Blog Post

The European Globalisation Adjustment Fund: Time for a reset

It is only in the last decade that the EU has had an active policy to reintegrate workers who lost their jobs as a result of globalisation, through the European Globalisation Adjustment Fund (EGF). In this blog, the authors assess the performance of the Fund and make three recommendations to improve its effectiveness. To be more successful, the Fund should improve its monitoring and widen the scope of its usage.

By: and Date: April 11, 2018 Topic: European Macroeconomics & Governance

A version of this blog post was published in voxeu.org

Conventional wisdom holds that trade liberalisation benefits all countries, though not necessarily equally. Within countries, however, while most individuals stand to gain from trade, some might lose out, in particular those workers whose jobs are displaced by trade liberalisation (Lawrence 2014).

The recognition that trade liberalisation might hurt some workers led the US Congress to establish the Trade Adjustment Assistance (TAA) programme under the 1962 Trade Act authorising the US to participate in the Kennedy Round of multilateral trade negotiations. Initially meant to provide income support to workers losing their jobs as a result of the negotiations, the TAA programme was amended in 1974 to aid all workers negatively affected by increased imports, and has remained in operation ever since. For a long time, no such programme existed at the EU level – because EU member states typically have much more generous welfare systems than the US and are therefore better able to cope with the ‘pains from trade’.

With the European Globalisation Adjustment Fund (EGF), established in 2007, the EU got an instrument broadly comparable to the TAA programme. The EGF provides financial assistance to facilitate the re-integration into employment of workers who have lost their jobs as a result of globalisation.

The creation of the EGF was a political acknowledgment that the EU, which has exclusive competence over trade policy, should assume some budgetary responsibility for the economic displacement that globalisation entails. Since the money involved in EGF programmes only amounts to a tiny fraction of social expenditures by EU member states, it was recognised from the start that EGF programmes needed to be both politically visible and economically sensible.

In the context of the current negotiations on the post-2020 Multiannual Financial Framework (MFF), in a recent paper we evaluate the EGF programme after ten years of activity and make recommendations on how to improve it (Claeys and Sapir 2018).

The EGF’s procedures and implementation since 2007

The EGF’s original objective was to co-finance – together with national authorities in charge of implementing programmes at the local level – policies to help workers negatively affected by globalisation find new jobs. The co-funding rate has changed several times since the creation of the Fund, but the EGF share has been 60% since 2014.

Given their contingent nature, there is no precise commitment for EGF expenditures in the MFF. The Framework only defines an annual cap, which was originally €500 million per year for the 2007-13 budgetary cycle. This cap was reduced to €150 million per year for the 2014-20 MFF, amounting to roughly 0.1% of the EU budget, which itself equals about 1% of the EU’s GDP.

In terms of procedures, applications need to fulfil three basic requirements to be eligible for EGF financing.

  • First, redundancies must result from globalisation, defined as a substantial increase in imports into the EU, a serious shift in EU trade of goods or services, a rapid decline of the EU’s market share in a given sector, or the offshoring of activities to non-EU countries.

In 2009, the scope of the EGF programme was enlarged to redundancies resulting from “the global financial and economic crisis”. When the EGF was revised again in 2013, it was decided that the scope of the programme would continue to cover situations arising from the “continuation of the global financial and economic crisis… or as a result of a new global financial and economic crisis”.

  • Second, applications must concern a fairly large minimum number of workers.

The original number was 1,000 redundancies in a particular firm or in a group of SMEs located in one or two contiguous regions. The threshold was reduced to 500 in 2009.  Though not a stated objective, political visibility seems therefore to be an obvious goal of the EGF.

  • Third, EGF applications must exclusively finance active labour market measures to re-train and re-employ redundant workers.

Between 2007 and 2016, 147 applications to the EGF – covering 140,545 redundant workers – were approved. The total number of workers who actually benefitted from EGF financing was about 20% less than the number of eligible workers, because some of these workers had already found a new job by the time their EGF application was funded.

Although originally designed to deal with the consequences of globalisation, the EGF has actually been used more often to deal with redundancies caused by the crisis – 52% of cases, covering 51% of the redundant workers and awarded 55% of the funding, related to the crisis fallout rather than globalisation.

