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Wednesday, 17 June 2015

The Diabolical Dilemma Pt II: Buying the cheap clothes and shoes, in spite of the dangerous circumstances under which they are manufactured?

Should we boycott the brands and store chains that make use of poorly treated and paid ‘slave workers’ from Pakistan, India and Bangladesh, in order to enforce better labour circumstances?!  And consequently deprive these people from their desperately needed income?!

This is a follow-up of the first article in this series, dealing with the 2022 World Cup Football in Qatar, which was printed about one week ago.

Everybody who is walking in a modern shopping street or mall in Smalltown, Europe or Littleville in the United States, is unperceived confronted with the Third World and in particular, the low wage countries in the Middle and Far East, where many of the clothes, shoes and accessories are manufactured.

Exotic countries and locations, like Thailand, Cambodia, Bangladesh, Vietnam, India, Pakistan or China are hosting the mega-factories and ‘sweatshops’, where the vast majority of these well-known products are produced, during long, long days of hard labour against the smallest of hourly wages.

Modern sports, fashion and lifestyle brands like Levis, Gap, Walt Disney, Benneton, Nike and Adidas or inexpensive store chains, like Walmart, Zara, Primark, C&A and H&M would be immediately out of business without these classic low wage countries. Just for the simple reason that only these countries are willing to produce their fashion and footwear at the absolute bottom prices, which are required by the frugal, modern day consumer.

As a matter of fact, this modern day consumer is a very spoilt consumer. He or she wants to have multiple brandnew collections of fashion, accessories and footwear per year, at almost the same prices as in the Seventies of last century. And sometimes at even lower prices than usual in those days.

Nowadays the fashion collections have a much quicker maturity date, which leads to a minimized earn back period for new collections and almost continuous clearance sales throughout the year. All these circumstances make that production at the absolute bottom of the price spectrum is mandatory to survive.

Only the French and Italian luxury brands, like Corneliani, Brioni, Prada, Gucci, Chanel and Louis Vuitton still manage to produce most of their (extremely expensive) fashion and footwear in Europe (mainly in France and Italy) or North Africa, without making concessions to their production quality. However, this became impossible for the brands and store chains, which sell daily usable, ready-to-wear fashion to the lower and middle classes of Europe.

One can reckon, in 1975 an experienced seamster and tailor of ready-to-wear clothes probably made around €6 in gross per working hour in The Netherlands, which had an impressive fashion and shoe industry in those days. This amount included applicable taxes and social premiums.

In 2013, however, the same professions would have earned around €19 per hour for the same amount of labour in The Netherlands, due to inflation (see the table behind the aforementioned link).

Even when computerized looms, sowing machines and fabric/leather-cutting robots would have dramatically increased the production quantities and efficiency, as well as dramatically reduced the material usage in clothing and footwear plants, this would still mean that the same quality of clothes and shoes would cost about 2.5 times as much as they did in those days in the Seventies.

Not only the domestic manufacturing process became more expensive since then, but also the raw materials needed for the production of these fashion and footwear. About the same price and wage increases took probably place in the rest of Europe and the United States.

But now comes the strange part.

Where a basic pair of jeans and trousers from an in-store brand cost about €20 to €40 in those days and a pair of jeans from a famous jeans brand, like Levis, Lois or Wrangler cost about €50 to €60 in the seventies and early eighties, these prices for the same jeans and trousers hardly rose as of 2015. Likewise with shirts, polos, shoes and other clothing items.

The same happened with footwear and accessories, especially the ones for children. In those days in the Seventies, a good pair of domestically manufactured shoes for children cost about €35 - €60 and again this price hardly rose or even dropped in the years since then, although one might expect exactly the opposite.

One will understand that something had got to give to enable similar products at similar prices after fourty years of domestic inflation. And that something has been the production costs.

Take for instance an old and very famous Dutch brand like Oilily, which produced domestically manufactured children’s clothes of impeccable quality and an almost endless life span. This brand has been annihilated by the flood of cheap imports from the Far East, that were sold by C&A, Hema, V&D and other store chains in the eighties, nineties and zeroes.

