CHANGE IN PUBLIC SERVICES: FORA FOR THE IMPROVEMENT OF EXPERTISE IN RESTRUCTURING

Factsheet No. 1

Liberalisation and increasing competition

Revised version prepared by Eckhard Voss & Jakob Haves

Wilke, Maack and Partner December 2011

Contents

1 Introduction: The project and purpose of this factsheet .............................................................................. 2

2 Guiding questions and definitions ................................................................................................................. 3

3 Liberalisation and increasing competition in public services – factual data, trends and experience of good practice from cross-sector and sector perspectives............... 5

3.1 General and cross-sector trends and practical experience ................................................................... 5

3.2 Sector data and trends .......................................................................................................................... 6

4 Conclusions and key points emerging ......................................................................................................... 18

Literature and resources ....................................................................................................................................... 19

2

1 Introduction: The project and purpose of this factsheet

In January 2011 CEEP started the project “Change in Public Services: Fora for the improvement of

expertise in restructuring”. The objective was to promote expertise, exchange of information and

good practices between public services providers, to develop tools to better anticipate and manage

change and to develop a partnership to better tackle these issues in the future.

The “Change in Public Services” project that was carried out throughout 2011, built upon earlier ac-

tivities and developed them further: In 2009 CEEP, with the support of ETUC and the sectoral social

partner organization in education, electricity, healthcare, postal services, public transport, railways

and public administration initiated a project designed to improve expertise in anticipation, prepara-

tion and social support during restructuring in public services or services of general interest (SGI). The

project titled “Anticipation of Change in Public Services” was intended by the social partner organisa-

tions to focus in particular on the "anticipatory" aspect of the restructuring process. A major out-

come of the project was the creation of the basis for the Public Services’ Employers Forum in order to

increase the exchange and collaboration between the cross-sectoral and sectoral social partners

whose members provide public services, provide expertise and strengthen the voice of public ser-

vices in Europe1.

The “Change in Public Services: Fora for the improvement of expertise in restructuring” project on

change in Public Services builds on the outcomes of these activities and put it on a higher level with a

specific focus on the exchange of information as well as exchange of good practices in social dia-

logue. This is to be done in respect of the various autonomies of the participants. This exchange took

the form of online workshops and traditional, thematic meetings.

To ensure substantial discussion in the framework of the online workshops, specific factsheets were

prepared to provide expertise, research and background material in the context of the seven sectors

to be covered by the project (education, electricity, healthcare, railways, postal services, public

transport, public administration at central and local levels) and the five thematic topics to be ad-

dressed in online workshops that have been defined jointly by all project partners involved in the

coordination and steering of this measure. The factsheets are expected to provide key information

about major trends and contexts of change, highlight good practice and contribute to an exchange on

how to improve the expertise of the participating organisations on change in public services.

This factsheet deals with the issue of liberalization and increasing competition in the context of re-

structuring in Public Services. It was drafted for the first out of five online seminars that took place

on 16th of March 2011. The factsheet was revised after the seminar on the basis of seminar discus-

sions, further interviews with social partners and their written contribution, background materials

sent by social partners as well as relevant documents available from sector social dialogue commit-

tees websites.

1 See CEEP 2010: A. Wild, E. Voss, Anticipation of Change in Public Services. Political Report and Anticipation

of Change in Public Services. Diverse Backgrounds... Common Challenges, final report, Brussels, June 2010.

3

2 Guiding questions and definitions

Since the 1970s and 1980s the European economy has experienced a wave of liberalization and pri-

vatization in public services. As a reaction to these activities a debate has occurred dealing with dif-

ferent issues related to the privatization of services of general public interest. Much of the discussion

focussed on questions such as the responsibilities of the public sector, how accessibility and quality

of certain services can be guaranteed for all, to what extent public services are efficient and produc-

tive, how they can contribute to employment creation and what the effects of liberalisation and pri-

vatisation are on quality of employment and industrial relations.2

The general aim of liberalization was to put certain sectors which were previously state owned or at

least dominated by the state more under market conditions and thus derive more competition lead-

ing to more efficiency, lower prices for the consumers and less costs for the state. In some cases

these activities also lead to the privatization of some parts of the sectors. There have been always

been concerns highlighting the specific responsibility of the sectors’ activities for society and the risk

that more competition and a purely orientation towards efficiency targets will make it difficult to

maintain the quality and universal character of the services provided. Against this background, the

EU started to complement its economic policy focusing on an overall liberalisation of the internal

market by adding policies which emphasized goals of social cohesion and granted special rights and

obligations to particular undertakings of general public interest.3 Additionally, several rulings of the

European Court of Justice have upheld the practice of establishing limits on competition for certain

services of general economic interest.4

Although a general global trend to liberalize markets is visible since decades, the way how these

steps were implemented in the EU Member States differs in regard to the timeframe and the inten-

sity of liberalization activities. While in the UK and some Nordic countries, especially Sweden, liber-

alization started first and most extensive, other countries were much more reserved and imple-

mented first liberalization steps mainly in line with the forced EU reforms in electric and postal ser-

vices in the late 1990s. A special case is the liberalization wave in the economies in Central and East-

ern Europe where the former state-socialist countries turned to capitalism at the end of the 1980s,

resulting in the rapid liberalisation and privatisation of largely state-owned companies and sectors.

2 Watt, Andrew and Leschke, Janine (2008): Privatisation and liberalisation of public services in Europe. An

analysis of economic and labour market impacts. ETUI, Brussels. 3 In 1996 the Commission for the first time reflects the increasing importance of public services in its

Communication on “Services of general interested in Europe” (COM(96) 443 final) and stated that: “Central to all these issues are the interest of the public, which in our societies involved guaranteed access to essential services, and the pursuit of priority objectives. General interest services are meant to serve a society as a whole and therefore all those living in it.”

