A Deepened Single Market for Labor and Digital Innovation

Written by | Monday, August 1st, 2016

Paul-Jasper Dittrich (Notre Europe – Jacques Delors Institute)

Labor productivity in the EU is decreasing in the long-term. One of the ways to reverse this trend is the increased mobility of the factors of production, namely labor, capital and technology. Since greater inter-connectedness of capital markets leads towards a more efficient allocation of capital, this is something that the European labor market could do for the factor of labor. To that end, the basis of productivity growth in the future should be the establishment of a Digital Single Market (DSM). Plans for the integration of capital markets already exist and they are received positively among EU legislators. But what policies need to be adopted to facilitate the development of the single European labor and digital markets?

From a legal perspective, the free movement of persons is one of the four main freedoms, on which the EU is based. Yet, the real mobility of the Union’s citizens remains limited, even though higher labor mobility could arguably lead to a higher productivity growth and better prosperity. The Union should therefore strive to help people find a job abroad, meaning in another EU Member State. One possibility is the creation of a “European Employment Agency”. It would link national employment offices into one large database so that the information about job vacancies throughout the EU could be better shared. It also would be appropriate to create a Union program for education and requalification. Moreover, it is also necessary to harmonize certain areas of social policy. Especially for pensions, it would be good to coordinate their taxation and ensure the possibility of their transfer between individual EU Member States.

The second major driver of EU productivity could be a Digital Single Market (DSM). It could contribute up to 415 billion euros to the EU economy and create hundreds of thousands of jobs. The EU Commission therefore supports a new Digital Agenda, which should help European economies adapt to major technological changes in production processes. DSM would allow a rapid dissemination of new ideas, business models and technologies, thereby increasing productivity. Within DSM, lawmakers should then primarily focus on e-commerce and telecommunications. Electronic commerce is a fast-growing segment and it poses a great opportunity for the single market. Small and medium-sized enterprises could benefit from online trading that would give them an easy access to nearly 500 million customers at a minimal cost. In the market with mobile telecommunications, it is crucial to speed up the adaptation to new 5G technologies and thus provide the Union with the advantage of developing new products and services in the era of connectivity and the Internet of things. There should also be investments in broadband connection, which could increase the productivity by as much as 20 percent.

(The study can be downloaded here: http://www.delorsinstitute.eu/011-22923-A-deepened-Single-market-for-labour-and-digital-innovation.html)

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