At the price of one Oilily dress of €60, people could buy up to five dresses from the likes of C&A and V&D. When you are a lower or middle class family, with demanding children, what choice do you have then?!

Cool and fashionable brands that were traditionally extremely popular by adolescents and students, like Nike, Lacoste, FILA or Adidas did not per sé have the need to produce in the low wage countries, in my humble opinion. The presumed uniqueness, added value and fashionability of these brands would make them relatively inelastical for (limited) price changes.

However, the bloody war for the consumer and the increasingly outrageous sponsor budgets for official endorsers of these brands – famous sporters, tournaments and national teams sponsored by these brands – as well as the will to produce inexpensive shoes and clothing ranges for teenagers, made that these brands also moved their production lines to the low wage countries, in order to keep their production costs low and their profitability at an elevated level, in spite of the ever rising marketing costs.

And now the simple truth is that the domestic production of inexpensive, daily clothing and footwear in Europe and the United States is almost dead-before-dying and that our most beloved brands and store chains produce these articles in sweatshops and megafactories in the low wage countries; often under brutal and extremely dangerous circumstances.

If we don’t want to buy these brands at these very store chains anymore, for the prices that we are used to pay nowadays  and instead choose for “European / US made quality”, we enter into a world of (extremely) expensive fashion and footwear from factories in France, Italy, Germany, the United Kingdom or The United States.

This is a world in which a simple pair of jeans or shoes would cost about €150 - €200, men’s shirts would cost at least €100, women’s dresses would cost north of €250 and even simple things like T-shirts cost €15-€25 each, instead of €10 per three(!). And that is not even including the bedazzling marketing expenses that the famous brands spend on a annual basis.

Would this be a better world for everybody? Or would it put the ‘enslaved’ workers in f.i. Pakistan, Bangladesh, Cambodia and Vietnam in an even worse position: a position of ultimate poverty, without any source of income to live from.

This is exactly where our second diabolical dilemma rears its ugly head.

Should we boycott the brands and store chains that make use of poorly paid and badly treated ‘slave workers’ from Pakistan, India and Bangladesh, in order to enforce better labour circumstances, like decent people with an ethical view on the world should do?! 

Or should we continue buying the products from these brands and store chains, as we know that at least some of the money – albeit a ridiculously small amount of it –flows into the hands and wallets of the people that fabricate these clothes. Hands and wallets that desperately need this money to have something of a decent life for themselves, their children and loved ones. A life that can uplift whole regions in these impoverished countries

And should we take for granted that the rich “slavekeepers” in these countries (i.e. the executive managers and factory-owners of these sweatshops) and the European / US / Australian brands with their multi-billion dollar annual profits absorb the vast majority of the production payments and profits and not the people who do the hard labour during up to 14 hours a day?!

And should we take for granted that in the near future yet another production plant in one of these countries is set ablaze or collapes during an earthquake, with probably again dozens or hundreds of deaths as result.

It is like choosing between the Devil and Beelzebub (Dutch expression):

Buying one’s goods from these brands and store chains, like nothing happened before, will probably not change one thing in their unethical behaviour eventually; in spite of all the empty promises about improved ethical behaviour and production circumstances from these companies, the political jawboning from national, European and US officials and all the good intensions of involved parties during the last few years.

In the end, it are always the bottom line and the lowest price which set the standards for manufacturing and trade in the footwear and fashion business .

Boycotting these brands and store chains, on the other hand, will rob many, many families and people in the Far East from their only income and from their ultimate chance for a slightly better future for themselves and their loves ones.

Perhaps the only viable way for European, Australian and United States consumers is to accept that we endured fourty years of (in general) inflation since 1975 and that it would be nothing else than reasonable that clothes will become at least twice as expensive as they are currently. Of course, it is totally ridiculous that clothing and shoes hardly changed in price since 1975, while everything else did. And of course it is ridiculous too that store chains have no less than 5 or 6 collections per year and virtually continuous clearance sales, instead of two collections and two clearance sale periods.

The additional money coming from these higher prices could then be used to dramatically increase the income, the labour circumstances and the safety situation of those impoverished workers in the low wage countries, like what happened in the coffee and tropical fruit industry in some places and countries.