4 See Héritier, Adrienne (2001): The Politics of Public Services in European Regulation, Preprints aus der Max-

Planck-Projektgruppe Recht der Gemeinschaftsgüter, Bonn, p. 4. In a decision of the European Court of Justice for example in 1997 on the matter of financing France Poste, the author comments that the “ECJ incorporated the concept of general economic interests into the ruling. It stated that public services provided by the post office must include the collection, transport and distribution of mail for all users of the territory of a member state at uniform tariffs and similar qualitative conditions, irrespective of the particular situation and the profitability of each individual operation. The fiscal advantages granted to public-service enterprises are not considered to be illegal state aid if they do not go beyond the constraints resulting from the particular public-service mission.”

4

Additionally liberalisation activities in the different activities of public services differed significantly.

Largely initiated by EU directives some activities like telecommunication and energy were subject to

full market liberalisation and competition. Against this, liberalization in other sectors like postal ser-

vices, railways and public transport were more moderate. In most countries these sectors remained

quite regulated. Finally, there are some activities, like education, healthcare and public administra-

tion, which are directly related to public interest or state responsibilities and thus are still under the

control of the state. However, also these sectors have experienced some changes in the last years

aiming at more efficiency and cost reductions. In spite of these differences in regard to the scope of

liberalisation activities, one thing all public services have in common, namely that they are generally

confronted with structural changes and the challenge to deal with these changes.

Addressing this fact the current project aims at providing a forum, for exchange of information on

practices between public service providers, to develop tools to better anticipate and manage these

changes and to develop partnership to better tackle these issues in the future. In regard to the issue

of liberalisation and increasing competition this exchange shall base on some guiding questions, as

follows:

What are the main experiences in regard to liberalisation and increasing competition in pub-

lic services? What are the main differences between the sectors and in which way represen-

tatives of the sectors can learn from each other?

What effects did liberalisation activities caused in the different sectors and countries in re-

gard to employment issues? Did liberalisation cause workforce reductions/increasing em-

ployment? How did liberalisation affect forms of employment (part-time, flexible working

hours, temporary work)? Did the working conditions changed due to liberalisation activities

(qualification and skill needs, wages, work intensity, accountability)?

What effects did liberalisation caused in the different sectors and countries in regard to in-

dustrial relations issues? What roles take unions and employer associations in liberalisation

activities? How liberalisation did influence the structure of industrial Relations (number of

bargaining parties, coverage of collective agreements and social dialogue)?

Have liberalisation approaches been “successful”, i.e. did liberalisation and increasing com-

petition contribute to an increase in productivity, efficiency and quality?

5

3 Liberalisation and increasing competition in public services – factual data, trends and experience of good practice from cross-sector and sector perspectives

3.1 General and cross-sector trends and practical experience

Liberalisation of public services have had a significant impact on employment and working conditions

in Europe. The main reason for this impact is the growing competitive pressure and the related pres-

sure to reduce costs. Due to the fact, that many public services are labour intensive, there has been a

pressure on labour costs and productivity, work organisation and efficiency. The consequences are,

on the one hand, the reduction of public sector employment and, on the other hand, a transforma-

tion of the traditional public sector labours relations. While employees in public services were previ-

ously treated mostly as a relatively homogenous workforce, liberalisation and privatisation has con-

tributed to an increase in heterogeneity and pluralism in labour relations and working conditions.

The emergence of new entrants and a growing diversity of labour relations has also been a challenge

for the social partners and the coverage of collective agreements in the public services. Parts of the

workforce are no longer covered by employer’s organisations and trade unions. Normally the former

state monopolist companies show quite stable bargaining structures while at the level of the new

competitors bargaining coverage is often low. Additionally, research studies provide evidence for the

fact that one of the first things that former public companies often do after privatisation is to with-

draw from the central public sector collective agreement in order to establish their own bargaining

structures, mostly in the form of new agreements at company level.5 This situation has resulted in

concerns of increasing competition based on cost factors and a weakening of sector-wide standards

and coordination. Additionally, also labour relations and standards within companies have changed.

While in previous times employees in the public sector were treated quite equal, liberalisation and

privatisation caused a growing division within the workforce, e.g. between workers on “standard”

contracts and those on more flexible employment contracts.

One of the main objectives of liberalisation and privatisation are expected efficiency and productivity

gains in the context of a growing competition on costs. It is assumed that new ownership due to pri-

vatisation or an increasing number of competitors due to liberalisation will provide new incentives to

increase output and reduce costs. Productivity gains are supposed to be transformed into higher

levels of outputs and greater societal wealth, thereby raising overall living standards and enabling

greater consumer choice.6 Empirical analysis shows that the objective of increased efficiency by lib-

5 Brandt, T. and Schulten, T. (2007): Liberalisation and Privatisation of Public Services and the Impact on

Labour Relations: A Comparative View from Six Countries of the Postal, Hospital, Local Transport and Electricity Sectors, Report for the PIQUE project (Privatisation of Public Services and the Impact on Quality, Employment and Productivity).

6 Flecker, J. et al. (2009): Privatisation of Public Services and the Impact on Quality, Employment and

Productivity, Summary report of the PIQUE project (Privatisation of Public Services and the Impact on Quality, Employment and Productivity).

6

eralisation and privatisation is usually met in most industries.7 However, a research project also

shows that efficiency effects differ significantly between sectors in public services.8 According to this

project the most relevant factor is the capital-intensity of a certain industry. The study found that

high capital intensive industries not only show much higher levels of labour productivity but also

higher growth rates than low and medium capital intensive industries. As a result productivity in-

creases were most significant in post and telecommunications as well as electricity and gas. In con-

trast, productivity performance for example in the inland transport sector was much weaker.

The study also highlighted that the assessment of productivity developments not only should focus

on quantitative aspects but also should analyse the specific ways of change in productivity, e.g.

whether or not an increased labour productivity is achieved mainly due to a reduction in employ-

ment or other factors.

