Social benefits and cross-border mobility. Sticking to principles may yield better practical results for everybody

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TRIBUNE 17 JUNE 2016
SOCIAL BENEFITS AND
CROSS-BORDER MOBILITY
STICKING TO PRINCIPLES MAY YIELD BETTER
PRACTICAL RESULTS FOR EVERYBODY
Frank Vandenbroucke | Professor at the University of Amsterdam, Social affairs adviser at the Jacques Delors Institute
ssues that are relatively unimportant in quantitative terms often weigh heavily in the political debate. The
political capital invested in the question of social benefits paid to non-nationals is a salient example of this
paradox. However, principles can be important in politics. I make a link with the longstanding debate on posting
of workers in the EU. These two debates have been separated. I argue that EU Member States should approach
these two debaters from a single, principled perspective. The argument is not about principles for the sake of
principles: sticking to consistent principles may ultimately yield better results for everybody.1
This Tribune reflects a theme developed in the Inaugural Lecture of Frank Vandenbroucke on 1 June 2016, at
the occasion of his appointment as University Professor at the University of Amsterdam
Did David Cameron return with a ‘big victory’ from
his negotiations with the other EU Member States? In
economic and budgetary terms, the concrete issues in
which Cameron invested his negotiating capital and
on which he gained concessions do not weight heavily.
In terms of spending, the social benefits on which
the negotiating agenda focused are less than peanuts,
and the UK’s room of manoeuvre to change the rules
of EU social security regulation is clearly limited. This
underscores the fact that the European leaders were
not discussing important economic or budgetary questions
but matters of principle. However, principles can
be important in politics. Not just because they define a
political project; also, because they serve as a compass
in coordinating our approaches when we have to solve
conflicts. Depending on the compass, the coordination
may yield superior or inferior solutions.
1. Non-discrimination in social policy
and posting of workers
The EU is built on the basis of a principle of non-discrimination
among EU citizens: Belgian social policy
cannot be different for a Polish citizen in Belgium
and a Belgian citizen in Belgium. For sure, this does
not mean that a European citizen can enter Belgium
without means of existence and immediately apply
for social assistance: European legislation does
not impose such an immediate and unconditional
generosity, at least not for those who are economically
inactive.2
But a Polish citizen working in Belgium (to
take that simple example) enjoys the same social rights
as the Belgian citizen working in Belgium: he is integrated
into the Belgian solidarity circle, with everything
that it entails. What is the rationale for that principle?
First of all, it facilitates cross-border mobility.
Second, it makes tangible an ideal of European citizenship,
based on non-discriminatory access to national
solidarity circles. Third, it justifies the fact that the
Polish worker’s employer pays the same social security
contributions to Belgian social security as the Belgian
worker’s employer. In other words, non-discrimination
in terms of social rights, justifies and so sustains the
principle that we do not tolerate competition between
the Polish and the Belgian social security system on
Belgian territory.
Competition between the Polish and the Belgian social
security system is exactly what happens in the context
of ‘posting’ of workers: a Polish worker who is ‘posted’
in Belgium remains integrated in Polish social security.
Thus, posting is an exception to a foundational
principle of the European project. In order to accommodate
work in other countries on short-term projects,
such an exception is needed, a fortiori if one
wants to develop an integrated market for services.
Admittedly, the scope for this exception seems to have
become too large, and there are important problems
I
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Social benefits and cross-border mobility
of inspection and control. That is the reason why a
number of Member States, notably the Netherlands,
ask for reform. The European Commission launched
a proposal to reform the Posted Workers Directive
on March 8th, but that proposal has, politically, been
blocked by the fact that 11 Member States (Centraland
Eastern European Member States, together with
Denmark) used the so-called ‘yellow card’ via their
national parliaments.
I should add to this that posting does not create a
simple pattern of ‘social security competition’ against
the mature welfare states of North-Western Europe.
Social security contributions are lower (in proportion
to wages) in Poland than in Belgium or France, but it is
not the case that social security contributions are systematically
lower in the new Member States, compared
to social security contributions in the EU’s mature welfare
states (Denmark and the UK are counterexamples,
with social security contributions that are much
lower than in the EU12). The insufficient control of
‘letter-box’ companies, which are created for reasons
of wage cost optimization, is a major problem, rather
than a systematic difference in the relative weight
of social security contributions between mature and
less developed welfare states in the EU.3
Moreover,
the main areas of concern with regard to posting, for
countries that want to reform the system, are related
to wages, working conditions and industrial relations,
rather than to differences in social security systems.