But please, let’s look at ourselves in the mirror! When for instance Zara or H&M would double their prices and the rest of the retail stores would not, we all would go to the other store chains that maintained their old, low prices. Wouldn’t we?! 

And that is the true diabolical nature of this dilemma: there are no easy solutions!

Tuesday, 16 June 2015

‘Canary in a Coalmine’ Greece in 2011 and 2015. Many things changed, but not for the better. A Grexit is looming even more than it did in 2011

First to fall over when the atmosphere
is less than perfect
Your sensibilities are shaken by the slightest defect
You live you life like a canary in a coalmine

Yesterday, I developed the idea to write an article about Greece, in which I treated the country as the proverbial ‘Canary in a Coalmine’: a manifest warning signal of when things seriously start to go wrong as a consequence of underlying, less obvious causes.

Of course, I wanted to use the first verse of the hilarious, namesake Police song about such a canary at the beginning of my article, but I knew that I had used it before, some time ago.

(Not so much) to my surprise, I found out that I used it earlier in an article about… Greece.

What made this old article particularly interesting to read back, is that it originated from September 2011: almost four years ago. In those days, the Greek crisis was still in its early stages and the solutions seemed still quite obvious to me, albeit very hard to achieve in the political snakepit, called the EU.

Since then many things regarding Greece changed, but too many things didn't! 

Therefore I wanted to use some quotes from this four year old article to find out where we stand today; what has changed and what has stayed the same about the Greek conundrum. Here are the most important quotes from this article, accompanied by my comments, regarding the current situation.

Quote: During the last three years, Greece had the dubious honour to be ‘the canary in the coalmine’ for the Euro-zone. And darn it; what an interesting story this ‘bird’ had to tell

My comments: Greek still is the canary in the coalmine; perhaps now more than ever. Perhaps it is the first domino in a row to tumble, followed by other countries from the Eurozone. In my opinion, the Eurozone is to blame for that.

The Eurozone and the EU have merely kicked the can down the road for almost four years now, while forcing brutal austerity arrangements upon the Greek population, through the so-called troika of EU, IMF and ECB.

Even though the Greek economy started to reluctantly grow in 2014 – after three years in which the Greek lower and middles classes were economically starved to death – the population was utterly sick and tired of the enduring crisis, as well as the insensitive and insulting taunts coming from the so-called ‘sensible” and creditworthy Euro-zone members Germany, The Netherlands and Finland.

Especially the first two had partly shipwrecked the Greek agricultural and manufacturing industry with their relatively cheap exports of agricultural produce and commodities and goods. These products could be produced very efficiently and cheap, due to years of wage restraint that artificially suppressed the production expenses. Yet, both countries Germany and The Netherlands fully blamed the economic misfortune upon the Greeks themselves, without looking at their own part in this drama.

The Greek citizens became also totally fed up with the corrupted and untouchable upper classes in their own country with their black money, their government protection and their hidden bank accounts. People, who refused to pay their fair share of taxes and who did not want to be citizens with sensitivity regarding the interests of their countries and their fellow-countrymen. They rather chose for their own egocentric interests and not for the economic health of their country.

As a matter of fact, the Greek population was so sick and tired of the corruption and tax evasion of the Greek elites, the enduring austerity and the financial undressing of the Greek social framework, that during the last national elections in Greece they gave their votes to two parties at the outer rim of the political spectrum: Syriza at the left wing and ANEL at the right wing. Exactly these two parties form a government since January 2015; very different, but bound by their hatred for the corrupted upper classes in Greece and their disliking of the troika and the current political direction of the Euro-zone.

And while democracy had thus spoken out loudly in Greece, the tone of voice of it was so not to the liking of the current leaders of the Eurozone, that the Eurozone itself totally ignored the democratic turn-around happening in Greece: "resistance is futile!"

The Eurozone continued with its fiscal austerity programs for Greece and with its amortization schedules for the Greek debt, as if nothing dramatical had happened: 'Democracy and elections are fine, as long as the results suit the interests of the Eurozone. If they don't, they will be ignored'

Consequently, the Eurozone leaders refused to really negotiate with the new Greek leaders PM Alexis Tsipras and Finance Minister Yanis Varoufakis about a new deal for Greece. And these new leaders, on their behalf, did very little to improve the situation of their own country as well.