Another aspect which is often positively correlated to liberalisation and increased competition are

expected improvements regarding the quality of products and services provided. In this view liberali-

sation can contribute to an increase of customer satisfaction. However, the strategy to reduce costs

and thus become more efficient and productive may also have negative impacts on the quality of

services. This can occur in services which are quite labour intensive and where the quality of services

is closely connected to the quality of work. In such areas employment reductions due to cost cuttings

may affect the quality of services negatively. Here, improvements or decreases in service quality are

often linked to employment developments as the study quoted above described in regard to a con-

crete example:

“electricity companies have set up new and centrally operated customer-care call centres with extended operating hours, but at the same time they have closed down local walk-in centres where customers could talk to an agent face-to-face. Post companies deliver a large part of the mail only one day after it has been posted, but waiting times in post offices have increased due to cut-backs in post office staff numbers”. 9

3.2 Sector data and trends

Electricity

The opening of the EU energy market has been phased in since the mid-1990s with the explicit aim of

benefiting customers through lower prices generated by greater competition. Against most other

public services sectors the liberalization of the European energy sector was strongly influenced by

reforms induced by the EU and the aim to create an internal market in this sector.

In 1996 the EU passed the Directive 96/92/EC concerning common rules for the internal market in

electricity. This Directive came into force in 1999. In 2003, two Directives were adopted setting dead-

7 Kilicaslan, Yilmaz (2008): Productivity: The impact of Privatisation and Liberalisation in Public Services,

Research paper presented at the at the Second Biennial Conference of the ECPR Standing Group on Regulatory Governance, June 5 - 7, 2008, Utrecht, the Netherlands, p. 1.

8 Kilicaslan, Yilmaz/Pond, Richard/Tasiran, Ali Cevat (2008): Liberalisation and Privatisation of Public Services

and the Impact on Productivity. Report in the framework of the PIQUE project. 9 Flecker, J. et al. (2009): Privatisation of Public Services and the Impact on Quality, Employment and

Productivity, Summary report of the PIQUE project (Privatisation of Public Services and the Impact on Quality, Employment and Productivity).p. 96.

7

lines for the full opening of the EU energy market; 1 July 2004 for business customers and 1 July 2007

for households. In 2003 the new electricity Directive 2003/54/EC repealed the former Directive and

was due to be implemented by the Member States by 1 July 2004. However, most Member States

missed this deadline and a 2005 Implementation Report of the Commission emphasized slow pro-

gress in implementing the Directive. In 2009 a third Directive (2009/72/ES) came into force which

aims at introducing common rules for the generation, transmission, distribution and supply of elec-

tricity. It also lays down universal service obligations and consumer rights, and clarifies competition

requirements.

Considering this policy process, the influence of the EU and the aim to create an internal electricity

market has been the key driver of change in the sector. Liberalisation has consisted of three key ele-

ments: the replacement of regulated prices by market-dictated prices, freedom for consumers to

choose their energy supplier, and an end to companies` ownership of both electricity generation and

transmission networks.10 However, liberalisation in most countries has only developed slowly and did

not necessary lead to more competitive market structures. In most countries the open market condi-

tions has led to a reduction of the number of suppliers caused by some major acquisitions of smaller

companies by larger competitors. For example in Germany the number of energy supplier has been

reduced to only four major companies instead of former eight generating companies. As a result of

these concentration processes, the number of network transmission and distribution operators has

also decreased. However, there are some exceptions were the number of suppliers increased; for

example countries where only a single supplier existed before the liberalisation (UK).11

These developments often have been resulted in increasing labour productivity but also in rationali-

sation, leading to substantial job losses: In terms of net job losses, the EU-15 states experienced

246,000 reductions in the sector between 1995-2005 whilst in the New Member States, there has

been an overall reduction of 44,000 jobs between 2000-04. The sub-sectors of production, distribu-

tion/transmission and trading and sales have been differently affected, with most losses occurring in

distribution and most gains in trading, and to a lesser degree, production using renewables.12 Addi-

tionally the employment conditions changed; for example job cuts often leads to frequent overtime

for the remaining workforce. Furthermore, the aim to reduce costs to be more competitive often

results in wage reductions. In some countries, such as the UK and Belgium, also the use of temporary

workers plays a role. These workers are often the first to be affected by restructuring and have gen-

erally been excluded from both individual and collective representation and participation in social

dialogue. To integrate this “second-tier workforce” into the existing social dialogue structures is a

major challenge for the Social Partners. However, due to this situation, social dialogue has a key role

to implement liberalisation steps in socially responsible way, taking into account both the perspec-

tive of the company and the workers.

10

EMCC dossier on the European energy sector, Eurofound. 11

See: Flecker, J. et al. (2009): Privatisation of Public Services and the Impact on Quality, Employment and Productivity, Summary report of the PIQUE project (Privatisation of Public Services and the Impact on Quality, Employment and Productivity).

12 Restructuring in the Electricity Industry: a Toolkit for Socially Responsible Restructuring with a Best Practice

Guide, Joint Project of EMCEF, Eurelectric and EPSU. 2008. By David Tarren, Dr. Howard Potter, Dr. Sian Moore - Working Lives Research Institute.

8

In response to the increased pressure to become more competitive outsourcing and the tendering of

public services has become a common and widespread form of restructuring in the electric sector.

Large parts of so called non-core activities were transferred to external companies. These activities

have led to a more fragmented system of labour relations due to the fact that most of the affected

workers are no longer covered by the former bargaining system. Often these legally independent

subsidiaries are covered under different and from the workers’ point of view often less favourable

collective agreements or under specific regulations within the same agreements.13 The problem of a

“second-tier” labour market also applies to this issue.

