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COMPARING AND QUANTIFYING LABOR STANDARDS IN THE  

UNITED STATES AND THE EUROPEAN UNION

Richard N. Block

Peter Berg

Karen Roberts

Michigan State University

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Labor Standards at the EU Leveland US National Level

• US and EU are the largest economies in the world– About US$/ € 10 Trillion– Another US$/ € 380 billion with new EU

members in 2004

• Labor standards may have effects on economic competitiveness and consumer demand

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Quantitatively Analyze Labor Standards in the EU and US

• Levels– Federal in US– Community in EU

• Basis for comparing one country with a political and economic union of sovereign countries– EU becoming increasingly economically integrated since

1950’s– Political Integration– EU exercising economic and political power like a sovereign

state• GE-Honeywell Merger• WTO complaint on US steel tariffs• Microsoft

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Differences and Similarities

• Differences– EU – Subsidiarity; Treaty-Based– US - Federal Supremacy; Constitution-Based

• Similarities– EU

• directives on range of labor and employment issues• questions of uniformity and roles of member states and community

– US • Federal labor and employment law preempts states• Historic and continuing controversy on proper role of states and

federal government in regulating employment– Pre 1935 – interstate commerce– Post 2000 – state sovereignty

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Views on Employment• United States

– Market creates optimal labor market outcomes– Minimal government regulation

• EU– Unregulated markets create an imbalance of power between

employer and employee– Government must create countervailing power

• A naturally occurring experiment– Differences in regulatory views– Importance of measuring differences in the regulation of the labor

market– Differences in economic outcomes

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METHOD OF MEASURING LABOR STANDARDS

• Based on Block and Roberts (2000) and Block, Roberts, and Clarke (2003)

• ANALYSIS OF THE SUBSTANCE OF EACH STANDARD

• STATUTORY PROVISIONS• NATURE OF ENFORCEMENT

• DEVELOPING AN INDEX NUMBER BY – MEASURING THE STRENGTH OF VARIOUS

PROVISIONS AND – WEIGHTING THE IMPORTANCE OF A PROVISION

WITHIN A STANDARD

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DEVELOPMENT OF AN INDEX (GENERATING A NUMBER)

• TWO PARTS OF EACH INDEX– SUBINDEX THAT IS GREATER THE

GREATER THE PROTECTION GIVEN TO EMPLOYEES

– A WEIGHT GIVEN TO EACH PROVISION WITHIN A STANDARD

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PROVISION SCORING

• EACH PROVISION GIVEN A SCORE BETWEEN 0 AND 10– 10 = STRONGEST POSSIBLE PROTECTION

AMONG ALL JURISDICTIONS– 0 = NO PROVISION OR NO PROTECTION– BETWEEN 0 AND 10 FOR PROVISIONS OF

INTERMEDIATE STRENGTH

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Labor Standards Defined and Analyzed

• A governmentally established term or condition of employment that is mandatory – imposed and enforced by government

• Do not consider– Charter of Fundamental Rights

• Debates over whether it is binding

– Differences in enforcement • national level

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Six Possible Regulatory Schemes• (1) regulation at the community level in the EU

and at the national level in the United States• (2) regulation at the community level in the EU but

no regulation in the United States• (3) regulation at the national level in the United

States but no regulation in the EU• (4) regulation at the community level in the EU and

at the state level in the United States• (5) regulation at the national level in the United

States and the country level in the EU• (6) regulation at the country level in the EU and the

state level in the United States.

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Levels Included• Limited to standards common to highest

governmental level– (1) regulation at the community level in the EU and at

the national level in the United States– (2) regulation at the community level in the EU

but no regulation in the United States– (3) regulation at the national level in the United States

but no regulation in the EU

• Did not consider analyzing standards regulated at state/country level– Weighting scheme on percentage of US or EU

workforce covered by legislation

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Standards Analyzed

• Minimum Wage• Working Time• Paid Time Off• Collective Bargaining• Anti-Discrimination

• Occupational Safety and Health

• Advance Notice of Large-Scale Layoffs

• Employee Involvement

• Parental/Family Leave• Changes of Ownership

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Scoring Summary

• Assumes all standards equally important

• Total Scores– US = 47.35– EU = 68.05

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Minimum Wages

• US– Has a minimum wage

• EU– No minimum wage directive– Prohibited by Treaty of Amsterdam

• Scores– US = 9.5– EU = 0

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Overtime and Working Time

• Different Models– US

• Overtime penalties and incentives

– EU• Direct regulation

• Direct Regulation stronger protection– Employees in U.S. can be forced to work overtime

• Scores– US = 3.5– EU = 5.5

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Paid Time Off

• US– No required paid-time off– Some holidays but no pay requirement

• EU– Four weeks paid annual leave

• Scores– US = .83– EU =7.5

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Collective Bargaining

• US – National legislation protecting collective bargaining

• EU– No community-level legislation– Charter of Fundamental Rights

• Scores– US = 6.67– EU = 3.33

• Caveat– A case where national differences may matter

• Do not address laws or traditions in EU countries

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Anti-Discrimination

• Both EU and US prohibit discrimination based on race, gender, age, disability, religion, national origin

• EU also prohibits discrimination based on sexual preference and considers comparable worth a factor in pay equity

• Scores– US = 9.35– EU = 10

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Occupational Safety and Health

• EU – requires employers to consult with employees on on

safety– To provide information to employees– To provide training

• US– General duty provision

• Scores– US = 3.5– EU 8.0

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Notice of Large-Scale Layoffs

• Amount of Notice– EU – 30 days– US – 60 days

• EU covers small firms

• Scores– US = 8.25– US = 8.75

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Information and Consultation

• US– No rights for nonunion employees to be independently

involved in decisions

• EU– European company directive requires establishing

committee

– Community Scale undertakings

• Scores– US = 0

– EU = 10

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Parental Family Leave

• Generally comparable, but with different structures• US

– 12 weeks of unpaid leave during a 12 month period for personal or family-medical reasons

• EU– Maternity – 14 weeks– Parental – three months of each child up to age 8

• US permits more leave, but for narrower reasons• US=EU=5

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Ownership Changes

• EU – Protection to employees, new owner must honor the

employment contract

• US– No general statutory protection– For unionized employees a bargaining obligation if

• Successor• Hires a majority of predecessor’s employees

• Scores– US = .75– EU = 10

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Conclusions

• Overall, EU labor standards at the community level higher than US standards at federal level– Assumes all standards equally important

• EU higher than US on– working time, paid-time off, occupational safety and

health, employee involvement, and changes of ownership/transfer of undertaking.

• US higher than EU on– minimum wages and collective bargaining

• Approximate Equality on– Discrimination, large scale layoffs, parental/family leave

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Analysis

• Consistent with a priori notions

• Different conceptions of the employment relations– US - reliance on labor market outcomes,

assumption of equality of bargaining power, skepticism of government intervention

– EU – skeptical about labor market outcomes, assumption of inequality of bargaining power, reliance on government intervention

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A Massive Social Experiment

• EU – Capitalist system and private property with

relatively heavily regulated labor market

• US – Capitalist system and private property with

relatively lightly regulated labor markets

• Which works best?