As labour increasingly transcends the national container, a European layer of social insurance is increasingly necessary.
The economic imbalances among European Union member states provide incentives for many to migrate. The freedoms of the single market set the legal framework. Although regularly employed EU citizens largely enjoy equal legal treatment in labour and social law, an increasing number work as posted or seasonal workers, cross-border workers or (bogus) self-employed.
By strengthening posting through the freedom to provide services, the Court of Justice of the EU (ECJ) has separated access to social security from place of work. In this respect, efforts to compensate at the national level for the union’s ‘social deficit’ fall short.
Competitive advantage
Migrant workers are normally covered—if they are—by social security in their home country. Member states decide on the scope of benefits and whether their systems are funded by contributions or taxes. The differences are large: in 2019, spending as a proportion of gross domestic product ranged from 13.0 per cent in Ireland (albeit the denominator is inflated there) to 31.4 per cent in France.
Differences in the scale of social-security contributions are not only used by companies to gain competitive advantage where these are lower. Member states support such business models by, for example, generously interpreting the posting rules for companies and awarding social-security status (an A1 certificate) as easily as this is negligently checked.
Discussions at European level on related issues, such as a European minimum wage or reform of the Posting of Workers Directive, show the increasing importance of social Europe. Yet given the high importance of the welfare state for the legitimacy of national governments, EU competence in this arena is very limited. The relevant EU regulations are satisfied with co-ordinating rules, which specify the competent social-security system in the case of transnational employees. Some benefits are linked to the place of work, others to the place of residence.
But co-ordination is not enough. Workers in atypical employment are increasingly insufficiently covered. In particular, freedom to provide services and freedom of establishment facilitate the exploitation of differences in social-security contributions for wage competition, which in turn puts pressure on national social-security systems.
Paradoxical result
The European Commission has initiated infringement proceedings against all of 24 member states for disproportionate restrictions on the freedom to provide services and freedom of establishment. Details are not yet known, but presumably the commission is referring to the criticism in the 2019 report on enforcement of the Posting of Workers Directive. In this respect, it is following exactly the line of the ECJ. Efforts by member states to comply with the rules on posting will be rendered more difficult.
Here it is worth recalling the negotiations with Switzerland. Insistence on employer and trade union control of posting, which the commission had deemed ‘protectionist’ and ‘market distorting’, led the Swiss parliament to reject a bilateral framework agreement with the EU. The paradoxical result is that such third countries with efficient control mechanisms for labour protection and social security do not become part of the single market.
This is due to inconsistent pursuit of the principle of equal protection for work in the same place. Instead of always applying the social legislation of the place of work, the ECJ ruled for the first time in Rush Portuguesa in 1990 that employees could be posted to other member states under the freedom to provide services. Thus employment and social security are located in the country of origin while working in another country for up to two years. In the country of operation, wages come under pressure: its authorities cannot judge whether regular employment and economic activity really are in the country of origin or whether the posting company is just a letterbox.
With assignment to the member state of responsibility for social security, here social Europe is purely regulatory and not distributive. Co-ordination regulations are often reformed with ECJ case law in mind. In its decisions on social-benefit entitlements, the ECJ prohibits discrimination on the basis of nationality. This does not however prevent different cross-border situations being treated differently.
The treatment changes depending on the benefits of the country of origin and their exportability. Looking at the possibility of job-seeking in another member state with exportable unemployment benefits, the differences are striking. For example, payments from the Danish social-security system allow for transitional maintenance in all other member states, while support from poorer member states would barely cover the cost of living elsewhere.
Upward convergence
Harmonised EU minimum standards with upward convergence would be a first countermeasure. A distributive task of the EU has so far been considered purely at system level—stabilising national social-security systems or introducing a European unemployment-reinsurance scheme. Individual payments via a European layer of social insurance, to compensate for differences in national coverage and to support freedom of movement, have not yet been discussed.
The limits of co-ordination became particularly apparent during the pandemic. Border closures, different quarantine rules and calculation bases for short-time-working allowances, wage replacement and sickness benefits increased the complexity of national social-security laws, which were in any case hard to understand—and so claims were much more difficult to enforce.
Reform of the Posting of Workers Directive has plugged some loopholes, such as the counting of accommodation as a wage component. But this does not change the underlying problems.
A growing proportion of the population has an employment history in more than one member state and circular migration is gaining importance. In addition, digitalisation and the platform economy are cutting the link between where people live and where they work.
Additional layer
There is therefore a need to discuss an additional European layer of social insurance that is linked to and supports national systems. Cross-border employees, but also those who work de facto across borders via platforms, could be insured uniformly in this way, to eliminate artificial competitive advantages due to different social contributions. Payouts could be channelled through national systems. Compensation payments from the European to the national levels would ensure equal treatment of EU citizens working in the same place.
The EU can re-establish the link between protection and place of employment. Given the importance of the welfare state for the legitimacy of political systems, the sustainability of national protection systems must be preserved in the spirit of subsidiarity. Yet the EU itself must become involved in safeguarding transnational work. The Conference on the Future of Europe could be the appropriate place to decide this.
Susanne K Schmidt is professor of political science at the University of Bremen and author of The European Court of Justice and the Policy Process (Oxford University Press).
Susanne Wixforth is deputy head of the Economic Policy Department in the Vienna Chamber of Labour.