Healthcare

Healthcare is an essential sector for every economy and generally one of the largest employers in the

European Member States. As part of modern European welfare-state systems the responsibility for

the provision of adequate health care lies with the state. However, also in the healthcare sector en-

compassing reforms has been introduced in all European countries with the main objective to reduce

costs. Considering the problematic financial situation of public spending in most European countries,

cuts in healthcare expenses has been a popular instrument to consolidate public budgets.

In many countries healthcare institutions like hospitals have been subject to restructurings, which in

some countries even resulted in privatisation, mostly as a result of budgetary considerations. In some

countries hospitals and other public healthcare institutions have been partly privatised and certain

services have been outsourced. For example in Germany many former public owned hospitals were

transferred into limited cooperation’s with the municipals as a major shareholder. However, in most

countries there is still no free entry for private companies to the health care sector, due to legal,

economic and qualitative barriers. Nevertheless, in most countries non-core activities such as laun-

dry, catering, cleaning, security and administrative services have been outsourced.

A more common form of liberalisation in the sector does not simply mean the opening of the market

to full competition but first of all the general economisation and commercialisation of healthcare

services through the introduction of market-oriented mechanisms. This applies especially to the fi-

nancing system of health care institutions. Many European countries introduced budget control and

spending limits for public healthcare institutions, especially for hospitals. As a consequence hospitals

and other healthcare institutions became able to make deficits or profits which automatically in-

creased the competition among the different institutions and heavily affected the internal structures.

The change in the hospital financing systems was a major precondition for hospital services becom-

ing more and more an interesting field of investments for private for-profit providers. Subsequently,

since the 1990s larger private health care and hospital corporations have emerged in many European

countries.14 In many cases this development has caused an increase in labour productivity and in the

quality of provided services, although not always without negative affects for the workforce.

Since the healthcare sector is very labour intensive and considering the fact that privatisation and

liberalisation has put the healthcare sector under enormous financial pressure, it is not surprising

13

Flecker et al. (2009). 14

Ibid.

9

that hospitals and other public healthcare institutions have tried to reduce labour costs. This have

had a strong impact on the development of labour relations and working conditions in the sector. For

example in a more fragmented labour market, due to the existence of different service providers,

issues like workforce planning and planning of training initiatives is more complicated.

Changes in the healthcare sector have brought changes in the nature of jobs and the need for new

forms of work organisation. More emphasis is placed on the delivery of cost-effective solutions which

has implications for the organisation of work, the division of labour and particularly the boundaries

between occupational groups. New approaches related to the development of new technologies blur

traditional demarcations between different occupations within the sector and challenge traditional

hierarchical structures. At the same time new forms of interaction between staff are emerging, such

as the creation of multidisciplinary teams, group practices replacing solo practices. When employ-

ment patterns are taken into account, it can be seen that they have become increasingly variable.

Shift work is a key feature of health care which demands for high flexibility of the workforce, includ-

ing overtime (which is not always refunded). The impact of the tendency toward increased intensifi-

cation of work creates new, often stress related and other physical health hazards. According to re-

search, the work-related accident rate in the health care sector is 34% higher than the EU average.

The sector has the second highest incidence rate of work-related musculoskeletal disorders, after

construction.

One instrument to reduce labour costs has been the mentioned outsourcing of non-medical services,

which often leads to significant changes of wages and working conditions for the affected employ-

ees.15 Additionally, there is also a growing incidence of agency workers and migrants in the health-

care sector and not only for unskilled employees but also for employees working in medical services.

In many countries the increased financial pressure has lead to a reduction of permanent positions,

with the result that in time of employee shortages (holidays, illness etc.) healthcare institutions are in

need of external workers to bridge these bottlenecks. Also the growing shortage of qualified labour

has been addressed in many countries by an increased recruiting of foreign workers. As a result of

this, a more fragmented system of labour relations becomes visible. Additionally, the sector is char-

acterized by a differentiated organisational structure, especially on the unions’ side. As in other sec-

tors this situation gives evidence for an increasing trend towards the development of second-tier

labour relations. This applies both to the company level within single hospitals and other healthcare

institutions as well as to sectoral level between public and private hospitals. Both tendencies can be

seen as an expression of growing competition on wages and working conditions.

Railways

The European railways sector is a crucial element of the European transport and logistics system.

Considering this important role of railways for the European economy it is of special importance to

modernise the sector and make it more competitive for the future. Key components of this moderni-

sation include EU wide integration and liberalisation of rail transport. Liberalisation offers the chance

for an increased internationalisation of the European railways sector and will enhance competitive-

15

See European Agency for Safety and Health at Work website, http://osha.europa.eu/en/press/press-releases/030228.

10

ness, interoperability and market access. At the same time it will most likely induce cheaper, better

and more flexible services, which ought to further stimulate demand for railway services.16

However, due to the resistance of some Member States the progress of liberalisation and the open-

ing of the sector for private competitors have been quite slow and in most Member States the for-

mer state-owned railways enterprises are still the dominant player on the national markets. The UK

is the major exception to this general rule. Both rail and passenger services are fragmented among

25 main train operating companies. Some, though limited, competition between operators is to be

found in other European countries, such as Germany. However, there have been no transnational

mergers and there are relatively few examples of “non-nationals” owning or operating rail services.

Nevertheless, there are some companies like the French owned Veolia Environment which runs ser-

vices in both Germany and Sweden through its Connex subsidiary.

Reforms in the European railways sector were influenced by a European policy process concentrated

on three major areas: (1) opening of the rail transport market to competition, (2) improving the in-

teroperability and safety of national networks and (3) developing rail transport infrastructure. The

aim of the Commission to harmonise and liberalise conditions for rail services were implemented in

three packages.

In 1998 the Commission proposed the first “railway package” which was adopted in 2001 and con-

tains three directives17 which among others introduced new rules for licensing and allocating infra-

structure capacity and the possibility of competition on Trans European Rail Freight Network routes

from 2003 and for all international rail freight from 2008.