Figure 1 gives the total number of targeted workers and the total funding committed under the EGF, broken down between ‘globalisation’ and ‘crisis’ for each year from 2007 to 2016. The maximum amount of funding awarded by the EGF in any year was €132 million in 2010 (€115 million for the crisis and only €17 million for globalisation), which explains why the annual EGF envelope was lowered from €500 million to €150 million in 2013. The average amount of EGF funding awarded per worker over the period 2007-16 was €4,219. Given that over the period, the average share of co-financing provided by member states was 42%, it means that each redundant worker eligible under the EGF received on average €7,274 in active labour market services, a fairly substantial amount.

Evaluation and recommendations

In Claeys and Sapir (2018), we find that the programme was highly politically visible, in the sense that EGF beneficiaries tended to work in large firms prior to their dismissal and that these dismissals were largely reported in the media. But it is also essential that services financed by the EGF really do make it more likely beneficiaries will find another job. Unfortunately, the economic effectiveness of the EGF programme is more difficult to evaluate, mainly because the available data are insufficient. Our estimates, however, suggest that only a small proportion of EU workers who lost their job because of globalisation received EGF financing. Sadly, it is impossible at this time to assess whether workers who received EGF assistance did better in their job search than those who did not receive EGF assistance.

We thus make three recommendations to improve the EGF programme.

  • First, there is a need to improve the monitoring of the programme by collecting more and better data. The present situation is clearly unsatisfactory because it does not allow a proper evaluation of the EGF. The best approach would be to collect data at the individual level and not only at the case level. At the very least, reports on each EGF case should be made available and should be standardised in terms of measures undertaken and outcomes. This would have the additional advantage of making cases comparable so that member states could share good practices.
  • Second, there is a need to revise the rules of the programme to increase its use, in three ways. First, one should envisage having no threshold (like the TAA) or at least a much lower threshold. Obviously, this would imply that the amount of money needed for the programme would increase significantly (to around €800 million per year for globalisation cases only, according to our calculations), but it would also mean greater equity between workers of large establishments, who tend to be eligible, and those from relatively small companies who tend to be excluded, unless they are geographically concentrated. Second, the co-funding rate could be changed and be made equal to the one used for programmes financed by the European Social Fund (ESF). This would remove the disincentive to use the EGF by low-income countries, where the national co-funding rate for the EGF is higher than for the ESF. Third, the European Commission could be more proactive in its management of the EGF. It could, for instance, use Eurofound’s European Restructuring Monitor database, which provides data on large-scale restructuring events reported by the media, to detect redundancy plans meeting EGF eligibility criteria and to suggest to national authorities that they could apply to EGF programmes for these cases.
  • Finally, the scope of assistance should be enlarged from globalisation to other policy-induced sources of adjustment, including intra-EU trade and offshoring, and the phasing out of activities to reduce carbon emissions (Tagliapetra 2017). Our findings suggest that increasing the scope to intra-EU offshoring and reducing the threshold to 100 redundancies could result in several hundred additional EGF cases. The EGF could therefore become the EAF, the European Adjustment Fund, with expanded resources. Ideally these resources should be included in the MFF through the creation of a specific budget line (which would also have the advantage of speeding up the procedure).

 


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article More on this topic
 

Blog Post

Ukraine: trade reorientation from Russia to the EU

Over the past five years conflict has led to a deterioration of Russo-Ukrainian economic relations while ties with the EU have been deepened. This shift is evident in trade flows: the European Union has become Ukraine’s biggest trading partner, while China is poised to overtake Russia as its second. Natural gas imports from Russia, Ukraine’s prior Achilles heel, have been partially replaced by reverse deliveries from the EU and reduced as result of reform of the gas sector.

By: Marek Dabrowski, Marta Domínguez-Jiménez and Georg Zachmann Topic: European Macroeconomics & Governance Date: July 13, 2020
Read article Download PDF More on this topic
 

External Publication

EU-China trade and investment relations in challenging times

In this report, we have focused on trade and investment relations and have not attempted to define the many other policy instruments that the EU can and should pursue to increase its leverage towards China, and to protect its domestic economy while boosting domestic investment and trade.

By: Alicia García-Herrero, Guntram B. Wolff, Jianwei Xu, Niclas Poitiers, Gabriel Felbermayr, Rolf J. Langhammer, Wan-Hsin Liu and Alexander Sandkamp Topic: Global Economics & Governance Date: June 4, 2020
Read article More on this topic More by this author
 

Opinion

COVID-19 and India: economic impact and response

This piece was published the day before India imposed one of the world's strictest lockdowns in its response to the COVID-19 response. It remains relevant in assessing the government's actions in the ten weeks that have since passed.

