Social Dumping and European Economic Integration

Abstract

Social dumping has become an important EU issue, yet few studies provide an economic assessment of the potential size of such effects. This paper examines the prospects for social dumping in an era of greater European econ omic integration. Initially the paper docu ments large differences within the E U in the composition of labour costs and labour market regulations, thereby establisbing the potential for social dumping effects. It then considers the development of the differences in em ployers' social security expenditure over the last thirty years and concludes that there appears to be no evidence that high social charge economies have performed poorly during this period. The process of intra-union trade within an European economic and monetary union is then examined and the con clusion is made that further European econ omic integration is unlikely to create signifi cant dumping effects. Differences in productivity levels and the relative importance of direct earnings largely offset the differences m social charges, whilst rncreased specializ ation within the Union reduces direct compe tition between 'low' and 'high' social charge member states. The failure to find evidence of significant social dumping effects does not necessarily imply support for a levelling-up of social welfare provisions in the E U. The final part of the paper addresses this issue, devel oping the proposition that a strengthening of EU social policy may assist the creation of a high skill and high productivity growth con vergence club in the E U.