be important questions for policy makers, employers and employees over the next five years in Brussels.

In her political guidelines for the next European Commission, President-elect Ursula von der Leyen, has presented several ideas and has shown a commitment to support a well-functioning labour market across Europe. This is a positive thing. However, the Commission should move with caution.

First and foremost, having a well-functioning labour market means having an abundance of jobs. The discussion of the future of work often deals with topics such as transparency, security and job stability. But it all starts with job creation, which should be at the centre of European labour market policy. The Commission should avoid employment regulation which limits the flexibility of the labour market and, thus hampering the creation of jobs.

Furthermore, the Commission should focus on improving productivity in European labour markets. High productivity is a necessary condition for high wages and good working conditions. It benefits both employers and employees. Therefore, the Commission should avoid regulation which has a negative impact on productivity growth.

This does not mean that the Commission should completely refrain from focusing on labour market policy. For example, the European Semester and the country-specific recommendations are excellent instruments for pointing out the necessary structural reforms required across Europe. But the Commission should be realistic in terms of what can be accomplished through labour market regulation. The answer to the current labour market challenges in Europe is not more regulation but labour market reform. This work must begin at member state level. It would be highly relevant for the Commission to evaluate more thoroughly the degree to which the country-specific recommendations are implemented across Europe.

How do we address the fact that the percentage of people working on temporary contracts is growing in some EU countries? From an employer’s perspective, the answer is clear: By removing legislation which prevents firms from hiring staff on a permanent contract. Temporary contracts are particularly prevalent in countries with strict employment protection legislation. If a firm is prohibited from laying off employees in the event of declining sales, it is of course reluctant to hire people on a permanent basis in the first place. Instead, it will make use of temporary contracts.

Scandinavia has a relatively low degree of employment protection legislation. The number of temporary jobs is also low. In Denmark, the percentage of temporary jobs has declined over the past 20 years and, today, the main source of temporary jobs is parental leave, PhD stipends and other temporary research positions. In our experience, firms hire staff on a permanent basis, not because the law forces them to (it does not) but because they depend on their employees and because employment legislation does not make it expensive or complicated to hire staff. Regulation at EU level will not help this.

How do we address the fact that the number of freelancers is growing in some EU countries? From an employer’s perspective the answer is quite clear: By making it attractive for firms to hire people as employees. Or, to put it another way, by avoiding the unnecessary bureaucracy associated with hiring employees. Again, firms depend on workers and are inclined to enter a formal contract with them. But not if it entails unnecessary bureaucracy.

The discussion on “the future of work” is often driven by fear that workers face an uncertain future. This is sometimes justified, and each EU member state should ensure that workers have the proper qualifications, now and in the future. But the Commission should realize that the scope for improving the future for European workers through labour market regulation is limited. Instead, job creation and productivity growth should be at the top of the agenda.

The completion of the internal market is one way of increasing productivity. There is still plenty of work to do to ensure that Member States implement EU regulations in a uniform and timely manner. There are already more than enough barriers to remove to make cross border business easier. We, as employers, stand ready to work with the European Commission to ensure that job creation and productivity remain high on the agenda for the next five years.

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