A second “railway package” was proposed in 2002 and agreed in 2004. This package has accelerated

the liberalization of rail freight services by fully opening the rail freight market to competition as

from 1 January 2007.

Finally a third “railway package” that was proposed in 2004 and adopted in 2007 put forward new

proposals to open up the international passenger transport market by 2010 and regulated passenger

rights and the certification of train crews. This third package should complete the European regula-

tory framework for the rail sector.

Against these changing frameworks and increased liberalisation of the railways sector, national op-

erators have undergone major restructuring due to liberalisation and deregulation. The break-up of

the former monopolies and the subsequent reorganisation - which included a separation of transport

services and infrastructure management - led to massive reductions in employment in the main rail-

way operators in all Member States in the 1990s.

According to DG TREN, despite a persistent decline in employment in the railway industry, in 2006

the rail networks in the EU27 still directly employed 900,000 employees18. In total, around 150,000

jobs have been lost in the rail sector since the year 2000, which the European Foundation for the

Improvement of Living and Working Conditions (Eurofound) estimates at around 15% of rail jobs.

16

Trends and drivers of change in the EU transport and logistics sector: Mapping report, European Foundation for Living and Working Conditions, Dublin 2008.

17 Directive 2001/12/EC, Directive 2001/13/EC and Directive 2001/14/EC

18 EU Energy and transport in figures 2009, p.99.

11

According to the Community of European Railway and Infrastructure Companies (CER), within the

last twenty years the employment reductions have affected 40% of total employment, mainly the

result of increasing specialisation and technological progress.

As in other sectors outsourcing is a common practice in railways to reduce costs and thus become

more competitive. This phenomenon reflects itself in two processes:

The privatisation of subsidiaries responsible for ancillary services: Typical examples are the

travel agency activities of the Norwegian NSB and the Danish DSB or the “Railway hotels”

owned by many railway companies;

The outsourcing of non-core activities that can be performed more cheaply (cleaning, cater-

ing services and maintenance activities) or more efficiently (IT, professional services) by ex-

ternal providers: Recently however, there have been examples of “re-insourcing” of certain

operations due to dissatisfaction with service levels. Maintenance of track is a good example

for this.

Employees of these newly established subsidies or companies often are subject to less favourable

working conditions including lower wages and a more extensive use of atypical employment con-

tracts, for example part-time and temporary agency work. According to the ILO there is a downward

pressure on wages resulting from negotiated concessions by core workers and the proliferation of

low-cost companies that absorb (at lower cost) workers dismissed from large companies.19

Postal services

The European postal sector has experienced considerable restructuring in recent years which was

mainly due to liberalisation and privatisation activities. As in the electric sector these steps towards

an open internal market were mainly enforced by EU regulation. The aim was to open up national

monopolies in the postal sector to competition in order to make postal services cheaper, faster,

more efficient and innovative. Important in the postal sector is to mention that postal service provid-

ers are normally not only engaged in regular postal services like the distribution of letters or parcels

but also be active in financial services and in some countries even became major providers of logistic

services (for example DHL in Germany).

Liberalisation in the postal sector is based on three Directives. In 1997 the EU passed Directive

97/67/EC on common rules for the development of the internal market of Community postal services

and the improvement of quality of service. In 2002 this Directive was amended by Directive

2002/39/EC by defining further steps in the process of gradual and controlled market opening. Finally

in 2008 Directive 2008/06/EC came into force and defined 2010, and for some Member States 2012,

as the deadline for implementing reforms in the process of a gradual market opening. Although one

can observe that the formal implementation of the Postal Directive follows the specified timeline in

most cases, it can be foreseen that actual competition will only increase slowly and gradually. The

postal market is difficult for new entrants due to declining mail volumes and large economies of scale

19

Trends and drivers of change in the EU transport and logistics sector: Mapping report, European Foundation for Living and Working Conditions, Dublin 2008.

12

and scope to the benefit of the incumbent.20 The sector has been strongly affected by the financial

crisis and will face additional volume reductions in the next years.

Due to the difficult economic situation liberalisation has led to a very limited increase of new com-

petitors in the EU Member States and in most countries these new suppliers of postal services only

have very low market shares. Overall the former state-owned monopolists maintain dominance in

most Member States. For example, the British Royal Mail still accounts for 96 per cent of the regu-

lated letter market. The same can be considered for Sweden (the country which introduced complete

and early liberalisation steps already in 1994, prior to, and independent from, the EC regulations),

where Posten AB still holds 93 percent of the letter market.21 Furthermore, in many formerly state-

owned companies governments continue to hold a controlling stake, with the exception of Germany,

Malta and the Netherlands.22 The national postal operators normally have the obligation to provide

countrywide postal services (universal service obligation - USO). With the market entrance of new

competitors a debate occurred in some countries about the question whether these USO are a disad-

vantage for the national postal operators and thus creates unfair market conditions because new

competitors now have full market access but not have to burden the costs for USO. However, financ-

ing of the USO does not seem to pose a major challenge in most countries. Only a few countries cur-

rently find it necessary to compensate the universal service providers for the net costs of the USO.23

Nevertheless, an increasing pressure to become more cost efficient and competitive has also caused

significant restructuring and reorganisation processes in the postal sector. Due to the fact that the

postal sector is quite labour intensive, liberalisation has been accompanied by significant job losses in

the former state-ruled companies. In Austria, Belgium, Germany and Sweden, between 15 and 37 per

cent of the jobs at the former monopolists have disappeared.24 For the whole EU estimates show a

decline of employment by 7.7% at the former monopolists.25 However, this decrease is not only

caused by rationalisation measures but also by technological improvements, especially in regard to

automated mail sorting and the increasing appearance of e-post substitutions. According to a recent

study technological development will cost more jobs at national postal operators than competition,

because the level of competition only grows slowly while e-substitution is causing a significant de-

cline in mail volumes and increased automation is implying significant reductions in the workforce.26

