Social Competition in the EU: Myths and Realities

The debate on social competition, or social dumping, is as old as the European Union itself, yet it has been getting louder in the recent years marked by economic turmoil and high levels of unemployment in many of the member states. Public opinion and politicians are worried that intense competition in the cost of labour between the member states might result in the “race to the bottom” in terms of social standards.

This Study by K. Maslauskaite aims at providing a global analysis of the various existing components of social competition in the EU in order to see whether the differences between member states leave enough space for engaging in a generalised “social dumping”. Due to the size limitations, only the general trends on the national level have been observed using the most relevant empirical data.

Overall, the analysis reveals some intriguing developments and shows that, generally speaking, there is little space for regime competition between the European “core” and the “new” member states. For example, in terms of productivity-adjusted total labour cost, some of the new member states have not only lost their status of the cheap labour destination, but have also become more expensive than the European core.

Unexpectedly, three member states not belonging to the Central and Easter European club, namely the UK, Ireland and to some extent Luxembourg, seem to consistently outperform all the other countries in terms of real labour cost both in direct and indirect terms. In this sense, these countries could be considered as the most realistic suspects of “social dumping”. It does not automatically follow that these member states do engage in social dumping though; it only implies that their economic model is the most efficient in terms of labour cost. After all, as discussed in the Study, disloyal and genuine welfare-enhancing competition might be sometimes difficult to disentangle, which makes the argument of “social dumping” difficult to prove.