EU posted workers: separating fact and fiction

A posted worker is someone who is temporarily (typically for a few months/days) sent to a country different to the country of his/her employer to carry out a service in a host country. For example, a Danish construction company with a contract to build an office block in Vienna might send workers (Danish or others) to Austria to deliver the project. These workers would pay tax in Denmark (for at least 6 months), social security contributions in Denmark (for at least 2 years) and would be subject to a mix of Danish and Austrian labour laws. This system has often provoked controversy and accusations of social dumping. The European Commission proposed a revision of the 1996 Posted Worker Directive (PWD) in March 2016. This reform is still underway, and in this piece I look at the number and possible labour market impact of posted workers.

Posted workers, the current state of play

In 2015, there were around 2 million work postings in the EU. This figure indicates the number of Portable Document A1 (PD A1) that were issued – a statement indicating that a worker pays social security contributions in another EU country. The total number of PD A1s includes 1,489,622 employed and self-employed posted workers posted to just one member state. 511,789 were issued to persons active in one or more member states, and 43,894 to other persons.

2 million postings might sound like a lot, but these numbers are actually small as a share of total employment. These posted workers would make up 0.65% of the labour force and 0.9% of total employed people in the EU28. Moreover, since most of the posted workers carry out their posting for less than a year, the share in total employment is even smaller when counted as full-time-equivalent (FTE) work. I discuss this fact in more detail later.

Nevertheless, the use of posted workers is on the rise. Even though posted workers constitute only a small fraction of the EU labour force and employment, the posting of workers has been steadily increasing. Between 2010 and 2015, the number of posted workers grew by 41.3% with an annual growth rate of 7.2%.

The issue is also most relevant in just a few countries. In absolute numbers, almost half of the posting on both the sending and the receiving end involves just three or four. The largest sending countries are Poland (22.8%), Germany (11.7%) and France (6.9%), while the main destination countries are Germany (28%), France (11.9%) and Belgium (10.5%). In relative terms the picture is different. Even though Poland sends out almost a quarter of total posted workers, their share in Polish domestic employment is just 2.5%. In relative terms Luxembourg (24.7%) and Slovenia (14.2%) have the highest share of sent posted workers as a share of domestic employment. From the receiving countries’ perspective, Luxembourg (9%), Belgium (3.8%) and Austria (2.5%) have the highest share of posted workers relative to their domestic employment.[1]

Figure 1. PD A1 by sending and receiving Member state, 2010 and 2015

In terms of economic activity, 41.6% of postings are concentrated in the construction sector. Construction is especially preeminent for workers posted in Sweden (56.9%), Austria (53.8%), and Finland (51.4%). The next largest category is services (32.7%), mostly education, health, social work and art (14.2%) and financial, real estate, professional and scientific services (10.4%).

Figure 2. Posted workers by economic activity, by receiving country in 2015

Intra-EU labour mobility remains a small fraction of total EU labour force and posted workers even a smaller share

It is important to note that posted workers are by no means the only form of intra-EU migrant. EU freedom of movement and the posting of workers are legally and conceptually different. Labour migrants are employed in the host country, reside in the host country, and pay taxes in the host country. A posted worker is employed in the sending country but posted in a different (host) country by their employer.

Thus intra-EU labour mobility consists of long-term labour migrants, cross-border workers and posted workers. As of 2015, there were 11.3 million long-term EU-28 movers of working age (20-64 years old) living in another EU member state, constituting 3.7% of the population of working age. Out of long-term movers, 8.3 million are active movers, that is, movers who are employed or looking for work. They account for 3.6% of the total EU-28 labour force. There are 1.3 million cross-border workers, such as frontier workers and commuters (0.6% of the EU28 labour force). As mentioned above, there are around 2 million worker postings per year.

Therefore these 2 million posted workers only constitute a small fraction of total intra-EU labour mobility, massively dwarfed by the 11.3 million long-term migrants. They also have less labour market impact, as we will discuss below. In fact, De Wispelaere and Pacolet (2015) argue that there are several reasons to favour posting over permanent migration. For example, the fact that posted workers pay taxes in their country of origin (if the posting does not exceed half a year), the posting mechanism can potentially serve as a stabilisation tool when the origin country experiences an asymmetric shock. It essentially becomes a form of fiscal transfers.

Correcting the narratives of low to high wage migration

Another false assumption is that posted workers are mainly from low-wage countries and posted to high-wage countries. In fact, only a third of postings are from low- to high-wage countries, while one-third is between high-wage countries (EC, 2016, Figure 5). The three countries receiving the most posted workers are Germany, France and Belgium. However, out of these three destinations, only Germany receives more than half (62%) of its posted workers from low-wage countries. For France, only 23% of the posted workers are from low-wage countries, while 44% are coming from high-wage countries. Similarly, for Belgium only 28% of posted workers are from low-wage countries and around 58% are from high-wage countries.

