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Thursday, 29 January 2015

Ernst's Economy at BNR Newsroom: About demotion and wage sacrifices, pt II. How we can make the labour market more flexible, without turning it into modern slavery with pittance rewards?!

This is the second part of my review of BNR Newsroom, the semi-live talk radio show of BNR News radio, hosted by Paul van Liempt. This week’s topic of demotion and (involuntary) wage sacrifices was quite personal for me, as I went through two involuntary wage sacrifices during the last two years.

The next person, to answer a question about the sense and nonsense of a wage sacrifice, was Mariëtte Patijn.

Mariëtte: When you (silently) agree with a involuntary wage sacrifice of 6%, deployed by your employer, and you get laid off anyway, you will end up receiving an unemployment benefit that is also 6% lower. This emphasizes the importance of the question, whether it makes sense or not to make the wage sacrifice: the company must stay in business and so must you.

Hans: The days of automatic salary increases are long gone. The question is what an organization can afford. Even civil servants do not receive their periodical wage increases anymore. Many civil servants are at the end of their wage development scale. Their only possibility for having a wage increase, is when a general raise of the wages occurs. This is the reason that labour unions mind the proposals of employers and try to make improved counter-offers.

Mariëtte Patijn of labour union FNV and Hans van der Spek
of Berenschot consultancy
Picture copyright of; Ernst Labruyère
Click to enlarge
Mariëtte: For people with a salary between €25,000 and €35,000, it is hard to develop an assessment system that can be connected to the wage development ladder. We – as union people – think that experience should be rewarded. That is the reason that we won’t simply let go of these periodical wage increases. These periodicals work fine at many positions. Traditionally the assessment systems have been aimed at a healthy career development of workers. That is so much more important than using wage increases as an incentive.

Klaas: When we don’t dare to take a chunk out of the €35,000+ salaries, we also should take care of the people below this threshold.

For civil servants with a considerable salary, the situation is that their appointment does not only offer them a fixed income, but also the certainty that they won’t be fired at will. That by itself is already a fringe benefit. Therefore it could be justifiable that civil servants, after reaching payment scale 10 or 11 [about the highest scales of the salary ladder – EL], start to make a reverse move on the salary ladder. In exchange for their fixed contract, their salary could be slowly diminished again.

You could also choose for making the salary more flexible: paying people more money during good economic times, while decreasing their wages again during bad times.

This might sound like a very sympathetic and smart idea, but it can be a very pro-cyclical development when in good times salaries are raised very quickly, while in bad times salaries start to drop. This can have a strong reinforcing effect on economic boom and bust periods.

Mariëtte: It is good to remember that civil servants are not only the highly paid staff members at cities and municipalities, but also garbage collectors, street-sweepers and upholders, who earn a lot less money. There is a huge problem within the domestic economy, which we still cannot get in motion. The purchase power stays at an anemic level and many houses and mortgages are still underwater.

Klaas: That is so true. To put it even stronger: at colleges and universities, the people at the secretariat are often the ones that will be dismissed in times of austerity, as the executives are afraid to take a chunk out of the teachers’ salaries. The people at the lower half of the salary ladder are often victims of the excellent legal positions of the top dogs; that is absolutely not necessary.

Steven: In the near future labour could fragmentize beyond our imagination. We call that Wiki-labour. We should not only aim at the fixed labour agreements with fixed periodicals anymore, as such rigid contracts can bring down companies. It is so much more important to facilitize labour at market prices, with a keen eye for personal development and education of workers.  

Currently, all kinds of income and saving sources for people are managed very rigidly: mortgages are fixed; pension money cannot be shifted towards mortgage payments. Banks cannot yet administer payment arrangements, with temporary postponements for certain obligations in case of money shortages.

I think that jobs should be in synch with the market: less wages in bad economic times and higher wages in good times. Banks now think in terms of debt and only want interest payments. Governments should be overhauled to be ready for the facilitation of wage shifts and the fragmentation of labour. To name an example: government burdens, which emerged as a consequence of operations to save banks, should not automatically be charged to the Dutch people through tax increases.

Ernst: Isn’t one of the unwanted side-effects of this wage and labour fragmentation that a lower class emerges, which also needs three jobs – for instance at Burger King or McDonalds –
in order to earn a decent income? Just like it happened in the United States? On top of that, this development of labour fragmentation and flexible wages could cause a very strong deflationary trend, as people and societies could end up being in a negative wage / price spiral.

Paul: Could for instance McDonalds not appear in the news soon, with a wage sacrifice for its employees?

Mariëtte: I was not informed about that, but it could be possible in the near future. Mentioning McDonalds, it is a habit there that people should be available for work at all times (about 60 hours per week), as they can be called for a work shift at very short notice. Be there or become jobless, is McDonalds’  message to their workers. That is why we call that ‘toss away-jobs’.

