Labour Relations in the Netherlands: On Flexibility and Human Capital Investments

Frank Cörvers

Session 4Resilient Labor Markets: Cases of Germany and the Netherlands

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Overview

1. Some characteristics of the Netherlands2. Typical Dutch3. A resilient labour market?: Analysing the

decrease in unemployment 4. Flexible contracts and trade-off with firm-

specific human capital investments5. Take-away points for other countries

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Most recent figures for the Netherlands (from the World Bank)• Population 16.6 million• Life expectancy at birth 81 years• GNP per capita $ 50k• Exports of GDP 69%• Labor force with tertiary education 29%• Labor participation rate (15+) 66%• Part time work among women 60% • Unemployment 3.4%• Youth unemployment 6.6%

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Typical Dutch

• Corporatist system: central level bargaining with moderate unions at the industry level (-> wage moderation, agreements on working conditions and training, pension contributions, etc.)

• Collective labour agreements (CLA’s) concluded at the industry level are binding for all firms

• Employers can freely choose from dual dismissal tracks: They can either go to the employment office or file for permission by the civil court.

• Relative high protection for permanents workers, low protection for flexible workers

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GDP growth 1970-2010; forecast 2011-2012

-4,0

-2,0

0,0

2,0

4,0

6,0

8,0

10,0

1970

1972

1974

1976

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1980

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1990

1992

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1996

1998

2000

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2004

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2008

2010

2012

%

GDP growth

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Unemployment shows a structural downward trend since the middle of the 1980s

-4,0

-2,0

0,0

2,0

4,0

6,0

8,0

10,0

1970

1972

1974

1976

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1980

1982

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1998

2000

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2010

2012

%

GDP growth unemployment

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Why unemployment went down since the middle of the 1980s?• Agreement of Wassenaar (1982) between

government, employment associations and labour unions: wage moderation for shorter working weeks; government promised not to intervene in wage negotiations

• Cuts in government spending and social security without much opposition of labour unions; decrease in taxes and social security contributions -> lower wage costs

• Stricter eligibility criteria for social security benefits (disability), more financial responsibility for municipalities (welfare)

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Recent moderate increase in unemployment was a surprise• Official forecasts in 2009: unemployment

would rise to about 7% (doubling) or more...• In fact we are still a bit puzzled why it

didn’t….

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Possible reasons for moderate increase in unemployment, despite large fall in GDP• Very short period of negative growth• Many vacancies before turndown• Anticipation on new labour market shortages after

crisis: employers were reluctant to fire highly- qualified personnel

• Many retirees and less young people than before• Short-time working (in Germany: Kurzarbeit), both

officially and voluntary (without wage compensation)• Higher % of flexible workers, incl. self-employed,

than before • (SAB: more discouraged workers and young people in

education, less immigrants, ALMP

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Five contract types in the Dutch labour force• Permanent contracts• Fixed-term contracts (direct hire temporary)• Temporary work agency contracts • On-call contracts• Self-employment without personnel

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Shares on the labour market

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Regulation since 1999: Flexibility and Security Act • With implications for fixed-term contracts,

temporary agency contracts and on-call work• F&S Act was prepared by social partners and made

into law.• Aim: increase flexibility for firms and security for

workers.• More flexibility in ftc, less in on-call work• More security in twa and on-call• Deviations are always possible by collective labour

agreements

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Temporary employment as % of dependent employment

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Self-employment as % of total employment

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Warning: Trade-off between flexibility and firm-specific training

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Wage penalties on temporary contracts

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The flip side of flexibility• Some specific groups mainly bear the costs of

labour market flexibility: low-skilled & young people incl. recent graduates (‘dual labour market’ problem)

• Those groups are faced with job insecurity, repeated spells of unemployment, wage penalties, worse job match, poor working conditions and less training investments

• Differences in protection between permanent and temporary workers are rather large in the Netherlands

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Take-away points for other countries

• Corporatist system of labour relations may offer good elements for other countries

• More labour market flexibility may decrease unemployment

• But comes at the cost of poor working conditions and job match for those workers

• Relatively small group of flexible workers is hit in the Netherlands, which may be prevented by closing the gap of employment protection between permanent and temporary contracts