The result after the Greek elections has been an enduring farce about miscommunication, misunderstanding, misplaced pride and arrogance and a dash of failed bluff poker, as well as an almost suicidal desire at both parties to not come to a mutual understanding and viable solutions:
  • Eurogroup chairman Jeroen Dijsselbloem and German Finance Minister Wolfgang Schäuble maintain their conceited stance towards Greece, as insulted wallflowers at a school prom.
  • The former PIIGS countries Portugal, Spain and Italy are seemingly under the influence of the Stockholm Syndrome. These three countries want the Greeks to suffer even more from the austerity measures than they already did.
    • Obviously, Spain, Portugal and Italy have also suffered very much from the actions of the same troika parties themselves and don't want Greece to have 'an easy escape' in this matter.
    • Whether this prolonged austerity helps Greece and the Greek population to solve their economic problems, does not matter anymore. Everybody did it, so they have to do it to... until the bitter end! 
  • And for Greece, especially Finance Minister Yanis Varoufakis has been so entangled in his communication and so busy demonstrating his presumed intellect and his serious gaming theory, that even his most avid followers don’t understand his strategy anymore.
    • These followers all come to the conclusion that Varoufakis probably does not have a strategy at all, but instead is playing a game of Russian Roulette with the Eurozone, which he is doomed to lose.
  • The categorical refusal of the Eurozone countries to write down on the outstanding Greek debt ignores the fact that the Greek debt position is not viable in the long run, according to various economists. It is a question of principle..., not of sense and sensibility!
Greece needs a real helping hand now, instead of yet more debt for a prolonged period of time, but the Eurozone does not want to give this helping hand anymore.

And now, at this very moment, the only road ahead seems an official default, possibly leading to a Grexit from the Euro-zone.

Quote: One small group of relatively weak countries (the PIIGS) was (almost) enough to demolish the Euro and, as a consequence, the whole Euro-zone. The political and economic unity in the Euro-zone was definitely ‘the weakest link’ and it almost led to ‘Goodbye’ for the Euro. 

In the current structure, it is impossible to make the quick decisions that are necessary to save a currency in distress. The Euro-zone has acted more like 20 frogs in a wheelbarrow than as a union during the last three years.

Especially in difficult times, the policy of choice was the proverbial: “everybody for themselves and God for us all”. 

My comments: The Eurozone definitely was the weakest link in hindsight… 

Although many pundits consider the Greek problem now as much more contained than five years ago and don’t see a Grexit as a disaster of the first degree anymore, the intrinsical weakness of the Euro itself and the Eurozone is currently more visible and obvious than ever.

The Eurozone has been disclosed as an emperor with very little clothing on, whose only remedy against the economic crisis has been austerity, more austerity and on top of it… austerity. 

Real solidarity and cooperation between the Eurozone countries is nearly dead and the only thing that seemingly happened during the political assemblies was a continuous kicking of the can down an endless road. That was until Mario Draghi as President of the European Central Bank came to the rescue at multiple occasions.

Little has been achieved in Greece, Spain, Portugal and Italy, regarding possible plans to make these economies really more competitive, through more efficient and effective production of goods and agricultural produce. 

Instead of having looked for ways to cooperate and offer each other a helping hand, the Eurozone has acted like an angry cop, who only is interested in punishing offenders of the European laws. Therefore the expression Marshall Plan remains something of the Second World War and unfortunately not of this crisis, as none of the Eurozone countries had the guts and stamina to reinvent and deploy such a plan.

Therefore the only thing that really happened in the PIIGS countries (excluding Ireland) is that social and personnel expenses have dropped significantly, due to massive austerity on social security, pensions and welfare. 

And there has been an enormous increase in unemployment, which forced the costs of labour down for the people that did find a job after all. "If you don't accept these lower wages I offer you, there are a hundred people behind you who will!" 

The latter definitely made production and exports in these countries cheaper and consequently it made their economy somewhat more competitive. However, the lower and middle class population in these countries ended up being much poorer than they were before.

