I'm beginning some research into the economics of trade unions, and whether they make sense in a mature market. My concern is derived from two recent events - first, the decision by Irish Ferries to replace its domestic workforce with cheaper East European contractors, and second, the Health Service problems which appear at least in part to stem from trade union politics.
The Irish Ferries dispute was one of a number of incidents where, generally, expensive Irish labour was being replaced by cheaper free-moving, newly-acceded European labour, generally from the former Soviet Bloc, in the Baltic states and Poland. The Gama dispute in 2005 also had similar problems, where imported Turkish labour was not afforded the same rights that Irish workers were entitled to. The whole series of events were symptomatic of what was termed a 'race to the bottom', where Irish industry (and indeed the state itself, through sub-contracting and semi-state structures) was seeking to minimise costs by employing cheaper labout from overseas. The immediate thought struck me that there were three facets to this debate. First, Irish unskilled workers were annoyed that their inflated wage demands were suddenly unacceptable in the face of others who were willing to do the same work for much less. Second, Irish trade unions were annoyed that workers rights were being ignored, which was de facto illegal, when foreign workers were employed. Third, that the unions themselves were being frozen out by the recriutment of non-unionised labour, and often contract non-permanent labour.
The Irish Corporations who were directly or indirectly seeking to recruit cheaper labour were de facto acting properly in trying to minimise costs and maximise shareholder return, which is what they are set-up to do, and indeed under company law this is what they are obliged to do. The corporation would technically be acting in breach of company law if an opportunity to secure reduced costs and increased shareholder return were ignored. I think there is a need here to separate out workers rights from the 'cheaper option' argument.
The 'cheaper option' argument is the most divisive, and emotionally charged aspect of all this. Workers are basically concerned that they are no longer competitive, that their way of life is being eroded by European enlargement, and by a general levelling of the playing field for unskilled labour in particular. The answer to this problem, however, is that these workers need to skill up, to increase their usefulness through training and education. This is of course difficult for the older members of the labour force who find it more difficult to change.
The workers rights argument is more complex. First off, laws are laws and all employees in Ireland are entitled to the protection of those laws. Where those laws are not upheld, this is not right. However, as arguments over the European Services Directive have shown, there are structures within which employees can be employed in one country, and therefore under one legal regime, and physically work in another country with a different, though non-applicable regime. My career has involved considerable consulting, for example, very little of it based in Ireland, but my employer has always been an Irish company. My work has taken me all over Europe, but never did I seek the protection of the laws of that country, I was always under the impression that the terms of my contract of employment, under Irish company and employment law, would be protected by the courts of Ireland. Now that's OK for me, as the standards in Ireland are pretty strict, and I am a skilled worker. However, let's invert that. A Polish worker working for a Polish company but labouring on a building site in Tullamore remains subject to Polish law, and is out of sight and out of mind of the Polish authorities, let alone subject to standards that may or may now fall below those expected in Ireland.
In a completely hypothetical example, this may mean that while the Irish minimum wage is €7, and the Polish do not operate a minimum wage, the worker may only receive €2. The worker may be fired after a single written warning as opposed to the complex employment law in this country that requires a complex series of choreographed events before anyone can be dismissed, and even then the possibility of losing an unfair dismissal claim is significant. The worker may be required to work more than 39 hours a week, and not get paid for overtime, which may be legal in Poland but not in Ireland. I do not at this stage know what specific differences there are between Ireland and any other European country, but there are differences to be sure, some of which will be either more or less favourable to the worker in each jurisdiction.
What we have therefore is an opportunity for European companies to trade on the imbalance in labour laws across the EU, and indeed beyond. The free-movement of workers in an enlarged EU makes Europe more susceptible to this. This is like globalisation, generally. People complain about people working for one dollar a day in China or Bangladesh to make products for 'the West', which is simply another example of corporations exploiting global imbalances in wage expectation and cost of living.
Ultimately, the globalisation process, and the European enlargement process, will rise all boats, and, to mix my metaphors, ultimately level the playing field. What happens in the interim, however, is that raw materials and labour will no longer be acquired in the richer countries where the cost of production is so high (think also the demise of the Irish and European sugar industry). The cost of products in the West will not rise so dramatically as a result, and may well decline. Therefore jeans that would cost well over €100, possibly €200 to make in the west can retail for as little as €20. This would not be possible without globalisation. Government building contracts would be far more expensive were companies like Gama not able to offer such low prices on labour costs.
The question therefore is this: do we go on and allow globalisation and the markets to take their natural course, causing some pain in some sectors in the interim (both in the rich countries where jobs flow east, and in the poor countries where labour standards are poor) or do we intervene to artificially manage the market so as to minimise the pain of transition, and implicitly therefore delay that transition (to the level playing field that I spoke of earlier)? Can the invisible hand of the market actually manage these things well, or does it need support? And the answer to that question is in two parts - social and political.
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