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2005-10-26

The Vaxholm dilemma 

It had escaped me until now, but the ongoing debate over the labour dispute surrounding the activities of a Latvian company in the Swedish town of Vaxholm is instructive. The Latvian company Laval had won a building contract in Vaxholm. It brought its Latvian workers to the site who were paid according to a collective bargaining agreement with a Latvian trade union. This provoked the furor of the Swedish trade union, which demanded that the company pay its workers according to its own, substantially higher collective bargaining agreements with Swedish employers. The Latvian company offered to pay Swedish minimum wages as specified in Swedish law, thus fulfilling the respective provisions in EU-law, but since the minimum wage is below the collective bargaining agreement this was not enough for the Swedish trade unions: they organised blockages of the building site, eventually forcing Laval into bankruptcy. The company then sued for damages. The Swedish government supports its trade unions, arguing that EU-law does not clearly distinguish between minimum wage laws and voluntary collective bargaining agreements, but recently EU-commissioner McCreevy said during a visit in Stockholm that the Commission supported the Latvian side, which in turn provoked a public outcry in Sweden. Carl Bildt has more details.

So, is this a case of 'social dumping' or not? The distinction between minimum wages and collective bargaining agreements is interesting. Austria for example does not have a minimum wage currently, based on the idea that industry-specific collective bargaining agreements provide more flexibility. Maybe the Vaxholm problem could be avoided by giving the individual collective bargaining agreements a status in the law. But this would be only a technical answer.

Is there a point in having sectors of economic activity (such as activities of foreign EU-companies, but potentially also job-creation programs targeting unemployed workers with low qualification levels) that are exempt from collective bargaining agreements that apply to this very sector? If so, this could be used to create a low-wage sector. It is also worth considering that a low, but steadily rising minimum wage can be an effective instrument against long-term-unemployment and provide relief to the working poor, as some European countries have shown successfully. Such a minimum wage system, which a country like Austria would need to introduce new, would also be an important measure to support the introduction of a guaranteed income system, another powerful device in the fight against the current increase of poverty in Western Europe.

In the general case of the export of services within the EU however I fail to see a good reason for why the Latvian workers in Vaxholm should not be paid according to the Swedish collective bargaining agreements. Even if they were paid like their Swedish colleagues, this would not mean that Eastern European companies would not be able to compete in Western Europe, they could still have lower administration costs in the back-office, workers with higher motivation, or other competitive advantages. This part of the country-of-origin-principle just does not make sense: labour regulations and environmental regulations should be according to the destination country, which has made a social choice and decided to accept any resulting costs. Adherence to these regulations by the foreign company should also be subject to the jurisdiction of the destination country. On other regulations - such as for customer protection -companies could be free to choose among origin- and destination-country, but where the country-of-origin is chosen, there should be extensive obligations to inform customers in the country-of-destination about applicable conditions for the transaction.


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