Comment: Free movement fallacy

Ten years ago I was at a conference in Dublin when one of the speakers – a well- known TV pundit – stated from the rostrum that the accession of eastern European countries to the European Union meant “a great white yard sale that HR can now exploit.” The sixty or so HR people present in the audience did not visibly flinch. It was as racist a statement as if the N word had been used – it was just the context and terminology that had changed.

But the first wave of Eastern European countries to join the EU was not connected in the public’s mind with the fall of the USSR and the iron curtain. Even then, this huge political turnaround was not appreciated as a force for good, but as a force to exploit. Now the “Polish problem” has mixed with the “Syrian refugee problem” into a potent cocktail that is destabilising the European Union, was largely the driving force for Brexit, and threatens to undermine even Angela Merkel’s fragile new coalition in Germany.

The EU was built around three essential freedoms: freedom for goods and services, capital, and labour. This reached its zenith with the signing of the Schengen free- movement treaty in 1985. Meanwhile, the argument about free trade was won long ago in the nineteenth century. Closed borders benefit no one and protectionism is a kind of warfare where living standards rather than lives are lost on both sides.

Many hidden barriers to free movement of labour in the EU have been there from the outset. Firstly, there is the complication of tax and social security. With cross-border workers, social security is paid where someone works, although medical treatment and social benefits can be claimed in the country where someone lives. The amount of social security paid by employers is also a huge barrier for multinational companies and can range from 2.25% in Romania to 45% in France, as too is the huge difference in job protection laws. The best overall deal by far is in Cyprus, and the worst in France (again) and Sweden.

Tax is more complicated by far. There are, in fact, no EU rules. Everything is determined by bilateral double taxation agreements – just like the situation with countries outside the EU. The only real concession for cross- border workers is the right to claim tax deductions in the state where a worker lives.

The biggest barrier to the temporary free movement for workers is the job-posting directive. This measure seeks to create what legislators believe is a level playing field for workers sent across EU borders to work on fixed-term assignments. What it has become is a device for countries such as France to exclude cheaper Polish workers who “undermine” local pay rates, which are themselves established by an anti-trust labour cartel. In all countries, the need to give advance notice to the labour inspectorates of host countries and the need to comply with stringent job-posting requirements is making free movement an unattractive proposition. This is becoming even more of a nightmare for transport workers that pass through several countries on route to their destinations.

So what can employers do to minimise these problems? The first thing to accept is that open borders are really only there for private, rather than work life. If an employee is hired it is far more convenient for both parties if the employee undertakes to move. The “on costs” to employers because of variations in social security liability can also be highly deceptive. Denmark virtually has no employer social security liability, but to compensate, salary levels are very high. Romania is moving in the same direction, but salary levels are still far more modest.

Because posted workers come with substantial expense overheads in travel and accommodation – as well as now with wage- levelling supplements – employers should consider whether it is better to hire those from the large labour pools already within countries such as France and Belgium and give them appropriate training before deploying them through the gig economy. Polish workers who travel to western Europe to reside on their own initiative are not subject to job-posting rules and can be encouraged to do so by would-be hirers of contractors. In fact, “free technical training” for contractors is an investment that can produce dividends as it allows companies providing the training to cherry-pick the best workers to use in their own local projects. The challenge here will be to avoid the pitfalls of employee status and the legality of “gig arrangements” such as zero-hour contracts in particular countries where such workers are required.

Return to all FedEE Blog stories

error: