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‘Free EU movement of workers’: new rules. But we need better economic policies.

Summary:
Inter-EU flows of ‘labour’ have dramatically increased (figure 1, figure 2), which leads to problems in sending as well as receiving countries. New EU legislation tries to restrict the extent to which entrants can be used to circumvent existing labour laws to unfairly undercutting labour in the receiving countries (and ‘fairness’ is as fundamental an incentive to people working as their wage). This legislation is welcome. But it is too late. Or is it ‘too little’? Can sending countries afford to lose up to 15% of their active labour force in a few years? Can receiving countries deal with the influx? Aside – this is not just about the EU. Albania has a population of about 2,9 million people. About 500.000 of these seem to be residing in Italy alone… The EU knows four economic

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‘Free EU movement of workers’: new rules. But we need better economic policies.

Inter-EU flows of ‘labour’ have dramatically increased (figure 1, figure 2), which leads to problems in sending as well as receiving countries. New EU legislation tries to restrict the extent to which entrants can be used to circumvent existing labour laws to unfairly undercutting labour in the receiving countries (and ‘fairness’ is as fundamental an incentive to people working as their wage). This legislation is welcome. But it is too late. Or is it ‘too little’? Can sending countries afford to lose up to 15% of their active labour force in a few years? Can receiving countries deal with the influx? Aside – this is not just about the EU. Albania has a population of about 2,9 million people. About 500.000 of these seem to be residing in Italy alone…

‘Free EU movement of workers’: new rules. But we need better economic policies.

The EU knows four economic freedoms, ‘freedom’ meaning: ‘national boundaries should not matter’. These are the freedom of capital, the freedom of trade in goods as well as freedom to provide services. And the freedom of movement of workers. Basically all citizens of an EU state are allowed to work in all other states. This is a big thing, literally (graph 1, graph 2). Millions of people left Romania and the Baltic countries and flocked to the UK, italy and Spain! This is the new normal. In theory it is a good thing when people can leave a bad economic situation or lousy employers to move ahead. But markets need sound, well-tested and evolved rules, habits, knowledge and attitudes to work for the common good. Do we have these sound rules, habits, knowledge and attitudes? The new EU rules try to make the rules fairer. As I see it this is a step in the right direction: national laws should apply to new entrants, too, which puts a whole bullshit industry which helps companies to use new entrants to undercut existing labour to rest. I don’t know if it will be enough. Time and people with more knowledge about this than me will tell (for one thing, truck drivers are as far as I know excluded).

Also, knowledge (of languages and rules!) is often lacking while attitudes towards new entrants are, ahem, not always entirely positive (with respect to Italy and its hard right new government: Italy can not evict Romanians but it can try to evict Albanians). Attitudes won’t improve as long as unemployment in Italy is high and growth is low. What we need beyond better rules are also sound macro-economic policies which are, like those in the sixties, not aimed at unsustainable current account surpluses but at fostering employment, equality and investment. And we need restrictions of the free flow of capital. Soon, lots of money may be moved from Italian banks to Swiss banks and the Italian state will be pressured to increase the debt to help the banks, at the cost of an increase in unemployment. Don’t underestimate the willingness of the EU to accept ultra-unemployment, look at what happened in the Baltic states, Greece, Spain and the republics formerly called Yugoslavia. Headline rates of 20, 25 and even 30% were the rule. An increase of a government deficit of 2 to 3% makes people panic while 25% unemployment is accepted as a matter of fact… Do we really want to solve such unemployment by international migration only or do we outsmart the Chinese and start to invest in the future? Even when you think that government expenditure should not be increased, pension funds nowadays are awash with money which can finance such investments. The new EU rules are a good thing. But they are too late. And won’t work unless sound and prudential macro economic policies aimed at putting people to work instead of fostering the balance sheets of banks are applied. As I stated: there is plenty of money to invest.

Aside: kudo’s to Eurostat which published these data right on cue!

Merijn T. Knibbe
Economic historian, statistician, outdoor guide (coastal mudflats), father, teacher, blogger. Likes De Kift and El Greco. Favorite epoch 1890-1930.

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