In other words, posting is more than just an exception
to principles of social security coordination, it is
an exception to a broader notion of integration of all
individuals working on a country’s territory into the
social fabric of that country. This broader notion of
integration into the ‘solidarity circle’ of the Member
State in which one works, both in terms of wages,
working conditions and social security contributions
and entitlements, is the overarching principle at stake;
the challenge is to find a balance between the need for
an integrated market in services (for which posting is
necessary) on one hand, and the foundational role of
that overarching principle on the other hand.4
2. The United Kingdom’s special case
From a macro perspective, posting is a relatively marginal
phenomenon in EU labour markets, but in many
countries posting is a more important phenomenon
than, say, child benefits paid out to non-resident children.
Moreover, posting has an important impact on
specific sectors in which it is concentrated. Whilst
child benefits paid to non-residents is truly ‘peanuts’ in
most EU Member States, the problem of posting cannot
be dismissed as ‘peanuts’.
However, posting is relatively unimportant in the
UK. Compared to Germany, France, Belgium, the
Netherlands and Austria, the number of posted workers
sent to the UK is limited, notably when the comparison
is limited to posted workers sent by EU12
Member States. The number of posted workers ‘sent’
by UK companies is also relatively limited, certainly
when compared to Poland, Germany and France.
Geographical proximity is probably an explanation
for the limited importance of the UK as a destination
country (for workers sent from the EU12), as compared
to some continental welfare states. But, prima facie,
it is a plausible conjecture that the competitive edge
of posting vis-à-vis the use of British employment contracts
for mobile workers is reduced by the low level
of social security contributions in the UK, the high
degree of labour market flexibility and the still relatively
low level of minimum wages (from the employers’
perspective), and by the system of in-work benefits
linked with British employment contracts (from
the workers’ perspective).
Even when we discard the difference in employers’
social security contributions, the UK is a rather special
case with regard to the relationship between ‘net disposable
income’ and ‘gross wage’, notably at the bottom
end of the labour market. Figure 1, based on the
MIPI-database5
, illustrates this: we compare (in euros)
the gross wage income for couples with one full-time
earner, working at the minimum wage, and their net
disposable income in two cases, one for a couple without
children and one for a couple with children. The
countries are ranked on the basis of the level (in euros)
of the net disposable income in the case of a couple
with two children.
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Social benefits and cross-border mobility
The minimum wage in the UK is lower than in all EU15
Member States, except Greece, Spain and Portugal6
,
but the net disposable income for a couple with two
children living on one full-time minimum wage is relatively
high when compared with most of the EU15
Member States. For couples with children, the British
in-work benefits are very important indeed. Space forbids
to elaborate upon the merits and drawbacks of a
policy based on in-work benefits. I consider it a sensible
policy, with advantages, disadvantages and some
pitfalls.7
For the issue at hand in the UK-EU deal, two
observations follow from Figure 1:
• in terms of the net income level for these couples
with children, the UK is not (or not much)
more generous than Finland, Austria, Ireland,
Germany, France, the Netherlands and Denmark;
so conceived, the UK is not an exceptional ‘welfare
magnet’;8
• the British budgetary effort made to achieve the
twin goals of attractive net disposable incomes for
households with children working on low wages
and relatively low labour costs (i.e. the difference
between the blue and the yellow bars in Figure 1)
is considerable, but it is comparable to the budgetary
effort in Austria and Ireland9
; in Finland and
Germany this budgetary effort is also important,
though ca. 30% lower than in the UK. One should
note that the instruments applied differ from country
to country. In the UK the budgetary effort is
the combined result of a ‘working tax credit’ and a
‘child tax credit’, i.e. a system of non-contributory
in-work benefits which include a top-up for households
with children; traditional child benefits play
a minor role in the UK, compared to these in-work
benefits. In the other countries, traditional socialsecurity
based child benefits are relatively more
important.
If follows that there is a certain ‘logic’ in the British
position, which seems relatively unconcerned by the
posting debate, but wants to safeguard its dual achievement
of high net disposable income for low-wage workers
with children and relatively low labour costs, yet
only for UK citizens. This position is underpinned by
the argument that in-work benefits are non-contributory
benefits, i.e. should not be submitted to the same
rigorous non-discrimination principles as traditional
social security benefits. The latter argument is important
from a European legal perspective, hence it should
be distinguished from the argument on child benefits
proper, which we briefly discuss in the next section10.
