Dobrin Ivanov, executive director of the Bulgarian Industrial Capital Association:
Bridging the pay gap in Europe is hard for now
The migration of young and well-educated people from 'new' Member States to 'old' is also a form of social dumping and needs regulation
8 September, 2017
Close-up: Dobrin Stefanov Ivanov has master’s degrees in accounting from the University of Economics – Varna and in law from Plovdiv University “Paisii Hilendarski”. He has also completed several postgraduate courses and specialisations. Ivanov has been the executive director of the Bulgarian Industrial Capital Association, a nation-wide body of Bulgarian employers, since 2009. He is a vice-chair of the National Employment Promotion Council with the Ministry of Labour and Social Policy, a member of the Council with the Executive Director of the Employment Agency and of the Monitoring Committee for Operational Programme "Human Resources Development", financed by the European Social Fund.
- Mr Ivanov, is it possible that Eastern Europe upsets president Macron’s plans? His tour last week was seen as anything - from an important step in combating the so-called social dumping in the EU, at the outset of the new political season - to somewhat of a failed attempt to garner support for proposed reforms. What is your take on the planned amendments to the 1996 directive, which was actually revised in 2014 and then again in 2016?
- This is largely a political issue. The overhaul of the EU’s posted workers directive was among President Macron’s campaign pledges and, as we see, he is acting on it. Tightening the rules is set to protect the interests of French workers and French employers, who pay higher wages and social security contributions. In addition, it would deepen European integration. However, the problem is that social dumping has two sides. Eastern European countries, and Bulgaria in particular, need to protect their national interests, because the proposed amendments are undoubtedly detrimental to them. If the overhaul is introduced as it is currently envisioned by the European Commission, or, even worse, with the changes put forward by France, it would mean loss of jobs for us.
- The European Commission suggests limiting the time for which a worker is sent abroad to two years, after which they will be expected to return or start paying social security contributions to the host country. However, France and Austria propose a maximum period of one year. Why is that change of such significance?
- The current directive does not set out a time limit for posted workers and, if such is introduced, it will severely impede eastern European employers who have contracts and offer services in Western Europe. Implementing the principle “equal pay for equal work”, being promoted by Macron, is also bound to create obstacles for eastern European employers. As things stand, they are required to pay the minimum wage existing in the country where they sent workers. Raising their employees’ salaries will also increase costs and make the final products more expensive, rendering them uncompetitive. The third consideration is that paying social charges in the host nation beyond the time limit outlined in the directive will negatively impact not only Bulgarian employers but the state as well, as these funds will go to another social security system. So it is in the interest of Bulgaria and all eastern European countries for the directive to stay as it is.
- At the quadripartite meeting in Salzburg, the Czech Republic and Slovakia promised Macron support for the contentious overhaul. But Slovak Premier Robert Fico delicately mentioned that Hungary, and even more so Poland (which has the largest number of citizens working abroad at 430,000), will also have to join the effort. And this is highly unlikely. In Varna, Macron fired some serious shots against Poland but that is unlikely to change the stance of Beata Szydlo’s government, which views the amendments as undermining Polish interests. Will the overhaul be pushed through anyway?
- In all likelihood yes. But a compromise acceptable to all parties will be sought in terms of both time limits and wages. It is a good thing that these matters were not discussed outside of the European context during President Macron’s meetings. One of the goals of the French head of state was to learn about these countries’ concrete demands.
In fact, the media presented the agreements reached at the Euxinograd meeting as some kind of a swap trade - Bulgaria might back the directive’s amendments if the country receives France’s support for its bid for a membership in the Schengen area, the Eurozone and OECD. But it seems to me that the commitments we got are not reciprocal given that the directive vote needs a qualified majority of 55% of countries, i.e. 16 of the 28 Member States, representing 65% of the European population. Even if France backs our Schengen bid, the Netherlands or another country could still thwart it, given that new members are admitted with a unanimous decision by existing members. Meanwhile, the matter of Bulgaria entering the Eurozone’s “waiting room” mechanism faces the same snag, in this case the ECB has the last word. The picture regarding OECD membership is very similar.
- Bulgaria has a pretty modest presence on this market. And yet, how many workers do Bulgarian companies have abroad and in which sectors? The total number of posted workers in the EU is reportedly two million.