As in other sectors not only the number of jobs were reduced, but also the contractual forms

changed, with a marked increase of part-time work, fixed-term jobs, atypical employment and de-

creasing wages. Wage and salary costs are the main operating expenses in the postal sector and it is

therefore little surprising that the issues of cost management and productivity improvement are high

on the competitiveness agenda. It was estimated in 1990 that payroll costs represented 80% of op-

erating costs. The market entry of new competitors accelerated the increase of atypical employment

and the decreasing of wages, which is mainly because the market strategy of these enterprises is

20

The Copenhagen Economics (2010): Main developments in the postal sector (2008-2010), Research report prepared for the DG MARKT, p. 13.

21 Brandt, T. and Schulten, T. (2007).

22 The Copenhagen Economics (2010), p. 14.

23 Ibid., p. 17.

24 Flecker et al. (2009).

25 Main developments in the postal sector (2006-2008), Study by ECORYS Nederland BV.

26 The Copenhagen Economics (2010), p. 13.

13

often based on lower labour costs. In Germany, for example, the new competitors employ about 60

per cent of their workforce on marginal part-time contracts or ‘mini jobs’, only four per cent of the

incumbent monopolist’s employees have such a contract.27 However, the existing of atypical work

differs between the Member States.

The market entry of new competitors and the outsourcing and rationalisation of activities of the for-

mer monopolists led to a more fragmented system of labour relations. Due to formal privatisations

post offices have been separated from national public sector collective bargaining or wage regulation

in favour of new collective agreements at firm level. Due to outsourcing of different services units

(e.g. telecommunication-, financial-, letter- and counter services), a multitude of company agree-

ments have been settled in favour of one universal wage regulation for the whole postal sector. Ad-

ditionally, new forms of employment like agency workers are no longer covered by existing collective

agreements and most of the new enterprises entering the market are not integrated into the indus-

trial relations as the former monopolist. As a result, in many countries a polarisation between the

former monopolist companies with developed industrial relations and numerous small companies

with little or no collective regulation of employment relationships occurred. The former monopolist

companies normally show a high union density, while trade union presence among alternative postal

providers is often very low or non-existent. On the employers side in the majority of EU Member

States employers do not have organisations coordinating the interests of all the operators in the sec-

tor. In some countries employers in the postal sector have joined other representative organisations

(for example in Denmark Post Danmark and a few other companies are members of Confederation of

Danish Industries). Only in a few countries specific employers’ organizations were set up in the

course of liberalising the sector (Czech Republic, Finland, France, Slovakia, and Slovenia).

Faced with the effects of liberalisation, privatisation and the emergence of new competitors the so-

cial partners face many challenges. On the one hand the representation of employers` interests in

most cases does not reflect the liberalisation processes. On the other hand unions still have problems

to cover employees of new created subsidiaries or alternative providers.

Public transport

Public transport includes generally all transport systems in which passengers do not travel in their

own vehicle, i.e. bus, railways, taxicabs, scheduled ferries and boats. Although also covered by this

definition, airplanes are mostly excluded from the public transport sector. Furthermore, it makes

sense to distinguish the railways sector from the overall public transport sector, due to the fact that

in most countries the railways sector is subject to a different regulation than the overall public trans-

port sector and does not have a specific focus on local transport.

In comparison to most of the other sectors of public services the public transport sector is highly

diverse. Each Member State has its distinct market and ownership structures and often rather com-

plicated regulatory systems. In some countries like Germany and Austria several different providers

of public transport exist, however most of these companies are still public companies. Against this, in

other countries the number of public transport companies is much smaller, for example in the UK,

27

Flecker et al. (2009).

14

Sweden or Belgium. While in the UK and in Sweden private companies are dominating the market,

public transport in Belgium is still characterised by a monopolistic market access of only a few public

companies. In contrast to the railways sector, a common European-wide regulation and common

standards in regard to liberalisation and privatisation is missing. This is aggravated by the fact that

the different transport modes (including railways) often compete which each other. On the one hand

this might increase the productivity and the quality of services but on the other hand this competi-

tion bears the danger that it is fight at the expense of the working conditions. Due to this some

minimum standards in each of the transport modes might be reasonable.

According to the summary report of the recent PIQUE project28 two general types of competition in

local public transport are possible: “Competition for the market” and “competition in the market”.

Competition for the market takes place when several companies compete for a tendered route.

Competition in the market takes place when several companies drive the same route to compete for

passengers. Competition for the market has been introduced particularly in north-European coun-

tries whereas competition in the market dominates in Britain (outside London). After some negative

experience especially in the UK with the competition in the public transport market, the European

Commission clearly favours the competition for the market approach (advertised as ‘controlled com-

petition’). Tendering and outsourcing became a common praxis in the public transport sector and

thus are important instruments in the regulation of the public transport sector.

The effects of privatisation and liberalisation on employment and working conditions in the public

transport sector are uneven. Generally the change from public to private ownership has led to an

increasing number of private employees. However, reduction in employment seems not be as signifi-

cant as in other sectors. Especially the number of drivers as the “core workforce” seems to be quite

stable. Against this, related employees like technicians, administrative workers and workers in special

services like security and cleaning more often experience workforce reductions. More significant

than workforce reductions are effects on working conditions and wages. As in other sectors the out-

sourcing of former public services to private companies has led to wage differences between new

and old employees. While part-time work and agency work only plays a marginal role in the sector (at

least for the “core workforce”) split work days, rise in overtime, and more flexible working-hour ar-

rangements become more visible. Additionally, in some countries where competitive tendering is put

into practice, companies are forced to cut costs to be able to offer the cheapest bid. Of course, this

will effect working conditions and wage structures.

