Delegated Labor – Storm in a Teacup?

A delegated or temporary worker is one who is sent by his company to work in another country and is paid at the rates of the country from which he has been sent. Thus a Polish lorry driver working in France is paid Polish rates. To the host country he is an interloper who is undercutting the local labor market by costing less. To the expediting company he is a competitive element in the international jobs market.

In October, the Employment and Social Affairs Council of the European Parliament started working on an amendment to the directive on delegated labor. The Polish, Hungarian, Latvian governments suffered a setback when the commission decided not to support their standpoint and curtailed the limits on delegated labor from two years as Polish-Hungarian side wished to 12 months (extendable to a further six) and to include the transport sector – thus quashing Eastern European aspirations for compromise.

Who started the war?

French President Emanuel Macron had made much of the abolition of Polish delegated workers to France. Indeed, it was a pillar of his election campaign and his economic policy- an end to “social dumping” as he said. During his visit to the Eastern Europe over the summer he told the then Austrian Chancellor Christian Kern “The single European market and the free movement of workers is not meant to create a race to the bottom, in terms of social regulations. It is exactly this that is fuelling populism and eroding confidence in the European project.”

If governments adopt pay parity, the French get a level-playing field and the market is equalized. After adopting French salaries and social security contributions, the market becomes less attractive for Poles.

Poland is fighting

The Polish government doesn’t give up the fight. Although it may not be able to block the whole directive, it hopes to negotiate an opt out for transport. As business daily Dziennik Gazeta Prawna stated the fight is worth it. Poland has a 25 per cent of the market share with 2 million workers delegated within the EU.

Poland’s Prime Minister Beata Szydło said at a conference of Visegrad Group PMs: “We support the search for compromise like all the rest of the Visegrad Group. We are on the right road for such a compromise.”

“I will fully cooperate in further discussion on delegated workers, mainly in the transport sector,” said Ms. Szydło during her latest visit to France. “I do believe that a mutual understanding is possible. This will allow us finding a compromise in accordance with the common market’s basic rules,” she added. President Macron said that so far Poland and France disagrees on the matter and added that he also would like to continue the discussion.

Elżbieta Rafalska, Poland’s Minister of the Family, Labor and Social Policy commented the vote and said “I understand that the problem of delegated workers concerns ourselves and Polish transport companies, but we clearly stated that not only does today’s fight concern Polish businessmen but also the real freedom to provide services and competitiveness of all transport companies, EU companies who will lose on competitiveness.” She added that “the positive thing in the adopted directive is the provision of a four years transit period. This is a relatively long period that will give service providers time to get acquainted with the new regulations and adapt to new solutions.”

Ms. Rafalska also expressed her dismay at the lack of Visegrad 4 Group unity on the issue, as the Czech Republic and Slovakia did not vote with Poland and Hungary. It seems that Mr. Macron’s visit earlier in the summer may have persuaded them.

A bit of history that French don’t remember

Professor Krzysztof Starzec of the Université de Paris and the Sorbonne, during the CASE (Center for Social and Economic Research, a Warsaw based think tank) and mBank seminar said that the problem lays in the heterogeneity of the EU countries. “In its origins, the core members had a certain similarity of tradition and location. There was little mobility before 2004, so it was not a great problem. The challenge for old and new Europe lay in the growing diversity thereafter, but the convergence of economies proved to be slower than politicians and economists had hoped or imagined. In short, the more diversity, especially in social security payments, the more pressure on workers to move,” Prof. Starzec continued.

The diverse financing of social security and its benefits (as a proportion of wages, 18-30 per cent in the EU and 34 per cent in France), with each country financing its own system, is a part of the attraction. Contributions in France are higher than progressive tax levels and the French have a higher cost of labor. The Polish system is similar but with lower contributions, higher taxes and less generous benefits.

In 2015, the total penetration of the French market by the delegated labor was 0.6 per cent (translating to 0.4 per cent of FTEs). The Polish delegated worker usually spend 3 months and works in transport or construction.

Prof. Starzec called Macron’s actions a “propaganda crime” that has nothing to do with the actual system of delegated work, which is very much regulated and controlled. And as can be seen is not a huge phenomenon.

Jacek Męcina, PhD, lecturer at Warsaw University, outlined the state of the Polish labor market in the last 15 years. Poland entered the EU with a very high unemployment which has enormously improved since then. According to him a delegated worker is “a better form of utilizing human capital” and will give Polish companies international expertise and increase their competitiveness. He reiterated the fact that old Europe delegates its workers too. “France could lose if tries to block this trend. Delegation is a fact. It is the social economy versus a free market one,” said Mr. Męcina.

The long term view –what kind of Europe do we want?

The problem of delegated workers compared with challenges that EU faces is truly a small one. President Macron, thinking only about the next election, decided to play on French emotions. Prof. Starzec commented that the question is how did he get involved in such a small matter. The current French mentality cannot comprehend an expansion of the economy embracing incoming workers. For the French an incoming worker must displace a French one.

But, as Prof. Starzec recalls, before Poles there were Portuguese and Italians workers. SNCF (the French State Railway Company) had a monopoly on road transport and when this went bust there were no French firms to step in, so the market was taken over by Polish companies. This amounts to 90,000 companies and 500,000 workers, according to Stefan Schwarz of the Polish Labor Mobility Initiative, an organization that promotes mobility of labor in Europe. In 2014 the sector was worth around EUR10bn.

During the seminar, the French case was contrasted with German one. The German motor industry hived out its low cost value added components to Hungary, Czech Republic and Poland (although Germany has made similar calls to restrict Polish lorry drivers by insisting on German wage levels for instance).

The structural changes may relieve the issue. The transport sector may see a generational change as Polish workers do not want to spend time away from families driving around France. We may see Ukrainians replacing Poles. This may be the loophole – rotate workers more often, thus maintain a presence and competitive advantage on the market.