Global labour trends: Do social policy developments come from outside Europe? – by Daniel Vaughan-Whitehead


Source: Flickr cc

The celebration of Labour Day on 1 May presents a good opportunity to take an inventory of social and labour trends around the world.  Undoubtedly, the years since the crisis of 2008–2009 have not provided the most favourable context for progress on labour issues.

Some progress from emerging and low-income countries

At the same time, however, there are a number of promising signs: first, from the emerging economies that have started to embrace social developments as a key component of continuous and sustainable growth. China is developing social protection, but has also put in place a number of labour law provisions to strengthen collective bargaining and extend workers’ rights. Brazil has also developed over the years a series of social protection policies to tackle inequalities, but also to stimulate internal demand.

Encouraging signs are also coming from low-income countries where—for a significant number—growth has taken off since the 1990s. More than half of these dynamic low-income countries have continued to expand at strong rates through what has been called the Great Recession. Even more significantly, according to the IMF (2013), they have been shown to have achieved strong growth without macroeconomic imbalances, and also to have set up necessary institutions and invested in education and social policies. Certain countries in developing Asia and Latin America are also investing in stronger social protection floors and minimum wage setting systems. 

Living standards: Improving despite a bleak world of work

This has led to some improvements with regard to poverty, although the global picture remains extremely worrying. Despite the slow down in productivity growth, working poverty has continued to decrease, but at a slower pace than before the crisis. There are still around 870 million workers living with their families on less than US$2 per person per day, of whom nearly 400 million are living in extreme poverty. In addition to the 870 million working poor, a further 660 million workers are living just above the poverty line and are highly vulnerable to any subsequent economic shocks. The ILO projects that the absolute number of working poor will decline only gradually unless faster economic growth returns.

A longer-term promising trend is that the number of workers in the middle class in developing countries has risen sharply over the past decade, particularly in East Asia: 42% of all workers in the developing world are now estimated to be middle class, living with their families on more than US$ 4 per person per day, up from 23% in 2001, an increase of around 400 million middle class workers. ILO projections indicate that the number of workers in the middle class and above in the developing world could grow by an additional 390 million by 2017, to 52% of the developing world’s workforce. This could bring about a new global growth engine, but, for this to happen, the trend needs to continue in the longer term.

Is Europe losing its exemplary social model?

While emerging and developing economies are on the way to strengthening their labour institutions, often inspired by EU countries and their European Social Model, most European countries, under budgetary pressure, seem to have halted any progress on social policy and have even started to dismantle a number of their labour institutions. Massive and unprecedented adjustments have been made in the public sector, with cuts in expenditure, employment and wages, so that labour conditions have rapidly converged towards those in the private sector, with direct implications for human capital and the quality of public services (see Public Sector Shock). At the same time, fundamental labour rights such as freedom of association and collective bargaining have been allowed to be removed, often on the policy advice of the Troika, although such rights are part of the Community acquis and were requested by the EU to be applied by candidate countries in the different EU enlargements as pre-conditions for joining the EU.

However, austerity packages seem to have reached their limits and both their social and economic costs so far have been severe. The EU experienced the sharpest increase in the risk of social unrest internationally between 2006 and 2012, with an increase of over 10%. As a point of contrast the likelihood of social unrest increased by just under 6% in the Middle East and North Africa and less than 2% in Sub-Saharan Africa. At the same time, austerity policies have reduced national debt but do not seem to have led to recovery. On the contrary, they seem to have depressed demand and also fuelled unemployment, with young people being particularly badly affected. According to the latest ILO data, the crisis has left over 26.3 million Europeans unemployed –10.2 million more than when the global financial crisis erupted in 2008. Over the past 6 months alone, one million people have lost their jobs in the European Union. Youth unemployment stands at 23.5% (2.6 times the total rate) but reaches nearly 40% in Portugal and Italy and even more than 50% in countries such as Greece and Spain, a phenomenon documented last week by The Economist as ‘Generation jobless’. Almost 30% of young people in the EU were at risk of poverty or social exclusion in 2011, a rate that has probably increased even further since then.

At the same time, work inequalities are increasing, with polarization and the erosion of the middle class in Europe, while the US continues to be characterized by extreme polarization and inequalities.

For ‘third generation’ anti-crisis policies

Clearly, more balanced policies are required. While policymakers immediately tried to counter the financial crisis of 2008 through stimulus packages aimed at boosting demand and the real economy, the debt crisis in most European countries led to ‘second-generation’ anti-crisis policies based on austerity and sound fiscal policy to stimulate the economy.

As IMF Managing Director Christine Lagarde warned recently: ‘Should growth be particularly low, then there should be consideration to adjusting by way of slowing the pace’, a statement that contrasts with previous IMF positions within the Troika and which should stimulate new options (see Lagarde calls for caution on austerity and European Austerity Does a 180 as Lagarde Weighs In). Recently the IMF decided to give more time to Portugal, Spain and Greece, given the adverse effects of fiscal consolidation on output.

Beyond just slowing the pace, a new generation of anti-crisis policies are now required, as emphasized recently at the ILO regional conference in Oslo, and as recognized more and more by European leaders:

  • First, in the nature of the adjustments, with the need to have policymakers finally implement a more balanced policy mix, between economic and social considerations, between reducing the debt and boosting the real economy. Clearly, the great mismatch between labour demand and labour supply that leads to massive long-term unemployment, especially among young people, requires policies and investment in education, training and investment in human capital and in businesses.
  • Secondly, the method of the adjustments—so far often decided unilaterally by the governments—needs to be based much more on social dialogue. As emphasized by ILO Director General Guy Ryder in Oslo, ‘Social dialogue is not a problem but is part of the solution’.
  • Finally, this new direction should help to avoid further dismantling of social institutions.

Only under these conditions could European countries show again that their labour institutions will continue to count, and also continue to serve as a compass to other countries in the world in their efforts to pilot towards sustainable growth.

Daniel Vaughan-Whitehead is responsible for wage and working conditions at the International Labour Office (ILO); he is also Professor at Sciences-Po in Paris, and founder and co-Chair of the Fair Wage Network.

Daniel has managed many international projects on social issues, and he is the author of a number of books and articles on wages, industrial relations, social dumping, forms of workers’ participation and social policies in general.

'Public Sector Shock' by Daniel Vaughan-WhiteheadHis most recent book, Public Sector Shock: The Impact of Policy Retrenchment in Europe, explores the causes and consequences of implementing restrictive budgetary policies aimed at reducing budget deficits. See the related blog article here.

Available as an eBook for subscribing libraries on elgaronline

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