The described differences between working conditions in public and private companies can be ex-

plained with a fragmentation of the industrial relations system. While collective agreements often

exist for nearly all municipal transport companies, subsidiary companies and private companies are

in most cases not covered. However, due to the diverse character of the public transport sector the

effects of liberalisation on labour relations are quite different in the Member States.

28

Privatisation of public services and the impact on quality, employment and productivity (PiQUE), Summary Report, Vienna 2009.

15

Education

Although the educational sectors in the EU Member States have not been subject to full privatisation

or competitive market pressure29, the sector has experienced in most countries a kind of “hidden

privatisation”. These actions can include an “endogenous privatisation”, which described the process

by which public education establishment begin to behave more like private sector companies by

adopting practices in line with the New Public Management model. This comprises a stricter evalua-

tion of the outcomes of the educational work and a stronger focus on the efficiency and cost reduc-

tions. Furthermore, the privatisation in the educational sector can comprise a so-called “exogenous

privatisation”, which involves the opening up of education services to private sector participation on

a “for profit” basis.

The extent of privatisation differs in the EU countries. While in some countries like the Netherlands,

the UK and the Nordic countries the approach of developing market economy conditions in the edu-

cation sector is quite common, in other countries, for example France, education remains an area of

responsibility of central government. Quite common in all Member States is the practice to out-

source “peripheral” services such as cleaning, catering, security, or reprographics. Mostly these ac-

tivities are contracted out.

One of the results of reforms in the educational sector has been changes in the teacher´s employ-

ment status in many countries. New employed teachers are more often employed on basis of “pri-

vate sector style” contracts and previous privileges as a state employees are either abolished or

granted later, for example after a employment probation period. Related to these changes are new

implemented measures designed to bring about changes in teachers pay and working conditions. In

some countries salary structures has been changed and the aim to evaluate the outcomes of teach-

ers’ work has in some countries resulted in trend towards growing pressure to control teachers work-

ing time.

Fifteen European countries have seen change in teaching time (time spent in class) in recent years.

Outside of the classroom, in eleven countries, teachers’ job descriptions have been redefined in re-

cent years to specify clearly the full range of activities required of teachers. In some cases they were

precisely defined in terms of required time. In seven countries (Denmark, Italy, Malta, the Nether-

lands, Austria, Poland and Liechtenstein), new tasks were officially added to the regular work of

teachers in general secondary education. Teamwork (as in Denmark, Poland and Liechtenstein), in-

service training (Malta, the Netherlands and Austria) and the continuous assessment of pupils (Den-

mark) are just three examples. Introduction of all these measures has resulted in increased workload

and longer working time.

Another challenge for the sector is the growing competition between public and private education

providers. The co-existing of both private and public schools is not a new phenomenon in Western

Europe. Nevertheless, especially in Central and Eastern Europe a growing competition between these

two education providers can be observed and the increase of private education facilities and schools

also raises questions regarding the social political background and implications (in particular regard-

ing quality and equal opportunities in education). Private schools generally dispose of higher financial

29

As the education field is subject to the core competencies of the Member States, there is no overarching European policy process aiming at more enhances liberalization of the sector.

16

capacities and thus can offer better infrastructures and in general terms, better teachers and a better

quality of schooling. The situation in regard to universities and tertiary level education institutions is

different. Most of these recently created private institutions cannot compete with the evolved qual-

ity of public institutions.

Public administration

During the last three decades many countries started to reform and to decentralise their public ad-

ministrations and concepts such as “decentralisation”, “deregulation”, “devolution”, “outsourcing”,

“delegation”, “public-private partnerships”, “networks”, “responsibility” and “individualisation” be-

came popular. Most of the public administration reforms that had taken place in Europe (and else-

where) have been labelled as New Public Management (NPM). Organisational structures were sup-

posed to become “flatter” and line managers were given more responsibilities and (budgetary) dis-

cretion in carrying out their duties.30

All Member States have put effort on the “modernisation” of their public administrations in the last

decades, although with varying intensity and focus. Furthermore it is important to take into account

that norms and practices of (de)centralisation and accountability are deeply rooted in institutional

contexts and the different traditions of public administration. As a result the instruments used in the

restructuring process differ. This has also considerable implications for the concept of mutual learn-

ing and good or best practices. Not every successfully implemented process of change can be trans-

ferred to other countries but there is a strong need to adapt and adjust practice according to the

specific national frameworks and environments.

A common finding is that the economic situation and budget restrictions within public administration

are the main drivers of change. Expenditure limits seem to be of higher relevance for public admini-

stration modernisation than the need to adapt to the changing needs of society. The recent financial

and economic crisis has generally amplified this budgetary pressure and has had a substantial effect

on public administration employment. In particular the huge rescue packages have increased the

pressure on budget control and budgetary saving to an extraordinary extent. In most European coun-

tries, public administration has developed significant cost and workforce reduction programmes in

the last two years. According to the EMCC (“European Monitoring Centre for Change”) a total of 80

cases of restructuring in public administration have been documented in 2008 and 2009, most of

them case of job reductions aiming at cost reductions.

EU legislation and integration also seem to be a relevant, although it is not a very strong driver for

reform. According to a 2006 research report on decentralisation and accountability of public admini-

stration, the impact of EU legislation and integration on national public administration modernisation

seems to be considerably higher in Mediterranean countries and – to a lesser degree – in transition

30

Demmke, C.; Hammerschmid, G.; Meyer, R. (2006): Decentralisation and accountability as a focus of public administration modernisation: Challenges and Consequences for Human Resource Management, European Institute of Public Administration EIPA, Brussels.

