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January 1997, Volume 4, Number 1

Labor Mobility and Social Dumping

The EU guarantees nationals of member nations "four freedoms"--free movement of goods, capital, services and workers. This means, for example, that a French worker seeking a job in Germany cannot be discriminated against because he is not German.

Europe is known as an area of low mobility as workers tend to remain in industrial areas that have lost their major employers rather than moving to areas that offer jobs. This helps to keep unemployment rates high.

However, the boom in construction in Germany after unification has caused workers to move across EU borders and tensions have arisen as a result. Germany has high hourly wages and very high payroll taxes, so that employers find it profitable to hire EU workers from countries with lower wage and payroll taxes.

German construction unions have argued since 1995 that, from the first day of employment, foreign workers on German construction sites should receive the same wages and benefits as German workers. The UK, Portugal and many German employers disagree, and they prevented the EU from adopting a "no social dumping" clause until at least 1998.

After lengthy discussions, German employers and unions agreed that, from January 1, 1997 through August 1997, all construction workers employed in Germany must be paid at least $10.95 per hour in the former West Germany and $10.07 per hour in the former East Germany. Minimum wages for German workers under union contract are higher, $16.07 in former West Germany. Workers under German union contracts are also entitled to 30 days of paid vacation, one month's pay as a Christmas bonus, an extra $1.29 hour in winter and payroll taxes that are 20 percent of gross wages.

Non-German workers do not necessarily get paid vacations and other benefits and they are usually willing to work long hours and weekends to maximize their earnings.

The New York Times on December 11, 1996 quoted German construction employers as saying that they could not operate without British and other foreign workers. There are about 200,000 unemployed German construction workers and an estimated 500,000 legal and illegal foreign construction workers, including 80,000 British and Irish workers.

In November, 1995 the French minister for European affairs accused a British firm of social dumping when it sent letters to 100 winter resorts in France pointing out the cost savings they could achieve by utilizing British workers. According to the British firm, an employer paying a worker L1,000 (US$1,600) per month must pay an additional 20 percent or L200 in payroll taxes, but a French employer paying a worker L1000 needs to pay another L1000 in various payroll taxes. British workers abroad often have some of their pay deposited in UK accounts.

French firms could thus save money by hiring British workers on six to 12-month contracts and the British workers, whose British employers would pay British health care taxes, would be covered under the French health care system under European law. A British firm offered to provide French builders with British workers willing to work 50 hours weekly at regular pay, while French law requires overtime pay after 39 hours per week.

In March 1996, EU employment ministers agreed that EU workers posted to another EU country must usually be paid the same wages as local workers from the first day of their employment abroad. EU nations may, however, permit lower wages to be paid to intra-EU migrants for their first month in another EU country. EU member nations have two years to approve national implementing legislation.

On December 2, 1996, European Union social affairs ministers accepted a report that linked Europe's unemployment problem with the generous social protection provided there. The report urges EU governments to avoid "excessive charges on taxes and labor" which could have a "detrimental impact on employment."

The Federation of German Trade Unions on November 16, 1996 revised its program on the social market economy adopted in 1981 and acknowledged that Germany's current economic system has produced affluence. The Federation also endorsed more collective bargaining flexibility, ending its policy that all agreements be negotiated between a national union and a national employer group.

On demographer noted that, in 1950, both India and Europe had about 160 million working age residents. By 2050, under current trends, Europe will have about 150 million working age residents and India 870 million.

John d'Arcy, "French crack down on cheap UK labor," Contract Journal December 12, 1996. Edmund Andrews, "The Upper Tier of Migrant labor," New York Times, December 11, 1996. Caroline Southey, "Call for social security systems reform," Financial Times, December 3, 1996.