Restoring trust in Europe—wage rises and workplace democracy

Flatlining wages, denial of workplace voice and precarity are undermining trust in Europe—and  assisting the siren calls of the populists.

Europe’s economy has been expanding for six straight years and more people are getting jobs. The crisis is fading from memory and austerity is easing off. So why aren’t Europeans happier? And why, in all but three countries surveyed recently by Eurobarometer (Figure 1), is trust in the European Union below what it was before 2008?

In many ways ‘Europe’ is a juicy target for the disgruntled. The social hardship created by the economic crisis was magnified by harsh austerity measures enacted in its aftermath, in the mistaken belief that budget surpluses produce growth. While this mindset is altering at last, Europeans are still feeling the effects of the internal devaluation and economic mismanagement which took place.

Is this disillusionment justified and, if so, what can be done to mend distrust towards the EU? In the European Trade Union Institute’s latest annual stocktake of the state of Social Europe, Benchmarking Working Europe 2019, researchers discern key sources of discontent and suggest some solutions. A core grievance is that many Europeans have gone a long time without much of a pay rise. Average growth in real wages for 2009-19 was more than one percentage point lower than in the pre-crisis period.

Membership of the European club is supposed to foster convergence but the divergence in wages among member states is particularly stark. In ten countries real wages are still at or even below the level of 2009. This group includes the UK, Belgium and those southern- and eastern-European countries hardest hit by the crisis and the clumsy attempts to manage it.

Figure 1: trust in the EU (% respondents) pre- and post-crisis

Source: Eurobarometer

Workers accept their pay may fall in hard times. What riles them, though, is the decoupling of wages from productivity in recent years, when things have supposedly been getting better. Economic growth may be returning but workers are not sharing in this, as the wage share in many countries has continued to fall (Figure 2). Key culprits for this trend are surely the liberalisation of capital markets, deregulation of labour markets and decentralisation of collective bargaining.

All of these have shifted the balance of power further towards capital and led to what we are seeing now in many parts of Europe—wageless growth. The European Commission may insist that decollectivising bargaining has had no impact on stagnant incomes—even as it calls vainly for stronger wage growth—but research from other quarters indicates the contrary.

Collective bargaining

Action is therefore needed to shore up collective bargaining, which has been declining in most European countries. The commission could start by issuing country-specific recommendations (CRSs) that include promoting multi-employer bargaining, for example by facilitating the extension of collective agreements. But, while the commission had the opportunity with the 2018-19 CSRs to lend  support to the ‘fair wages’, ‘adequate minimum wages’ and collective bargaining mandated by the European Pillar of Social Rights, this was a road not taken.

Of course, unions will themselves be stronger bargaining partners for employers if they can reverse the decline in their membership. But they could do with more help. Opportunities for social dialogue, which underpin unions’ strength, could be assisted by implementing European framework agreements between the social partners in EU law, to give them more bite.

Moreover, as well as a longed-for uplift in wages, boosting democracy at work may restore people’s faith in the future. Responsible employers are unlikely to object because workplace democracy also promotes company sustainability. Workers with a voice are workers who feel they have a stake in the success of the enterprise and hence are happier and more productive.

Figure 2:  trend in real wages 2009-18 after discounting growth in ouput per person employed (percentage points)

Source: AMECO database

Changes to the nature of work itself are a further source of insecurity. The Benchmarking report notes that, while the quality of human capital is increasing, the quality of jobs on offer is in many ways declining. Non-standard forms of work suit some workers seeking greater flexibility, but for others they mean greater precarity. The ‘gig’ and ‘platform’ economies that are beginning to transform labour markets in service sectors carry multiple risks for workers, including an increasing likelihood of in-work poverty and deepening social inequalities. The rise in the proportion of part-time and temporary jobs in the labour market should sound a clear warning about labour-market precarity.

Fear for the future

Plainly, a lot of Europeans feel the economic gains of the last few years have passed them by and they worry about their future. One symptom has been a rise in support for populist politicians and the far right. Some one in five voters are apparently choosing to believe that migrants and welfare scroungers, rather than unfair and short-sighted economic policies, are the source of all their problems.

Politicians do need to offer citizens more than a dry diet of economic data to justify what they are doing. But good jobs, rising wages and effective social systems provide people with the capabilities to lead the lives that they want—and their absence leads voters to turn to those with simplistic answers to complex problems.

The EU’s achievements—bringing peace and prosperity to a continent once ravaged by populism and war—need to be celebrated more. But even this is insufficient. Policy-makers should jettison the bad economic ideas of the past and accelerate current trends towards re-regulation of markets and better co-ordination of policies. Only then will they be in a position to knock down spurious but enticing arguments that ‘Europe’ means entrenched elite privilege.