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How do we bridge the divide in the Dutch labor market?

Science Works 6 min. Joost Bijlsma

The Dutch labor market is characterized by a huge divide between those with plenty and those with very little to fall back on. The coronavirus crisis threatens to widen the gap yet further. Government measures will soften the blow but long-term interventions and innovations are necessary. Sweden, Denmark and Belgium can show us the way. An interview with three of our labor market researchers, who also possess a large network in the Dutch labor policy world: Irmgard Borghouts, Charissa Freese and Ton Wilthagen.

For a young manager working in events organization, the coronavirus crisis is far from a minor inconvenience. Large-scale gatherings were suddenly banned and the future remains uncertain. Anyone with a permanent job can consider themselves lucky. But many young people are self-employed or ‘flex workers’. Their income is far from secure but student loans still have to be repaid.

Remarkable

Fortunately, the Dutch government has extended a lifeline. There are various income support provisions, some available to people who don’t have a permanent job. The self-employed can apply for support under the Temporary Emergency Bridging Measure for Self-Employed Persons (TOZO), while a similar arrangement (TOFA) exists for flex workers.

Foto Ton Wilthagen: Gerdien Wolthaus Paauw

 Employers can ‘furlough’ staff and offset their wages bill under the Temporary Emergency Bridging Measure for Sustained Employment (NOW, which also covers temporary personnel subject to qualifying conditions. “Remarkable,” states Ton Wilthagen, Professor of Institutional and Legal Aspects of the Labor Market at Tilburg University.

(Photogapher: Gerdien Wolthaus Paauw)

“Never before has the government come to the aid of the self-employed and flex workers during a crisis. In the past, support has always been limited to unemployment insurance top-up payments for those in permanent employment.” Wilthagen welcomes the measures but also notes that the coronavirus crisis has exposed just how great the differences in the workplace are. “Some people are sitting safely at home, typing away with Spotify in the background, while others are still humping animal carcasses around the abattoir.”

The gulf between permanent staff and flex workers is wider in the Netherlands than anywhere else in Europe

But the greatest differences are seen in terms of long-term financial security and entitlements, which are determined by the individual’s contract of employment. Anyone with a permanent contract is entitled to paid sick leave, incapacity benefit, contributions towards personal development and a good retirement pension. The self-employed and flex workers must make their own arrangements. Many simply cannot afford incapacity insurance or regular pension premiums. “The gulf between permanent staff and flex workers is wider in the Netherlands than anywhere else in Europe,” Wilthagen concludes.

Two extremes

According to researcher Charissa Freese, HRM specialist at the Tilburg School of Social and Behavioral Sciences, there is a very real danger that the gulf will become even wider. She believes that the economic effects of the coronavirus crisis will hit the self-employed and flex workers harder than anyone else. “If companies wish to cut staffing levels, the flex workers will be the first to go. Where possible, people will wish to seek the security of a permanent contract.” (Photographer: Gerdien Wolthaus Paauw)

Foto Charissa Freese: Gerdien Wolthaus Paauw

 This situation makes the Netherlands a country of two extremes, she contends. “At one end of the spectrum are the permanent employees, for whom an extremely strong social security system is in place. If they fall ill, they will remain on full pay for two years; an arrangement which is unique to the Netherlands. At the other end are the self-employed and flex workers, who enjoy few if any rights.” The dichotomy is amply illustrated by the way in which self-employed people are being treated during the current crisis, Freese continues. “Standards of good employer-employee relationships seem to have been abandoned overnight. Some companies have unilaterally extended their payment terms so self-employed service providers have to wait even longer for their money. We have to ask whether that is socially acceptable. No one would expect an employee to wait two months for their salary.”

Permanent contracts unattractive

The effect of the gulf is that a growing number of people are vulnerable in terms of work and income. It will, however, be difficult to turn the tide. “Permanent contracts are unattractive to employers precisely because of the protection that staff then enjoy. For smaller companies in particular, the prospect of having to pay a sick employee for two years is a huge risk,” Freese explains. Nevertheless, it is essential that something is done to close the divide, since it has serious disadvantages – and not only for young people and those with lesser qualifications, for whom entering the labor market is already difficult enough. “One effect is that people with a permanent contract tend to stay where they are. There is no personal development. It is then very difficult for someone who loses their job in middle age to find alternative employment.” This is certainly more difficult in the Netherlands, which has the lowest rate of employment among the older age groups of all European member states (source: Eurostat).

One must ask how this situation has been allowed to develop in a country which was once renowned for social equity and the famous ‘polder model’, whereby close consultation between employers and employees helped to maintain a balanced relationship. The days of far-reaching ‘social pacts’ are long past, Wilthagen notes. “They are no longer possible because we have arrived at an impasse.” The unions are clinging firmly to the concept of the permanent contract, while employers are clinging just as firmly to the benefits of cheaper, no-obligation labor (see Fold out I).

