Žilvinas Šilėnas. The European Pillar of Social Rights: Vague Answers to Real Issues

The European Union is contemplating the European Pillar of Social Rights. According to the official documents, it should be applicable to countries in the Eurozone and should include some statements about how the EU envisions well-functioning and fair labor markets and welfare systems. The Commission also stresses that this document will complement the existing systems (which are largely under control of member-states) and that non-euro countries could join this system if they wished to.

As usual, the wording of this political declaration is vague and the purpose is unclear. Will it bring more flexibility to the EU economy and labor markets or will it make them more rigid? The whole text is permeated with the spirit of having your cake and eating it at the same time: more employment, more protection, more public goods, etc.

The sad part is that these problems are real and tangible. First, the after-crisis recovery of Europe is slow, productivity growth remains low and living standards are not increasing fast enough. Of course, one could argue that even 1 to 2 percent of GDP growth is tolerable.

However, one might also suspect that an entire generation of Europeans is waiting for a return for the pre-crisis times, when wages grew fast, credits were cheap and accessible, and the future seemed carefree. Long waits foster frustration and frustration leads to political radicalization. Vaguely worded political declarations will not suffice.

On a side note, it also seems that some European governments are also waiting for the good times to return. Instead of implementing reforms to make member-states more competitive and less exposed to sovereign debt, many national governments are railing against Brussels and austerity instead.

Those in the Eurozone who cannot devalue their currencies and trick the population into accepting lower wages might harbor ill feelings towards the Euro. Note that the Pillar is designed for countries within the Euro area.

Second, the economy is changing. Sooner or later more and more professions will be hit by automation, robotization and other labor-saving technologies, which in turn might disrupt the existing economic structures and economic life.

On the one hand, this disruption, albeit destructive, is long overdue. Automation has transformed agriculture and manufacturing and might naturally have similar effects on services. Especially when politicians in many countries are advocating for tighter restrictions on work and pushing for higher wages. Simply put, if a Californian politician decides to ratchet up the minimum wage to 15 dollars per hour by 2021, entrepreneurs will design a robot that can flip burgers for less than that. Consequently, one of the first burger-flipping robots is currently employed in San Francisco.

On the other hand, many Europeans (or more precisely voters) are not willing to accept this changing reality. If one holds the view that Brexit was in part decided by the sentiment against immigration of cheaper labor from abroad, imagine what resentment the machines in labor market might bring. Of course, this will galvanize hordes of neo-luddites, anti-globalists and anti-capitalists who, as usual, will blame corporations and capitalism in general, even though it is precisely labor market regulation that will to blame, at least partly.

Third, Europe is getting older. That means less people working and more people relying on social security to provide for them. This issue is nothing new; it can be partially mitigated by increasing the retirement age and changing the system of retirement savings (e.g. the second and third pillars of social security, private savings, etc.) But given how politically easy (and tempting) it is to add various entitlements to already existing social security systems (and how difficult it is to get rid of them), one would have to bet against the possibility that member-states will cope with this in a rational manner.

Can the European Pillar of Social Rights cope with these issues? Can we really hope that a new document, riddled with words such as “social market economy,” “fair working conditions” and “social rights” will be a force into the right direction. I hope so, but I would bet against it.