EUROPEAN PAPERS ON THE NEW WELFARE

Social Dialogue for Sustainable Pensions and Flexible Labour Markets

Abstract

Governments increasingly encounter opposition to the controversial welfare and labour market reforms that appear necessary for addressing the challenges of demographic ageing. The reasons for such failures reside principally in their impact on acquired rights but also in the top-down and fragmented approach adopted by most governments. Lessons from successful reforms indicate that a broad policy mix is indispensable together with a broad public debate and consensus building with the social partners on the objectives of the reforms and the means to implement them.
Social dialogue seems to be a prerequisite for such reforms and its absence a recipe for failure. The communication will dwell on these issues — notably the reform policies that were negotiated, discussing the role of social dialogue and collective bargaining in the reform process, pointing to the experience of Finland and Spain and reflecting on future perspective in the European Union, particularly in the light of recent constraints encountered in the UK and Denmark.

1. Introduction

The complex issues involved in reforming pension systems to ensure their sustainability and improve coverage in ageing societies seem to be beyond reach in most countries. The search of appropriate and comprehensive solutions runs counter to various major obstacles. Besides the sheer difficulty of forecasting correctly trends (demography, economic cycles, political stability, labour markets) and devising a comprehensive policy mix to soften the impact of these trends, such attempts tend to be delayed or blocked by the short-term horizon of politicians, reluctant to introduce unpopular reforms for fear of their electoral backlash. Moreover, they have to convince stakeholders who stick to the status quo, be they trade unions, who wish to maintain their acquired rights, or businesses who look for savings in a highly competitive world.
Lack of understanding of this broad range of issues involved and the absence of channels to discuss alternatives and acceptable modalities of the reforms have limited their scope when they did not block them altogether. The few countries which have managed to successfully introduce such reforms have invariably done so following a wide public debate and social dialogue on a coherent policy approach. But this is an on-going process that cannot be addressed by a one-off measure, and it requires a supportive institutional framework such as social dialogue. This has become clear over the past two decades of attempted and too often failed or postponed reforms. The latest recent reminders of reform aversion have resulted from governments’ top-down approach in France, Sweden and the Netherlands. In the first case, the French government proposed in early 2006 a reform of employment contracts legislation — the so-called ‘first job contract’ (Contrat première embauche — CPE) — for young people under age 26. This was a desperate attempt — in the wake of the suburban violence that erupted in autumn 2005 — to cope with the high, persistent youth unemployment, particularly among young unskilled workers from ethnic minorities. But it blatantly ignored a law adopted by the same government in 2004 (the Fillion law), which provided for social dialogue prior to any legislation that affects employment. Not surprisingly, the bill was widely and violently criticized by all unions with mass demonstrations that lead to its withdrawal (Le Monde March-April 2006). In Sweden, the traditionally consensual society, where social dialogue is part of the cultural legacy, the new conservative-liberal government encountered vehement opposition from the unions when it tried to unilaterally revamp the unemployment insurance (Le Monde, 16 Oct 2006). In the Netherlands, a consensus on social and employment policy that had prevailed ever since 1982 came to a halt in summer 2004 when the government tried to pass an early retirement reform against the views of the social partners. Union opposition resulted in a major strike — a rare event in the country — and the measure had to be withdrawn. Negotiations were thereafter resumed and agreement achieved a few months later (EIRO-Netherlands 2004).
Much of the official discourse around demographic ageing has focused on strategies to ensure the adequacy and sustainability of pension schemes. The resulting policies, particularly in Europe, emphasise the need to cap social expenditure to rein in, if not reduce, public deficits by limiting the generosity of the welfare state, notably by transferring the risks to pension funds and, increasingly, to the wage earners. They also emphasise the need for businesses to employ and retain older workers and for workers to extend their working lives (and the related social contributions). While these are certainly a necessary part of the reform, if the objective is to ensure the sustainability and adequacy of the social safety net, more attention needs to be given to a set of other policies that tend to produce a more dynamic labour market that encompasses the active population as a whole. This is mainly because the labour market is an essential parameter for coping with the impact of demographic ageing. Indeed, the post-war European welfare-state was based on stable and full-time employment (mainly of the male breadwinner) and the (traditional) family. Both have dramatically changed since 1945 as a result of societal, labour market and economic trends (Sarfati 2002), including:
