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Wednesday, 6 July 2011

The Labor Unions in The Netherlands: influential, but increasingly superfluous organizations clutching at straws; using the Pension Funds as their personal heritage.

During the last weeks, I have been analyzing the new Dutch pension arrangements for my company.

The article that I wrote about it: New pension agreement in The Netherlands[…] is an adequate summary of my and other people’s findings in this matter, although some additions could be made to it (I will write these some other time).

There is, however, one aspect that I already mentioned in the aforementioned article, but that I want to shed some extra light on through this new piece: the disproportionate and increasingly undeserved influence of the labor unions on the new pension agreement and the management of the pension funds in general.

The labor unions had a fairly stable member base over the last 40 years and the last couple of years this member base has been decreasing slightly. On the other hand, the active labor force has been growing over the last 40 years: from 4.8 mln people in 1970 to 7.6 mln people in 2010.

The result is a widening spread between the workers that are members of a union and those, who aren’t. In chart 1 (courtesy of CBS (Central Bureau of Statistics)), it is visible that only roughly 1 in 4 workers has been unionized in 2010. 

Besides that, the member base of the labor unions is aging rapidly, due to the fact that only 1 in 20 youngsters below 25, becomes a member of a labor union. In chart 2 (data courtesy of CBS), it is visible that 65% of the male and 48% of the female union members is above 44. Respectively only 4% (M) and 7% (F) of the union members are youngsters below 25. And it cannot be expected that, when these youngster are becoming 25 years or older, they will get a membership of the labor unions .

This chart reveals an obvious underrepresentation of youngsters in the labor unions. Although you could say that female union members are more equally spread over the age groups, the representation of females in the Dutch workforce itself is much lower. This is caused by the fact that Dutch women often stop working (fulltime), after they become children.

The results of this ageing population of the labor unions are:
·     Within 22 years, roughly 65% of their male and 48% of their female member base will retire.
·     The growth of younger members during these years, will be minimal ( is my prediction)
·    As a consequence the labor unions will be increasingly superfluous, but will have a disproportionate influence on collective labor agreements and the pension funds.
·    The pension funds are very much aware of this development and they are increasingly representing their 50+ member base at official events and meetings, at the expense of their younger members.

I quote from the aforementioned article of June 13th:
Every aspect of this pension plan smells of the fact that the labor unions represent an aging and diminishing group of employees: the 50+ workers: 
·   The 50+ group (the grassroots of the labor unions) benefits the most from this pension plan.
The 45- group mainly pays for it, without any warranties, as this group was hardly represented by the unions, during the negotiations.
And if you wonder how far this influence of the labor unions goes, then read the pertinent snips of the official pension agreement (click on the PDF-file at this link: text in Dutch) between the labor unions, the government and the employer´s associations, accompanied by my comments.

When in this text is written `social partners`, you should read this as: representatives of the employer´s associations and the labor unions.

Our pension system can be maintained, when employers, as well as employees (social partners) and the government take up their responsibility for the system. For employers and employees, the official consultations on labor conditions are the place where the labor condition ´pension´ is discussed.

Read this as: we [the labor unions and the employer´s associations] decide on your pension, so if you are not a member of the unions, you are not represented and so you are scr*wed.

The main agreements on pensions are the following: the social partners want a future resistant pension system that is more resistant against change in life expectancy and developments on the financial markets, but delivers better opportunities for indexation. The fundamental features, like collectivity, solidarity and the mandatorily character should be kept.

Read here: We will make your pension future-proof (which we can’t), but at the same time we give all collected money away to the current and near-future retirees. We do this by calculating with too optimistic, expected yields on investments, which we will never earn in reality. However, in advance we will raise all payments to the near-future and current retirees, that are our grassroots. You pay for everybody else´s pension and there is no way you can escape from this.
It makes sense, that the social partners shape and fill in the contract at a decentralized level and consult with the pension fund executive board (the executive organization). The result should be a contract where ambition, premiums, investment policy and collective risk profile are fitting.
Read: We [the unions] do not only shape the big picture, but we will also do our share of micro-management at a decentralized level. We decide what everybody’s risk profile is and we will choose the best investments.

Social partners at companies and industries have thus a variety of possibilities for steering the balancing process of ambition, risk and security. There is a choice for nominal prudence, but also for acceptable risk.
Read: we decide what risk is acceptable for you and we could make a choice for careful investments (which we won’t do), but also for ‘walking at the edge’ in investing (which we will) and we will hand-out all possible proceeds in advance. If the piggy-bank is empty, when your pension is due, than you are on your own.

And exactly this is the reason that I want to abolish the Dutch labor unions from the collective labor agreements and from the boards of directors of the pension funds and pension insurances. These growingly obsolete and outdated people represent only a minority of the workers and the rest of the workers is scr*wed, as they can´t escape from the influence of these clubs.

If you agree with my conclusions, please send a tweet at @minpres (tweet account of Prime Minister Mark Rutte) with the following text:

@minpres The labor unions didn´t represent me rightfully in the 2010 pension agreement. Please stop this bad agreement before it becomes law

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