Liberalising Trends in European Labour Regulation

Everyone knows that Europe has a highly regulated labour market but a clear trend towards de-regulation can be seen in many recent changes to labour rules in countries across the region. This trend is aimed at increasing business competitiveness in order to reduce unemployment particularly for younger people. The type and extent of the de-regulation varies from country to country. In some, the reforms are fairly extensive while elsewhere they amount to minor adjustments. However, few European countries have taken no steps at all in the direction of more flexible labour markets. The question is, will it make any difference?

The financial crisis of 2008 brought global competitiveness into sharp relief. As the much quoted Warren Buffet comment goes, “only when the tide goes out do you discover who has been swimming naked”. One aspect of that economic nakedness at least for some European countries has been overprotective and inflexible labour law. The full impact of a global market for goods and services is now, in the low tide, revealing some rather unpalatable sights.

It is not surprising that much of the trend to de-regulate can be seen in the economically weaker countries of Southern Europe. Portugal and Spain, both traditionally strictly controlled labour markets, have been trying to increase competitiveness by a range of measures including making dismissals faster, simpler and cheaper for the employer. For instance, in Spain the maximum compensation for an unjustified dismissal has nearly halved and the need for official authorization before collective dismissals has been removed.  In Greece, a whole range of liberalizing measures have been implemented, mainly as a bail out requirement of the EU and IMF.

However, this trend is not limited to the south. The Netherlands are seeking to change their dismissal procedures, including removing the unique requirement, at least in Europe, that all dismissals must have the approval of the Court. The changes, if they go through, will also simplify grounds for dismissal and reduce compensation payments.  In France the “social partners” reached a landmark agreement in January 2013 on a further step towards labour market modernisation.

The UK has extended the qualifying time for unfair dismissal claims and is looking at an idea that will permit employees to hold shares in the employing company in exchange for significantly reduced dismissal protection. However, it is fair to say that this latter proposal is looking less likely to make it through Parliament. The UK is in fact one of the lesser regulated European countries but some still regard it as significantly over regulated.

In the Scandinavian countries there has been a review of the continuing value of the highly collectivised so called Nordic system of labour relationship management adopted in various forms by all of them. This system, while relies heavily of collective bargaining, has come under significant pressure as unemployment has risen. As a result,  liberalising measures have been or are being introduced.

Meanwhile, in Eastern Europe, countries that not long ago were tightening up labour regulations in line with EU rules and European employment practices, can now be seen edging towards more business friendly regimes.  For instance in 2012, Hungary introduced a whole new Labour Code containing a range of liberalising measures specifically aimed at increasing competitiveness, including measures designed to weaken trade union power.  In Lithuania, the parliament introduced a range of measures aimed at improving job creation through more flexible labour relations.

The changes, at least in some countries, will have significant longer term implications for their established labour markets and labour relationship frameworks. However, whether these adjustments will do much in themselves to help some quite flabby economies squeeze back into their culturally various swimming costumes, remains to be seen.