Summarizing, the austerity operation might have succeeded in the PIIGS countries, but the patient (i.e. the average lower and middle class Joe Sixpack in the aforementioned countries) has become critically ill.

Germany, France, Finland and The Netherlands – although perhaps the economic ‘leaders’ of the Euro-zone – are not ‘The Fantastic Four’. Even with the roof and the upper floors of the Euro-house burning, the sense of urgency to form a fire brigade is still missing among the leaders of Germany, Finland and The Netherlands. 
  • France’s Nicholas Sarkozy feels this sense of urgency, but is in his own country almost 'presidenta-non-grata'.
  • Germany’s political leadership within the Euro-zone has weakened, due to its current weak Chancellor Angela Merkel.
  • Europe and the US in general share an immensely weak generation of politicians, who are very accessible for the ‘vox populis’ and lack the necessary backbone for taking the hard and impopular decisions.
  • The European Commision, on paper the daily executive for the EU and the Euro-zone, is exposed as a toothless tiger with exactly the weak kind of leaders that are favorised by the national leaders of the participating countries: José Manuel Barroso, Herman van Rompuy and Catherine Ashton.

My comments: Suffice it to say that the only real fireman of the last four years has been Mario Draghi of the ECB, who did all the hard work for the political elite. The elite itself rested on its hands ever since. In other words, these leading countries have indeed not been disclosed as the Fantastic Four.

How much has really happened within the Eurozone and the European Union? That is, except for the fact that now also the United Kingdom is looking for the emergency exit of the EU and we have entered into a new cold war with Russia, about a country – Ukraine  which we are not really planning to help, as we can’t afford that, even though we said that we would. 
  • In France, one hopeless right-wing president has been exchanged for an even weaker left-wing president;
  • Germany could not find someone more capable and brave than Angela Merkel and the rest of Europe has probably even worse leadership in general. This circumstance caused this ‘leading lady’ to turn into the autocratic Queen of Europe by default.
  • And with respect to POTUS Barack Obama? There are maybe dozens of good things to say about him, but as a US president, he seems one big, spineless failure.
  • The expression 'toothless tiger' describes exactly what the European executive leadership still is and will be in years to come.
    • 'Bleak' José Manuel Barroso has been succeeded by Jean Claude ‘Mr. Tax Ruling’ Juncker of Luxemburg and Frans ‘Hear me speak eight languages fluently’ Timmermans of The Netherlands: all form, but no function;
    • 'Grey mouse' Herman van Rompuy has been succeeded by Donald ‘Who?’ Tusk of Poland;
    • Last and least: ‘Invisible Woman’ Catherine Ashton has been succeeded by her own sequel, Federica ‘la donna invisibile’ Mogherini.

Is it any wonder that the European population has lost faith in its European leaders, when it has been 'rewarded' with leaders like the aforementioned ones?!

But the Greek debt crisis might be a blessing in disguise for the Euro; finally people started to think seriously about reinforcing the political union of the Euro-zone and on the deployment of bonds covering the whole Euro-zone: the so-called Euro bonds.

And finally the awareness evolves among the European leaders and citizens that the Euro is a marriage for eternity; not a Hollywood-marriage of which you can easily divorce.

My comments: How naive was I, when I wrote these words.

The political union as a part of the EU has rather weakened than strengthened and the populist politicians have kept the debate about reinforcement of the political union, in order to offer a stronger framework for the Euro, hostage.

Everywhere in Europe and outside of it, a nasty kind of nationalism is rearing its ugly head with more confidence and on every occasion it seems that the even smallest political spark could be sufficient to let the EU implode.

Worst thing is that a Grexit is more and more becoming an accepted risk for the Eurozone and nobody of the current generation of politicians seems able and willing to turn the tides. 

‘Who will be next... after the Greeks’ is the question burning on everybody’s lips. 

And that particular question turned Greece indeed into a genuine ‘Canary in a Coalmine’.

Saturday, 13 June 2015

Will reduction of the duration and the height of the Dutch Unemployment Benefits really help older, unemployed people to find a job sooner? As it is akin to Damocles’ Sword hanging above their heads? The Dutch Central Planning Bureau thinks it will!