By: Suman Bery Topic: Global Economics & Governance Date: May 27, 2020
Read article Download PDF
 

External Publication

European Parliament

A Just Transition Fund – How the EU budget can help with the transition

On 14 January 2020, the European Commission published its proposal for a Just Transition Mechanism, intended to provide support to territories facing serious socioeconomic challenges related to the transition towards climate neutrality. This report provides a comprehensive analysis of how the EU can best ensure a ‘just transition’ in all its territories and for all its citizens with the tools at its disposal. It provides an overview and a critical assessment of the Commission's proposal, and suggests possible amendments based on best practices from other just-transition initiatives.

By: Aliénor Cameron, Grégory Claeys, Catarina Midões and Simone Tagliapietra Topic: Energy & Climate, European Macroeconomics & Governance, European Parliament Date: May 26, 2020
Read about event More on this topic
 

Past Event

Past Event

Rationale and limitations of SURE

This event will discuss SURE, a new European Union instrument for temporary ‘Support to mitigate Unemployment Risks in an Emergency'

Speakers: Roel Beetsma, Elena Carletti, Grégory Claeys and Gilles Mourre Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 15, 2020
Read about event More on this topic
 

Past Event

Past Event

Keeping trade open during and after Covid-19

This event examines the impact of the Covid-19 crisis on open markets and connected supply chains globally.

Speakers: Maria Demertzis, André Sapir, Senator the Hon Simon Birmingham and Rebecca Fatima Sta Maria Topic: Global Economics & Governance Date: April 30, 2020
Read article More on this topic More by this author
 

Blog Post

How COVID-19 is laying bare inequality

COVID-19 is laying bare socio-economic inequalities and could exacerbate them in the near future. The virus is a risk factor particularly for those at the lower end of the income distribution, who are vulnerable to the interaction of the shock with income, socio-economic and urban inequalities.

By: Enrico Bergamini Topic: Global Economics & Governance Date: March 31, 2020
Read article More on this topic More by this author
 

Blog Post

What the EU should do and not do on trade in medical equipment

The European Union has introduced export controls on some medical supplies. This was a mistake. It should announce that it is withdrawing the measure, and call on other countries to do the same.

By: André Sapir Topic: European Macroeconomics & Governance Date: March 25, 2020
Read article More on this topic More by this author
 

Opinion

Only the coronavirus can convince Trump of the virtues of international cooperation

Given how badly the coronavirus outbreak in the US is affecting Trump’s chances to be reelected, let’s hope he comes to its senses and see the advantages of leading a coordinated effort to save the global economy. For once since he came to power, he may see the positive angle of global cooperation and multilateralism, of course, for his own sake.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: March 13, 2020
Read about event More on this topic
 

Past Event

Past Event

CANCELLED: India-EU Partnership: New Vistas for the Next Decade

Policymakers, academics and private sector actors from the EU and India come together to work on common issues and explore further areas of cooperation.

Speakers: Yamini Aiyar, Suman Bery, Navroz K Dubash, Alicia García-Herrero, Rajat Kathuria, Partha Mukhopadhyay, Ananth Padmanabhan, Georgios Petropoulos, André Sapir, Shyam Saran, Simone Tagliapietra and Marc Vanheukelen Topic: Global Economics & Governance Location: India International Centre, Lodhi Gardens, Lodhi Estate, New Delhi, Delhi, India Date: March 12, 2020
Read article More on this topic More by this author
 

Podcast

Podcast

Coronavirus: the economic prognosis

The coronavirus is going to hit the global economy hard, but how hard? What can policymakers plan for the months ahead? Nicholas Barrett asks Guntram Wolff and Maria Demertzis about economic symptoms and treatments.

By: The Sound of Economics Topic: Global Economics & Governance Date: March 9, 2020
Read article More on this topic
 

Blog Post

What can the EU learn from the China-Switzerland free trade agreement?

The US-China trade war has placed EU trade relations with China under the microscope. Should the EU challenge China’s trade practices and employ trade defence measures? Or should they be diplomatic and embark on negotiations, perhaps paving the way to a Free Trade Agreement? Close examination of the 2013 agreement between China and Switzerland suggests much will have to change for trade negotiations between China and the EU to succeed.

By: Uri Dadush and Marta Domínguez-Jiménez Topic: Global Economics & Governance Date: March 3, 2020
Load more posts