• the massive and persistent unemployment in many EU countries (even if the EU average now hovers around 8% of the working population, it is still high and affects some groups more than others);
• low employment rates (generally or of particular population groups, notably young and older workers, and women at all age groups);
• the rapid expansion of ‘atypical’ often precarious jobs;
• the exponential increase in female employment (though mostly in ‘atypical’ jobs);
• the delayed entry and early exit of the labour market (though the latter has already somewhat improved as a result of policy change on early retirement);
• the breakdown of the family with the increased incidence of divorce and the emergence of single-parent and single-person household (associated with poverty and social exclusion);
• the decline in fertility and the increase of life expectancy (at age 60).
These trends result in the shrinking of the active population, making labour market and welfare reforms urgent, because they add to the ‘traditional’ social risks that already weigh heavily on public expenditures (sickness, unemployment, disability and death), new social risks, linked to such factors as the mismatch between available jobs and the qualifications and competencies of the workforce; the difficulty in reconciling family responsibilities and work and hence limited employability and career opportunities for women; job precariousness and an increasing incidence of poverty at work and in retirement as well as social exclusion. The conjunction of these risk, weakens the traditional social protection systems, which are ill-prepared to cope with them. It also threatens economic growth and the living standards of the population — both young and old, because of the expected doubling over the forthcoming decades of the dependency ratio of the older inactive population on a shrinking active but partly precarious workforce. This brings to the forth the need to focus more on the economic dependency ratio than on the demographic dependency ratio, that is, the ratio of the payroll of the active population versus the amount of pensions paid. It is the growing balance of the global payroll in this equation that enabled the development of the post-war welfare-state. Hence the priority granted by the OECD, the European Commission and ISSA to the increasing of activity and employment rates across the gender and age groups of the population in any welfare reform policy (OECD 2006, European Commission 2006a,b; Sigg 2002, 2005).
Improving the economic dependency ratio requires a dynamic labour market, which provides conditions and incentives for entry and exit, mobility between jobs, employability, adequate opportunities for the acquisition and upgrading of skills and competencies, suitable conditions of work for people with different needs and capacities, accessible and affordable caring services which facilitate reconciling family and career, taxation, safety nets and family policies that encourage and facilitate employment rather than inactivity. In a nutshell — reconciling the increased flexibility with security against fluctuating incomes and career fluctuation but also implying major cultural and behavioural changes among all stakeholders (Bonoli and Sarfati, 2002; Schmid and Gazier, 2002).
These policies directly affect workers, employers, local authorities, and citizens. In democratic societies, it is only natural that these stakeholders be involved in the formulation of policies that directly impact not only on their daily lives at work and beyond, but also on intra- and inter-generational solidarities.
Parliamentary debates on labour market and welfare reforms have been stormy and lengthy, rarely leading to successful reforms. So it may be timely to turn to another existing channel for such stakeholder involvement because it exists, even if it needs revamping, because it proved successful in a number of countries with different industrial relations characteristics and traditions. This channel consists of social dialogue and collective bargaining. This paper will underline the potential role of these instruments in formulating welfare and labour market reforms linked to demographic ageing. It acknowledges some of the obvious difficulties in developing such an approach but also points to the lessons of successful outcomes of negotiated reforms in various EU countries, particularly in Finland and Spain.


Paper presented at the 5th International Research Conference on Social Security, Warsaw 5-7 March 2007, “Social Security and the Labour Market: A Mismatch?”.
Hedva Sarfati: Former ILO Director Industrial Relations and Labour Administration Department, ISSA consultant for labour market and social protection.


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