17

countries compared to Scandinavian and Continental European countries who regard the influence of

the EU as rather low.31

Privatisation, public service modernisation and new management concepts but also budget con-

straints have had significant effects on employment conditions and different forms of contracts and

the status of employees. Though still in the majority of the EU member status,32 at least some em-

ployees in public administration still have a specific employment status, the number of this special

group of employees has been reduced in many countries. Although the precise employment condi-

tions of those with this specific status vary from country to country, in most countries they combine

both greater protection, greater restrictions on their freedom and increased requirements on them

to act in line with the state’s needs. The status of those working in public administration at various

levels is important in industrial relations terms as it can affect both the extent to which their pay and

terms and conditions are subject to collective bargaining and/or being set unilaterally by the gov-

ernment through legislation.

31

Ibid. 32

According to an overview of 2009, there are 17 countries out of the EU27: Austria, Belgium, Bulgaria, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Liethuania, Luxembourg, Portugal, Romania, Slowenia and Spain. See: EPSU/CEMR 2009: Social dialogue in the local and regional government sector: An overview p.16.

18

4 Conclusions and key points emerging

This factsheet was presented and discussed with representatives of sectoral project partners in the

context of the online seminar on 16 March 2011.

In particular the following general and sector specific comments and suggestions have been received

during and after the seminar:

Not only the negative effects and the challenges caused by liberalisation and deregulation on work-

ing conditions, financing and the ability to meet the obligation of universal provision should be

stressed but also positive effects. Here, for example positive influence on productivity, consumer

friendliness and efficiency have been highlighted by seminar participants and project partners in

particular.

For some sectors a more nuanced picture considering the specific influence of liberalisation should

be drawn. Here, in particular the following aspects were highlighted by seminar participants and

contributions received after the seminar:

In the health sector liberalisation has caused an increase in labour productivity and in the quality of

provided services. According to the discussion liberalisation also has an impact on the supply and

demand of labour in the health sector. In a fragmented labour market with lots of different service

providers issues like workforce planning and planning of training initiatives is more complicated.

In the transport sector the different modes of transport often compete with each other. Liberalisa-

tion generally has increased the productivity of the sector but also bears the danger that the compe-

tition between the different modes of transport has negative effects on working conditions. Due to

this some minimum conditions in each of the transport modes should be established.

It was noted that the postal sector does not only comprise regular/traditional mail activities but also

logistics and other services like financial services. The sector is experiencing an increasing competi-

tion from electronically postal services and new competitors. In the meanwhile 95% of the European

postal services are liberalised. The sector has been strongly affected by the financial crisis and will

face volume reductions in the next years. In some countries liberalisation and the emergence of new

competitors have caused problematic market conditions because new competitors are often subject

to different rules. For example, in some countries they are not bound to universal service obligations,

i.e. they do not provide daily postal services (for example in Sweden Citymail delivers mail only two

times a week). During the discussion it was point out to a recent study from “Copenhagen Econo-

mist” dealing with the developments in the European postal sector. Wmp Consult will update the

factsheet making use of the findings presented in this report.

The European electric sector has experienced extensive liberalisation activities. As in others sectors

liberalisation has caused an increasing labour productivity but sometimes on the expenses of working

conditions. Thus social dialogue has a key role to implement liberalisation steps in socially responsi-

ble way.

The discussion has shown that liberalisation can have a positive impact but also might cause negative

effects on issues like working conditions. Therefore the exchange of practical experiences between

related actors is important. Furthermore an active dialogue between the Social Partners can contrib-

ute to a market liberalisation which can make use of the positive effects but also consider social im-

plications.

19

Literature and resources

Brandt, T. and Schulten, T. (2007): Liberalisation and Privatisation of Public Services and the Impact

on Labour Relations: A Comparative View from Six Countries of the Postal, Hospital, Local Transport

and Electricity Sectors, Report for the PIQUE project (Privatisation of Public Services and the Impact

on Quality, Employment and Productivity).

Demmke, C.; Hammerschmid, G.; Meyer, R. (2006): Decentralisation and Accountability As a Focus of

Public Administration Modernisation: Challenges and Consequences for Human Resource Manage-

ment, European Institute of Public Administration EIPA, Brussels.

EMCC dossier on the European energy sector, Eurofound.

http://www.eurofound.europa.eu/emcc/content/source/eu08006a.htm?p1=emcc_dossier&p2=null

Restructuring in the Electricity Industry: a Toolkit for Socially Responsible Restructuring with a Best

Practice Guide, Joint Project of EMCEF, Eurelectric and EPSU. 2008. By David Tarren, Dr. Howard Pot-

ter, Dr. Sian Moore - Working Lives Research Institute.

Eurofound (2008): Trends and drivers of change in the EU transport and logistics sector: Mapping

report, European Monitoring Centre on Change (EMCC), Dublin 2008.

European Commission (1996): Communication Services of general interested in Europe”, COM(96)

443 final.

European Commission (2003): Green Paper on Services of General Interest, COM(2003) 270 final.

European Commission (2010): EU Energy and transport in figures.

Flecker, J. et al. (2009): Privatisation of Public Services and the Impact on Quality, Employment and

Productivity, Summary report of the PIQUE project (Privatisation of Public Services and the Impact on

Quality, Employment and Productivity).

Hermann, C. and Atzmüller, R. (2008): Liberalisation and Privatisation of Public Services and the Im-

pact on Employment, Working Conditions and Labour Relations, in: Keune, M./ Leschke, J. and Watt,

A. (eds.): Privatisation and liberalization of public services in Europe, ETUI-RHES.

Van der Lijn, N. et al. (2008): Main developments in the postal sector (2006-2008), Study by ECORYS

Nederland BV.

Watt, Andrew and Leschke, Janine (2008): Privatisation and liberalisation of public services in Europe.

An analysis of economic and labour market impacts. ETUI, Brussels.

Rosskam, E. (ed.) (2006): Winners or losers? Liberalizing public services. ILO Geneva.