Figure 3. Countries receiving posted workers by origin country’s wage levels, 2015

Yet there is still a fear of “social dumping”

A common fear is that workers moving from a low-wage country to high-wage country could result in “social dumping”, which entails a deterioration in social conditions in the host country due to increased competition with countries with lower social conditions.

According to Sapir (2015) there are three competition channels through which “social dumping” could theoretically occur:

1) imports of goods from a low-wage country

2) imports of services involving posted workers

3) offshoring of production to low-wage countries

The issue of posted workers draws the most attention due to the fact that these workers are more visible and immigration is in general viewed ever more unfavorably. Yet, of the three channels the posting of workers is the least important channel for competition between low-wage and high-wage countries, compared to goods imports and offshoring of production. (see Darvas (2017)).

There are various reasons why posted workers are not a major risk factor for social dumping.

Firstly, the effect of posting on the host country’s labour market is limited by the short duration of most postings. An often-quoted average duration of posting is 4 months, and a worker is posted on average 1.9 times per year. However, this EU average is problematic, since reliable data on the duration and number of postings is missing for 16 member states, and the available data is highly heterogeneous from country to country. The average duration per posting varies from 16 days for workers sent from Luxembourg to almost 300 days for workers from Cyprus. Thus we can say that durations tend to be short, but exact numbers should be treated with caution.

Figure 4. Duration of the posting period and the number of times posted per year from the sending perspective, 2015

An additional implication of these short postings is that posted workers make up a smaller share of EU employment than it first appears. While the total number of PD A1 forms stands at 2 million, which would represent 0.9% of the total EU workers, the full time equivalent (taking 12 months for a standard worker) is only equal to around 0.2% of employment. This finding is estimated by both Darvas (2017) and De Wispelaere and Pacolet (2017). For example, according to the data a Cypriot worker is on average posted for around 300 days in 2015. Thus he/she would be still be 2 months shy of being an equivalent to a full-time worker in the posting destination. And Cypriots undertake on average the longest postings of all.

Wages are another source of controversy around posted workers. There are fears that they drive down remuneration by working for lower pay than “domestic” workers. In theory, the posted worker is remunerated according to the host country’s regulations and administrative provisions. This means that the worker must be paid equivalent to or in excess of the host country’s minimum wage, which might be lower than actual wages in the relevant sector.

Empirical research on the wage setting of posted workers in the EU is scarce, except for  Benio (2017) where the author studied the wage structure of 20 632 postings from Poland in 2013, 2014 and 2015. The survey finds that Polish posted workers abroad tend to earn more than the minimum wage of their host country, specifically that they are paid around 10 euros (net) on average per hour. Moreover, in addition to net remuneration, posting entails additional costs for the home employer, such as cross-border costs. In this case these were equivalent to 29% of gross labour costs. This implies that host country service purchasers are not entirely motivated by cheap labour when engaging posted workers.

The labour market impact of posted workers is small

The impact of migration on a host country’s labour market is complex. It largely depends on the labour market assimilation process, whether the skill-set of migrants is a complement or substitute to the native population, and institutional factors in the host country, such as labour market conditions, collective bargaining and wage rigidities. There is a rich literature analysing the impact of long-term migrants on local labour markets. However, studies analysing temporary migration, particularly the case of posted workers, are scarce.

Nevertheless, owing to the specific conditions under which posted workers are employed in the host country, their relatively small number, and the limited duration of the posting period, the labour market impact and/or local displacement effects are likely to be very small. De Wispelaere and Pacolet (2017) estimate the impact of posted workers in the Belgian construction sector, where 50.5% of posted workers are concentrated. The authors conclude that a “short” posting period lessens the impact on the labour market, even after assuming 6 months of posting. Similarly, for Germany 4.5% of workers in the construction sector are posted workers, but the impact is lower due to the fact that 90% of them are posted for 6 months or less.

This is not to say that there are no losers in the migration posted workers migration, and these losers need to be helped. However, the number of people negatively affected seems to be small compared to the benefits that posting brings for the posted workers themselves and for the companies that provide services across borders. A reduction in the length of the posting period could ease some concerns but the numbers of long postings are very small anyway.

The author would like to thank Zsolt Darvas for comments and Emma Abdullah for research assistance.

[1] Data are from the European Commission (2016) Report on Posting of Workers, 2015, available at http://ec.europa.eu/social/main.jsp?catId=738&langId=en&pubId=7980&furtherPubs=yes, last accessed 29 August, 2017.