However, from a fundamental normative principle, I do
not find the fact that the UK’s position concerns noncontributory
benefits convincing per se. Moreover,
if the UK gets its way, it may become very tempting
for other Member States, who develop the same ‘budgetary
effort’ to support families living on low gross
wages, to explore similar ‘solutions’ to avoid ‘too much’
social benefits for working non-nationals. More generally,
the principle of non-discrimination will be under
increasing pressure. Therefore, in the final section, I
will return to the overall debate on posting and social
security/social policy coordination.
Net disposable income, couple with 2 kids Net disposable income, couple without kids Gross wage income
Source: CSB MIPI Version 3/2013 (Van Mechelen, N., Marchal, S., Goedemé, T., Marx, I., & Cantillon, B. (2011). The CSB-Minimum Income Protection
Indicators dataset (CSB-MIPI) (CSB Working Paper Series CSB WP 11/05). Antwerp: Herman Deleeck Centre for Social Policy, University of Antwerp).
FIGURE 1 Net disposable income and gross wage income
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Social benefits and cross-border mobility
3. Child benefits
To pay less, in net income, to Polish workers in the
UK than to British workers, for a period of 4 years,
goes against the grain of the non-discrimination principles
on which the EU is built. The discussion on the
level of child benefits is different and more nuanced.
Should UK child benefits be lower for children living in
Poland, because the cost of living is less? If the debate
could be strictly confined to child benefits, which are
supposed to compensate to some extent parents with
children for the cost of raising children (i.e. if this
debate is not extended to, say, pensions), it can be seen
as a largely secondary ‘implementation’ issue from
a European perspective. Discussions on child benefits
paid to non-resident children typically create big
emotions, although, in the UK and other EU Member
States, they concern budgetary peanuts. Hence, this
matter should be approached with some pragmatism.
A first pragmatic (and minor) consideration is that
linking child benefits to the cost of living in each of
the 28 Member States, makes the governance of child
benefits more complex, not only because one has to differentiate
28 countries, but also because the cost of
living is a rapidly changing parameter (take Poland,
in which the standard of living is evolving rapidly, not
necessarily on a par with what happens elsewhere).
Presumably, this would require a specific European
coordination mechanism, in order to avoid differences
in adjustment parameters across countries that cannot
be justified.
The second pragmatic consideration is more important:
it is about the kind of discussion on cross-border mobility
the representatives of ‘mature’ welfare states in the
EU (say, the EU15) may wish to have with the representatives
of less developed welfare states (say, the EU12):
should representatives of the most advanced welfare
states focus on issues such as lowering child benefits
for non-resident children living in less developed welfare
states, or should they focus on other questions? I
address this question in the next section.
4. On the basis of which principles should EU
Member States discuss cross-border mobility?
New Member States such as Poland typically want
as little limitations as possible on posting of workers
(since a liberal posting regime is economically beneficial
for them); simultaneously, they want as little limitations
as possible on the principle of non-discrimination
in social policy (since such limitations imply
a social relapse for Polish citizens). Thus, they apply
two principles that are, in terms of rationale and justification,
fundamentally at odds with each other, but
that seem to serve their short-term interests best.
The Dutch government, to take an opposite example,
has launched a campaign against what it considers
to be excessive and uncontrolled freedom in the
realm of posting, and has put this very high on the
EU agenda during the recent Dutch EU Presidency.
Simultaneously, the Dutch Prime Minister voiced sympathy
with Cameron’s agenda, notably on child benefits,
and signalled that they would like to apply a differentiated
scale for child benefits too. Just as the Polish,
they apply two contradictory rationales, motivated by
what they think is their short-term interest. But is this
really their interest?
In fact, in a European negotiation on these matters,
the Dutch government should address the Polish government
in the following way: “We are not in favour
of discriminating Polish citizens in the Netherlands,
and we are even not in favour of diminishing Dutch
child benefits for children living in Poland. But, please,
understand that we do not want to see our social system
undermined by excesses in the application of posting.”11
If such would be the principled approach of representatives
of mature welfare states, they may strike
a better deal with representatives of less developed
welfare states on both issues (posting, non-discrimination),
compared to a situation in which deviations from
the non-discrimination principle and uncontrollable
posting proliferate. If deviations from the non-discrimination
principle and uncontrollable posting thrive, we
will ultimately settle for an equilibrium with less social
protection than in the opposite case. Everybody would
lose in the end, in an archetypal example of how certain
types of coordination yield Pareto-inferior solutions,
compared to other types of coordination. Even
for a country like the UK which seems, currently, not
very concerned by abuses of posting, it may ultimately
be better – in terms of its national regulatory capacity
– to have a controllable system of posting, rather than
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Social benefits and cross-border mobility
1. I thank Sofia Fernandes for useful exchanges on this Tribune.
2. Sofia Fernandes, “Access to social benefits for EU mobile citizens: “tourism” or myth?”, Policy Paper No. 168, Jacques Delors Institute, June 2016.
