European Thinking Lab Summit Social Cohesion Opinion

Labour Market Duality in Southern Europe

The need for greater fairness and intergenerational solidarity at the workplace

"Lego generations" (CC BY 2.0) by ansik

The first European Thinking Lab took place from 25-27 November in Lisbon. During the Summit, the contributors cooperated within their Thinking Lab and worked out brief policy proposals. Arnolds Eizenšmits is engaged with the topics of Labour Market Duality in Southern Europe: significant differences in Employment Protection Legislation between ‘insiders‘ and ‘outsiders‘ condemn youngsters in Southern Europe to precarious jobs.

In general, many experts, such as García Pérez and Dolado, share the diagnosis of the Thinking Lab’s Social Cohesion group that currently labour markets in Southern Europe are too heavily favoring older workers in well-protected jobs with relatively good working conditions. On the other hand, young people struggle to access jobs offering a good level of social protection and satisfactory remuneration – instead heavily relying on precarious employment.

In particular, there are strong differences in the degree of employment protection legislation (EPL) between workers hired under permanent/open-ended and workers with temporary/fixed-term contracts; this has emerged as the most salient feature of dual labour markets within which only a minority of youngsters can gain access to permanent contracts.

What measures could be taken to tackle this?

One potential course of action could be to reform EPL on the national level – regarding factors such as the size of the severance payments that firms are required to make, the periods of notice that are required before a dismissal and the range of conditions under which dismissals can be made – in a way that reduces the difference between permanent and temporary contracts. More radically, it might be worth considering the introduction of a Single Open-Ended Contract with termination costs smoothly increasing with job tenure (up to a cap), and applied to all workers.

Another prominent idea on how to tackle this issue is by moving towards a flexicurity strategy, which is considered a success story in Denmark and refers to the objective of reconciling the needs of a flexible labour market with those of robust social security. Following the economic crisis, the share of workforce with involuntary temporary or part-time contracts had increased even in southern European countries, where flexible contracts are not very widespread. Higher flexibility, however, was not reached as the result of a well-defined policy strategy, but rather as the consequence of shrinking economic activity. It has been criticised as “flexibility without security”, thus casting doubts on whether that is a feasible model for countries in southern Europe.

All in all, recent labour market reforms in Europe have received varying, even conflicting evaluations. Thus it is too early to put forward solutions confidently; the subgroup on Labour Market and Social Policy Reform will further investigate this issue during the following months.