Regular readers of my blogs know that I’m an ICT consultant, specialized in software testing, and they may also know that I started as a freelance consultant for Dutch company The Future Group since December, 2014. 

Those people may also know that I suddenly lost my nearly two month assignment at a renowned Dutch bank at the end of March 2015, due to budgetary reasons within the department where I worked. That was a quite painful event for me which made a big impression, but as a freelance consultant you know that you always work ‘in borrowed time’.  You should never take your assignment for granted; even when the outlook is that it will last for quite a long time.

Now I am more than happy to state that I have found a new assignment and I will soon be back to work again. Thanks to my testing experience and the financial knowledge that I acquired during the last twenty-odd years.

What still bothers me, however, is the fact that I am quickly approaching the ‘dreaded’ fifty years of age, which ‘apparently reduces one’s chances on the labour market significantly’, albeit more of a problem for unemployed people looking for fixed or temporary contracts, than for freelance consultants.

I feel that I might have been lucky to find a new and extremely interesting assignment again, within a few months of searching; especially as having no assignment means having no income for a freelancer.

People around the age of fifty and older, working on fixed contracts, have the reputation of being very expensive. They earn relatively high wages in exchange for their work, based on the ‘superiority’ of their gathered skills and experience, in comparison with starting workers. And on top of that, they receive a progressive number of extra holidays, in accordance with their age. These days are known in The Netherlands as “old fart days” (i.e. ouwel*llendagen).

While especially these ‘aging-worker-days’ seem not inappropriate by themselves for heavy, hands-on jobs or work that is otherwise really exhausting,they apparantly lead to older workers being harder to mediate, when in search of new jobs. Personally, I never had the feeling to be entitled for them, leave alone that I really needed those days. They simply belonged to the privileges I received, without really asking for them.

Many employers are scared to assign older workers on a fixed or even a temporary contract, due to their “ill” reputation of being old, very expensive and ‘often on sick leave or furlough’, even though the former of these last two is hardly true.

This is the reason that being above fifty and unemployed is a bad omen for many companies in search of new personnel on the labour market.

Consequently, becoming unemployed at that age, is sometimes a ‘one way street’ towards receiving the maximum duration of unemployment benefit, before ending up with a welfare payment, which lasts until the unemployed worker reaches the age of 65/66/67 (depending on the official retirement age).

That is not good for companies, who miss out some very skilled and experienced workers, of which the vast majority possesses the right attitude for workers. And it is very sad for these workers, who are effectively sent on a very early retirement, after which there is hardly a chance for return to the labour market.

A few days ago, the Dutch Central Planning Bureau presented an interesting report about this phenomenon on the Dutch labour market, trying to find new ways to deal with this.

While the classic media jumped on the most ‘newsworthy’ conclusion, that the a. old fart days should be abolished and b. the height and (to a lesser degree) the duration of the Unemployment Benefits should be reduced, the report itself was quite discerning and well considered, and it made some valid points about this very tough subject.

Here are the pertinent snippets from this CPB-report, accompanied by my comments:

Long-term unemployment will decline as the economy recovers, but this will not solve the problem of older long-term unemployed. Institutional reforms are needed to solve this problem.

In the aftermath of the Great Recession, the Netherlands is faced with 270,000 people who have been unemployed for more than one year, representing over 3% of the labour force. In this respect, the Netherlands is doing worse than Germany, the United States and the Nordic countries.

As the economy recovers, long-term unemployment will go down, even without government intervention. Following earlier recessions, the decline has been around 1% and this is currently also a realistic prospect. The current relatively high level of long-term unemployment in the Netherlands is the result of a slower economic recovery than in other countries.

My comments: This red and bold text points to a distinctive problem of the Dutch economy. In spite of the very strong and competitive nature of this Dutch economy itself, the recovery has been extremely slow during the last few years. In my humble opinion, this is caused by the limited focus of the Dutch government and employers on:
  • tax increases;
  • austerity and budget balancing, in an economy in which companies and consumers already kept their hands firmly on their pockets;
  • exports and – as a consequence – wage restraint, in order to keep the Dutch prices competitive.