3. For key data and a useful synthesis of the debate on posting, see Kristina Maslauskaite, “Posted Workers in the EU: State of Play and Regulatory Evolution”, Policy Paper No. 107, Jacques Delors
Institute, March 2014.
4. Space forbids to elaborate on other dimensions of this challenge, such as the correct treatment of frontier workers.
5. I am grateful to Natascha Van Mechelen (Center for Social Policy Herman Deleeck, University of Antwerp) for making available these data.
6. Sweden is not included in the comparison.
7. As Lane Kenworthy emphasizes in Social Democratic America, Oxford University Press, 2014, it must be combined with a sufficiently generous general minimum wage scheme, which means
that employers have to do ‘their part’ of the income protection of low-productive workers.
8. Cf. an argument developed by Declan Gaffney, “Are in-work benefits in the UK a magnet for EU migrants?”, Touchstone Blog 9.12.2014. I should add that the impact of the UK system on its
attractiveness for low-skilled workers from other countries should be assessed with regard to both the supply of non-UK workers and the demand for low-skilled labour by UK companies.
With regard to the supply of workers, the comparative generosity of the net income provided is the key determinant; with regard to demand for low-skilled labour, the comparatively low level
of wage costs is the key determinant. A priori, it is plausible to argue that the combined impact of supply and demand should boost the low-wage segment of the UK labour market, and thus
boost the inflow of non-British citizens in that segment in absolute numbers. Whether that impact occurs in practice would require further research. I am grateful to Bea Cantillon for pointing
this out.
9. And lower than in Luxembourg.
10. The legal discussion is complex. The UK in-work benefits are social benefits in the sense of art. 7 (item 2) of Regulation 492/2011 on the free movement of workers; the UK ‘child tax credits’ are
subject to regulation 883/2004 on the coordination of social security rights, but non-contributory and residence-based. Child benefits, discussed in the next section, are subject to regulation
2004/883. I am grateful to Herwig Verschueren for discussing this.
11. Obviously, neither the level of child benefits nor the regulation of posting are matters for bilateral negotiations between the Dutch and the Polish government. I am describing requirements
for coalition-building in these EU debates. The example is not purely theoretical. For a reconstruction of earlier discussions on posting, in which the debate on benefits for mobile workers
interfered, see Martinsen, D.S., An Ever More Powerful Court? The Political Constraints of Legal Integration in the European Union, Oxford: Oxford University Press, 2015, and forthcoming research by
Dorte Martinsen.
a free hand in the application of its in-work benefits for
non-British citizens and lower British child benefits for
children living elsewhere.
In other words, the compass of our principles may,
in the end, be important for the practical results we
achieve. Although the debate about the coordination
of social security and the debate on posting are now
separated (the former being postponed until after the
British referendum, the latter currently blocked by
resistance in a significant number of Member States)
Member States would be well advised to consider them
from the same, principled perspective. The challenge
is to find a balance between, on one hand, the need
for an integrated market in services (for which posting
is necessary) and the foundational principle of the EU
that mobile workers should be integrated into the ‘solidarity
circle’ of the Member State in which they work,
both in terms of wages, working conditions and social
security contributions and social policy entitlements.
Social benefits and cross-border mobility
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ISSN 2257-5731
ACCESS TO SOCIAL BENEFITS FOR EU MOBILE CITIZENS: “TOURISM” OR MYTH?
Sofia Fernandes, Policy Paper No. 168, Jacques Delors Institute, June 2016
A NEW START FOR SOCIAL EUROPE
David Rinaldi, Foreword by Jacques Delors, Preface by Nicolas Schmit and contribution by Marianne Thyssen,
Studies & Reports No. 108, Jacques Delors Institute, February 2016
EMPLOYMENT, MOBILITY AND SOCIAL INVESTMENT: THREE KEY ISSUES FOR POST-CRISIS SOCIAL EUROPE
Sofia Fernandes, Policy Paper No. 120, Jacques Delors Institute, November 2014
POSTED WORKERS IN THE EU: STATE OF PLAY AND REGULATORY EVOLUTION
Kristina Maslauskaite, Policy Paper No. 107, Jacques Delors Institute, March 2014
WHAT KIND OF SOCIAL EUROPE AFTER THE CRISIS?
Sofia Fernandes and Emanuel Gyger, Synthesis of the seminar
co-organised with the Gulbenkian Foundation, Jacques Delors Institute, February 2014
On the same themes…

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