Steven Meester, Klaas Mulder, Mariëtte Patijn and Hans van der Spek
questioned by Paul van Liempt of BNR News radio
Picture copyright of; Ernst Labruyère
Click to enlarge

Due to this required availability, people are not even able to take multiple jobs, aka stack jobs. That is a big problem.

Paul: Did the picture that Ernst Labruyère sketched in his question offer a glimpse at the future?!

Klaas: It offered a glimpse of TODAY! In Amsterdam there are more youngsters with a part-time (service) job next to their education than there are unemployed people. Only youngsters are willing to take such jobs for only €5.70 per hour. Employers increasingly choose people below 27.

Paul: Will people earn their money with an official job, but also with some additional moonlighting?

Klaas: When there are more workers on offer than there is labour, the price for labour will drop inevitably. That is the simplest economic law. We must all come up with a cunning plan to reverse this trend.

Steven: Labour ‘glocalizes’: labour becomes more global, but also more local at the same time, as a consequence of the brainports that emerge everywhere. ASML, the famous Dutch producer of wafer printing machines for the microprocessor industry, does a fantastic job. It is a short-cyclical company; when times are rough, 40% of the engineers can be laid off nearly immediately, due to the nature of their contract, but they can also return immediately again when the market picks up.

When the volatility becomes more short-cyclical, you should be prepared to hire workers when the amount of work requires that and lay off those workers, when that is necessary. Or the workers could receive a lower salary during poor economic times.

Mariëtte: ASML is indeed an example of a company with excellent arrangements, but such arrangements are not in place everywhere. People have to work longer hours during good times, but in bad times they are simply asked to leave. Then they don’t receive wages at all.

We see things slide in the low-payment facilitary industries, like the home care industry. In earlier days, these people started with a fixed labour contract, but at a certain moment they were turned into freelancers. And now those people are often moonlighting for €10 per hour. This is currently a trend at the municipalities, with respect to home care, and this concerns definitely not a few people. The necessary austerity for homecare will be achieved this way, thus diminishing the problems of the current government, but it ruins normal jobs.

Steven: Please mind that a general trend, influenced through technology, is that companies shrink in size; for instance due to robotization, but also due to other causes. From a macro-economic point of view, there is an exhaust of labour. The question is, how can you facilitate that people take the direction of their own careers in their own hands. The fixed labour contract is not an answer, in situations that companies shrink in size.

Mariëtte: We have to think from the perspective of the employee. About 35% does not have a fixed contract anymore and these people notice on a daily basis how labour is organized. The choices of employers are only expense-based. Remuneration through alternative ways is much cheaper than the classic fixed labour contract.

Hans: It is paramount that employers and employees develop a different, more modern set of agreements, which offers more flexibility. They have to work together. The amount of working hours, but also the remuneration, should become more flexible. It is an illusion that after the crisis years, we can simply continue where we remained in 2007. A paradigm shift has taken place in the meantime.

Mariëtte: At the negotiating tables, we currently have to deal with about 20% of labour agreement deteriorations. That is not about getting or not getting periodicals; it is about abolishing 36 hour contracts in favour of 40 hour contracts. About 620,000 people are unemployed nowadays, but the people who have work do need to work longer hours. That’s ridiculous. Work should be redivided and better organized. That would be modernization.

Steven: Perhaps we should make it possible to exchange holidays and labour-reduction days (i.e. ATV-dag in Dutch) in favour of education budgets, so that people become more flexible.

Ernst: Is The Netherlands not aiming too much at dividing a smaller pie in the future, instead of making the pie bigger, where it concerns the economy and the labour market? Should we not put more effort in stimulating innovation and administering pinpointed subsidies for promising companies, structural research and innovative developments?

Steven Meester, Klaas Mulder, Mariëtte Patijn and Hans van der Spek
in discussion
Picture copyright of; Ernst Labruyère
Click to enlarge

Klaas: The very idea that we can make the pie so much bigger – through innovation – that the problems of 25 million European unemployeds can be solved, is an illusion. Keep on dreaming!

Mariëtte: Still, competing on price in The Netherlands is a dead end-road. We need to invest in innovation and we need to steer upon quality. We have never in history competed on price as a country. Never!

Steven: You can see all kinds of local initiatives: Brainport in Eindhoven; Food Valley in Nijmegen; Security Valley in The Hague. When we make labour more flexible and teach people how they can better sell themselves – for instance through e-portfolios – the dynamics of the Dutch labour market could definitely increase.

Hans: When there is innovation, a mismatch emerges between the people available for labour and the employees required by the companies. We should guide people from their current labour situation to their future situation, in order to fill up this void.

This was the end of a very interesting BNR Newsroom, in which hazards of the current labour market have been discussed and a glimpse was offered at the labour market of the future.

It is safe to conclude that involuntary wage sacrifices seldomly offer a steady solution for structural problems, when they are not accompanied by an improved company strategy and mission. We can also conclude that demotion is still a sensitive subject.

Perhaps the most important conclusion is that the labour market went through a paradigm shift during the last few years and emerging new problems require innovative and creative solutions..

Will be continued…

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