- True, Bulgaria will not feel the effects as much. According to the French institute of statistics, about 14,000 Bulgarian workers have been sent to the country since 2015, which is a relatively low number. The bulk of Bulgarian workers in Western Europe are employed in the sectors of transport and construction. If the directive is amended, we will probably lose these jobs. However, this is unlikely to cause major shocks, considering there are about 50,000 vacancies in Bulgaria right now.
But it is a matter of principle - won’t this overhaul violate the principle of free movement of capital, people and goods? Let me repeat, the proposed measures are a step towards increased integration in Europe, and yes it would be nice to bridge the gap in pay and social charges in Europe, to have joint defence, etc. But are we ready for this?
- Is road transportation of goods with heavy trucks the most vulnerable service from the standpoint of Bulgarian companies?
- Transport will most likely be exempt from this directive. Bulgarian PM Boyko Borisov and President Macron discussed the possibility for the posted workers directive to apply only to services and have a separate directive for transport workers that will have different regulations. Either way, the EU is moving towards tighter rules and uniform conditions. This spells losses for countries like Bulgaria on two fronts. One is less budget revenues due to loss of business and therefore taxes and social charges. We are also talking about diminished competitiveness. The chasm between the West and the East in terms of standards of living is still there, as the EU’s cohesion policy has proven rather ineffective. Eastern Europe is lagging behind. If we move too quickly towards integration and this social dumping transforms into a tax one (should we move to similar rates) or a healthcare one (if contributions become comparable) then the area of Europe in need of development will lose its competitive advantages, leading to loss of investments and jobs. And instead of convergence we will have further divergence between the camps of the so-called “new” and “old” Europe.
- What is the solution then?
- There is no “one-size-fits-all” solution for Europe, as the interests of eastern and western countries on the subject are conflicting. I would like to highlight a key and often overlooked problem that was not discussed in President Macron’s meetings either. When speaking of social dumping and Bulgarian firms stealing jobs, we need to consider another fact. In the last 15 years alone, more than one million people left Bulgaria to live and work in western countries. These are primarily young and well-qualified people, whose education was paid for by the Bulgarian state. And yet, they are contributing to the GDP of other countries. They are customers in those countries, which is another benefit to the latter. This matter should also be featured in negotiations as a negative effect from integration that we are experiencing. This is essentially a loss of workforce and a brain drain for Bulgaria’s economy, which is another form of social dumping. A European policy is needed in that respect as well.
- Don’t you think that eastern European firms share a significant portion of the fault for this loss of qualified workforce, with the low salaries and poor working conditions they offer? Why do they take workers for granted?
- The main reason for low salaries in Eastern Europe is the regional economies’ structure. To raise the level of pay, technological investments should be made in order to improve labour productivity. This is an appropriate time to mention once again the cohesion policy and the European funds that primarily finance its measures. Bulgarian employers are learning to value human capital better and are investing in personnel training with greater frequency.
- The influential business association Business Europe insists that the proposed changes to the posted workers directive will lead to uncertainty and place a heavier administrative burden on companies. Instead, it calls for stepping up the combat against illegal practices. How do you see the situation developing?
- The informal sector of the labour market creates competitive advantages to employers involved in it, defrauding the country’s budget. Indeed, the informal economy and the black market in Eastern Europe are larger and that has an adverse impact on social systems and salaries. In other words, if measures are taken to curb the informal sector in our labour market, salaries, social security contributions and budget revenues will all go up. Inarguably, this would help Europe’s cohesion.
- The EU’s policy on labour market regulations is an especially urgent topic in France, where the unemployment rate is high and the far-right National Front is clamouring for abandoning the current European rules. Social dumping is also cited as one of the causes behind Brexit. What should be subject to regulation and what not, as far as the labour market is concerned?
- We believe that the regulatory regime should be eased and that the state should interfere less in the labour market. The minimum wage ought to be negotiated annually between employers and trade unions, taking into account economic indicators such as labour productivity growth, GDP growth, etc.
- What are your expectations for the fate of Bulgarians working in the UK in the aftermath of Brexit? Nothing concrete has emerged from the ongoing talks yet.
- There is a good number of Bulgarians working in the UK. Some of them occupy prestigious positions that require a high level of qualification, in the City of London, for example. Most, however, are working unskilled jobs in agriculture and manufacturing. If the EU and the UK do not agree on the post-Brexit status of European workers, they will likely be forced to return to their home countries. This would deal a heavy blow to the UK economy, with entire industries feeling the reverberations - car-making, food industry, agriculture, etc. And yet, such a scenario might be a good news for eastern European employers because their economies will get an infusion of labour and the problem with the shortage of workers will be mitigated.