Fold out I:Impasse in the polder

From work to work

Irmgard Borghouts

Waiting years for a new social pact is not an option. The crisis demands solutions for people such as our events manager. Retraining programs are one option, and steps in this direction have already been taken, explains Irmgard Borghouts of Tilburg Law School, who specializes in social policy. “The government’s second NOW package includes a training requirement whereby employers wishing to shed staff are obliged to help those affected make the transition into another job. The package also provides 50 million euros to fund individual online courses.”

Borghouts notes a welcome difference between this arrangement and the ‘From work to work’ scheme introduced in response to the financial crisis, namely that the funding is also available to employees of smaller companies. She believes it would be even better if the scheme also considered the special needs of older workers. “Age is a significant explanatory factor when we look at the duration of unemployment.”

(Photographer: Anja Robertus)

Employment hubs

We are about to embark on a major retraining program prompted by the coronavirus crisis. There is no time to lose, suggests Wilthagen. It is possible to draw an important lesson from the previous crisis: avoid making things too complex. “The ‘sector plans’ drawn up at that time were far too bureaucratic and that caused serious delays to their implementation. The interventions were simply too late to play any part in mitigating the crisis.”

Regional authorities are closest to companies and individuals 

Wilthagen prefers a more pragmatic approach which combines existing initiatives. He would like to see regional authorities (rather than central government or the sectors) put in charge of the transition programs. “They are closest to companies and individuals, and they have an interest in ensuring maximum employment.” The existing infrastructure at regional level – employer service points, training advisory services and educational institutes – would form excellent ‘employment hubs’, he believes.

Structural reforms

It is certainly important to find prompt solutions to the current problems, Borghouts states. But at the same time, she feels we must not wait too long before implementing more structural reforms which will increase employment mobility. In this respect, the Netherlands could usefully follow Sweden’s example. “As long ago as the 1970s, Sweden introduced ‘transition funds’ for people facing unemployment. Both employers and employees pay into those funds: they are effectively saving during the good times to cover the bad times. The money becomes available once layoffs have been announced. These funds exist for all companies, regardless of size.”

We must not wait too long before implementing more structural reforms

As Freese explains, the Swedish standpoint is that the development of employees is a joint responsibility, and thus a joint investment. “The fund is not limited to a certain sector, it’s there to help you find work that will suit you. That is a different approach from the Dutch system. Here, the aim is to get people back into employment – and off benefits – as quickly as possible.”

Skills passport

Matching workers to a job in a different sector is no easy task. It requires an understanding of their transferable skills. At present, the recruitment process focuses on training, qualifications and previous employment. Such information is limited because people gain all sorts of experience during their working lives. If skills are not made visible, they cannot be used to support matching. Wilthagen supports the introduction of a ‘skills passport’ in which a person’s various competencies, such as social skills or IT ability, are recorded. This would make it far easier to match employees across sector boundaries.

“If we had something like this now, it would certainly help in placing people who have lost their jobs due to the coronavirus crisis. It would enable us to look beyond previous employment, training or qualifications, which increases the chance of an ‘unexpected’ match in a different sector.”

Wilthagen is currently working on the development of a skills passport (see Fold out II). He considers standardization to be important: skills should be presented in a uniform manner. Belgium can provide inspiration in this regard. “So far, it is the Belgians who have taken this idea the furthest. There is a passport with a fixed standard: ‘Competent’. All vacancies must be notified to the public employment services, listing the skills required.’’

Fold out II: Skills passport

Not a fairy tale

Of course, transition payments and skills passports are not the answer to all our problems. To increase employment mobility on a permanent basis calls for more, not least in terms of provisions to ensure financial security. At present, leaving one job to take up employment elsewhere can be something of a gamble, since one is relinquishing various assurances.

A fairer societal distribution of costs and benefits will make it easier for everyone

Freese therefore calls for a fairer societal distribution of costs and benefits. “More people should be paying into the social insurance provisions, and more people must be able to fall back on them if necessary. This will make it easier for everyone.”

Wilthagen believes that there should no longer be any distinction based on whether someone has a permanent contract of employment. He wishes to see a ‘contract-neutral’ system of contributions and benefits. “It would be very easy to organize. Denmark does it all through income tax: everyone contributes, everyone knows how much they contribute, and everyone knows their entitlements.” The aim, he suggests, should be ‘employment security’ rather than ‘job security’. “People should be free to change jobs at will without having to fear adverse consequences. The objective is to allow people to work until retirement age, not necessarily in the same job or sector.” Denmark has made considerable progress in this regard. “Danes know that if one job disappears, they can move to another and continue to receive appropriate support. Although there is limited employment protection, the sense of security among Danish employees is stronger than anywhere else in the world.” The Danes have shown that employment security is possible. “It is not a Hans Christian Andersen fairy tale!”