At the same time, the Dutch consumers came in a standstill mode, with wages and rewards that hardly rose or even dropped during the crisis years. And as a consequence of the failure of the Dutch government to really do something more about the Mortgage Interest Deductability, than in fact kicking the can down the road for another 30 years, the mortgage debt of Dutch households remains skyhigh

On top of that, it will rather rise again than drop further, as municipalities and cities keep their groundprices very high and there is still an (artificially maintained) elevated demand for additional housing.  This keeps the Dutch mortgage debt at seriously high levels, in spite of the special savings’ and investment accounts, which are established by the mortgagors to pay back the mortgage eventually and still cash in the full amount of MID returns.

So the situation occurs that the export-oriented part of the Dutch economy is doing fine, while the domestically oriented parts of it are faltering: the consumers, as well as the Small and Medium Enterprises and retailers. Of course, this is reflected in the yet elevated unemployment data and the current, poor track records of SME-companies and the Dutch retail industry.

The worst part is that this conundrum did not lead to drastically changed policies yet, aimed at really aiding the faltering, domestic economy. The focus of the Dutch government and employers’s organization remains on exports and on pampering large companies, through favourable fiscal arrangements and tax rulings..

Nevertheless, certain short-term measures may help to reduce long-term unemployment. A temporary measure that could be effective is to provide unemployed people with a financial bonus when they manage to find and hold on to a job. Retraining may help people who used to work in one of the few shrinking sectors and who are therefore unable to return to their former profession.

My comments: This red and bold text bothers me personally. Although I have been without a job or an assignment on a small number of occasions, I always felt the challenge and need to find a job or a new assignment as soon as possible. I think that most unemployed people really do, except for perhaps a few ‘diehard-unemployeds’, who prefer sitting at home above working with new colleagues.

In my humble opinion, the idea of offering a bonus to unemployed people, in order to let them search harder for a new job and work harder when they have found one, is preposterous and sends the wrong signal to the other unemployeds that immediately do their best to find a suitable job. While I understand the ‘Pavlovian’ mechanism behind it, it seems a no go-area, as far as I’m concerned.

The current long-term unemployment has however brought a persistent problem to light, namely that of the labour market for older people. More than 40% of the long-term unemployed are over the age of fifty. Older employees do not lose their job more often than others, but once they do become unemployed, their chances of ending up in long-term unemployment are nearly double the average. Employers hesitate to hire older unemployed people because these often demand a higher wage than the employers are willing to pay.

My comments: The problem of people at the age of fifty is, that they often have older children, which are either on medium or high vocational education or at the university. The first jobs of these children are often hardly enough to pay for all of this. Consequently, these children require a lot of money from their parents for their study and career development. That means that their parents have higher expenses too than young, starting families or bachelors.

Many older people would by themselves not have a problem with earning a lower income, while starting at a new job, but would be confronted with having “too much month for the height of their salary”.

On top of that, I suspect that many companies have cold feet when hiring older workers anyway; not so much from their higher wages, but rather due to their unfavourable reputation, which is often based upon the wrong assumptions.

The high share of older people among the long-term unemployment is a structural problem rather than a cyclical one. Before the start of the crisis, this level was already on the rise. The current package of policy measures – largely aimed at lower wage costs – is insufficient to help the older unemployed to find another job. 
The correlation of the duration of the Unemployment Benefit
and the chance of the unemployed person to find a new job
Data courtesy of:
Click to enlarge
More fundamental reforms– such as unemployment benefits that decrease with the duration of unemployment, employment protection that is less dependent on the length of the labour contract, and less age-dependent arrangements in collective labour agreements – are necessary to permanently improve the position of the older unemployed (see the aforementioned chart). 

My comments: Two of the three measures are seemingly based upon the assumption that older workers rather remain unemployed and ‘wait for the perfect job at the perfect salary’ than accept one with less salary. For me this is quite hard to believe and – when true indeed – I suspect that this is more out of necessity, than out of a position of comfort.

Few people like being unemployed, in my humble opinion. Therefore most people will accept a job with (slightly) less salary when the remaining salary is enough to take care of their family and when the job itself is interesting and challenging enough.

Forcing the unemployment benefit down progressively, will probably not make it easier for people to find a job and it will make it much harder for people to ‘survive’ their already hard and mood-spoiling time of being unemployed.

