21 March 2017
The economic impact of different regulatory approaches on the architectural sector in Europe
The European Centre for Liberal Professions (EuZFB) of the University of Cologne recently published an independent study on the economic impact of different regulatory approaches on the architectural sector in Europe. As the Parliament and the Council of the EU prepare to start discussing the Commission’s legislative package on services, the Architects’ Council of Europe (ACE) welcomes this study which sheds new light on the economic impact of regulation on the architectural profession.
The Juncker Commission has committed to unlock the full potential of the Single Market for Services by simplifying and strengthening the cross-border provision of services, notably through initiatives targeting the regulated professions – including architects. The Commission aims thereby to create new business opportunities and offer greater choice and lower prices for consumers.
While in principle, Member States are free to choose their approach to regulate professions, the EU Commission assumes that a certain form of regulation could yield to better outcomes in terms of competitiveness and be beneficial for consumers and companies. The University of Cologne has examined the economic impact of the different regulatory approaches on the architecture sector in the light of the various arguments put forward in the Mutual Evaluation exercise conducted by the European Commission in 2014-2015. Through a series of economic data and analysis, the EuZFB has reached conclusions in the four following areas.
1. Are enterprises in the architectural sector too small due to insufficient competition?
The study emphasises the need to take intermediate consumption and consumer preferences into account, as the small size of firms on the architectural market could be explained by an adaptation to consumer preferences for smaller and local architect's offices and/or decisions to outsource some of the production stages.
2. Are the profit margins in parts of the EU architectural sector too high due to insufficient competition?
The study concludes that the gross operating rate is not a reliable indicator for the level of competition in the architectural sector and cannot necessarily provide a reliable indication for potential reforms, notably due to the varying share of intermediate inputs across the architectural sectors in the Member States and the prevalence of SMEs in the market.
3. Is the productivity in the EU architectural sector too low due to insufficient competition?
The study demonstrates that the observation of a different value-added per person employed across sectors with different production structures is not a reliable indicator for insufficient competition in the architectural sector. It points out that productivity in the services sector is generally lower because it is less capital intensive.
4. Are the regulations in some Member States anti-competitive compared to others, based on the OECD PMR indicator?
The study reveals that the OECD Product Market Regulation indicator does not reflect the actual level of regulation in Member States and favours ex post control (ie. regulation of the function). The study shows that ex ante regulation (ie. where access to the profession is regulated) does not lead to higher prices than ex post regulation: according to Eurostat data, prices have risen more sharply in Member States with ex post regulation. The study concludes that there is no evidence of the superiority of one of the two different regulatory approaches.
The Study can be downloaded in English and French on the ACE wesbite, as well as on the EuZFB website.