However, as far as the age related benefits are concerned in jobs, which are neither physically nor mentally extremely demanding – the so-called old fart days – I would not mind when these are taken away from the collective labour agreements (measure three within the aforementioned red and bold text). These old fart-days are a genuine‘ blast from the past’, from times when jobs could be really heavy and physically/mentally demanding for older people.

A generous social benefit system also leads to more long-term unemployment and a slower recovery from recession. In countries with higher and longer unemployment benefits, the unemployed hold on to their high wage demand, which in turn means it takes longer for them to find a job.

Such a higher ‘reservation wage’ – the lowest wage that the unemployed are willing to accept for their new job – also has a positive side: the quality of such a new job will often be higher, which leads to higher productivity for those that do find a new job.

My comments: This red and bold text exactly describes the conundrum for older workers: should the government force people to accept lower paid jobs or not through progressively diminishing Unemployment Benefits.

The ‘higher qualification’ jobs make people happier; not only from the higher payment, but also from the intrinsical reward of having more demanding and satisfying work. Hence: they lead to higher productivity and more ‘working pleasure’ than a lower qualification job. Downside: such higher qualification jobs are much more difficult to find and might therefore take much longer time of unemployment.

In an ideal situation, reservation wage levels decrease under prolonged unemployment. This would prevent human capital being discounted through scarring and signalling. The degree by which the reservation wage reduces, in actual practice, strongly depends on the maximum duration and level of the unemployment benefits.

My comments: I have a sneaky suspicion that the concept behind this red and bold text might actually be true. There is, however, a dangerous aspect in it, as it could push people in accepting jobs that they don’t like and in which they don’t find any pleasure, with brute force.

When this is only for a short time, it is more or less OK, in my humble opinion.

However, this policy change might cause older people to get structurally off track in their career and in their lives, as it is very hard to make the steps towards a better qualified job again, when you are involved in a less interesting, but yet time-consuming job. This is the reason that I consider this to be a quite dangerous part of this plan.

In my personal opinion, the reduction of Unemployment Benefits should only be administered when genuine long-term unemployment is looming for particular, individual persons, which don’t try hard enough to get a new job.

It should not be meant as a structural policy for all older, unemployed people after having passed a certain time boundary.

High and long-term benefits enable the unemployed to hold on to a high reservation wage. With 3 years and 2 months, the Dutch maximum duration of benefit payments is long, from an international perspective. This maximum duration will be brought down to 2 years under the new Dutch Employment and Security Act (WWZ), which will be implemented on 1 July 2015

The correlation between the reservation wage and
the duration of the unemployment in The Netherlands
Data courtesy of:
Click to enlarge

Unemployed people in the Netherlands are hardly prepared to accept lower wages the longer they are unemployed (see the left side of this double chart).

Older unemployed people hold on to a higher reservation wage than young people (see the right side of this double chart). On the one hand, this is because of the higher wages that older people had before they became unemployed, and because of more social security rights, on the other. Older employees with a longer labour history, after all, have longer rights regarding their unemployment benefit entitlements than do young people with a shorter labour history.

My comments: The first paragraph of this text already states that the duration of the Unemployment Benefits will considerably decrease soon in The Netherlands. In my opinion it would too much of a double whammy, when together with the duration also the amounts payable of the UB would progressively decrease.

Perhaps it would help people to find a job sooner or perhaps it wouldn’t.

What it definitely does is putting people in an unfavourable situation much sooner, as a consequence of not only the shorter duration, but also the lower UB payments. This is a very negative kind of stimulus, as it forces people at a certain age to accept any job that they can find.

Summarized, I see the potential of the CPB plans to get people to work earlier. Especially when these people are confronted with Damocles’ Sword in their private life, due to largely losing their current income and lifestyle. Thus they are stimulated to accept any job at any price.

Either way however, whether it is through payment of a bonus for finding and keeping a new job or through the diminishment of the duration and the height of the Unemployment Benefits, it is a very Pavlovian and therefore rather uncivilized way of stimulating people. 

In fact, it  reduces those same people to a kind of animals, which have to obey their duties or else… I really don’t like such treatments personally.