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Friday, 6 February 2015

Heavy disputes surrounding the rearrangements of the collective labour agreements in the Dutch construction industry could point at a long period of demure labour contracts: “be not too expensive or be out!”

The Netherlands has a long tradition of consultations and negotiations between employers, employees/labour unions and the government; the latter both as referee and as very large employer. 

This is the so-called ‘poldering process’: a process of cooperating instead of fighting for an optimal result.

The Dutch collective labour agreements or “CAO’s” are traditionally a mix between the employers' needs for moderate wage growth and flexibility of labour and the needs for good labour circumstances and a fair remuneration of the employees. 

This system has worked quite well for a long, long time. It yielded a steady, but moderate wage growth and a balanced set of fringe benefits during the last decades and kept the workers generally satisfied. This culminated in very few strikes and labour disruptions in The Netherlands, in comparison with other countries like for instance France.

One could, of course, justifiably argue that the times of moderate wage growth and wage restraint, as a consequence of the poldering process, have lasted too long in The Netherlands – which I did at many occasions

Especially during the credit crisis, this led to a dangerous loss of purchase power and a plummeting consumer confidence and thus to a near-collapse of the retail industry and many small and medium enterprises.

Nevertheless, the poldering process has turned The Netherlands into an extremely competitive, export-driven economy with almost no weak spots. Therefore both employers and employees want to keep this system afloat, under normal circumstances.

However, about one week ago, the Dutch magazine 'Cobouw’ published an alarming piece about the exhausting negotiations and failed attempts to come to new collective labour agreements (CAO's) in almost all areas of the construction industry. Here are the pertinent snips:

A CAO-chaos looms in the construction industry. Sixteen out of the seventeen most important CAO’s in the construction industry and adjacent industries still wait for an agreement between employers and employees. Besides the construction-CAO, this concerns the CAO’s for painters, building-finishers, the wood trading industry, carpenters, railroad infrastructure, thatcher's industry and the bricklayer's industry. These CAO’s all ended last year.

The CAO’s for small metal (installation industry), large metal and waterworks all mature this spring. The concrete mortar industry is already without a CAO for two years, as well as the building material wholesalers. Until now only one industry could reach an agreement: the 1500 labourers in the natural stone industry.

By itself it is not unusual that negotiations regarding a new CAO only start when the last one has matured. Nevertheless, the executive manager of labour union FNV Construction, Hans Crombeen, ascertains that a very large number of industries is without a CAO currently. According to him, this has to do with the exhausting discussions with respect to the restructuring of the construction-CAO, for which the negotiations will be resumed next Friday.

In the industries in which the negotiations already started, the differences between the propositions from either side are very big. The differences focus mostly on wages, working time reduction-furlough (i.e. ATV-dagen), older worker furlough and job flexibility. Employers find, on top of that, that the unions are not sufficiently accessible for CAO-restructuring plans. 

The unions, on their behalf, accuse employers of exclusively targeting at wage cost reduction. “You cannot ignore that it becomes increasingly hard to enter into a CAO”, according to Ronel Dielissen-Kleinjans, managing director of Mebin and involved in the CAO for concrete mortar producers. 

“What you see now, unfortunately, is that the unions raise their demands and go for an old-fashioned brawl with the employers. However, the building industry cannot cope with a raise in expenses yet. First, the margins ought to be raised”.

Mentally, I feel being stuck between a rock and hard place, when it comes to the collective labour agreements for the building industry.

The story of Ronel Dielissen-Kleinjans of Mebin, that the construction industry cannot cope with a brisk raise in expenses (see red and bold text), sounds definitely plausible.

After the building frenzy, which started in the middle of the nineties, came grindingly to a halt in the years after 2006/2007, there has been a generally malaise in the whole construction industry that has not been solved until this day.

The assignments regarding building projects for commercial real estate, residential real estate, roads and waterways, as well as infrastructural construction, mostly dried out. This was a consequence of the excess stock in vacant office buildings, the diminished demand for both owner-occupied dwellings and social housing, as well the ubiquitous austerity measures of the government, which caused an untimely end for many infrastructural building projects.

Even today, eight years after the building crisis started, we seem to be nowhere near an end to this crisis. The number of vacant commercial buildings is still very high and building cooperatives are yet very reluctant to restart social housing projects. Also many national infrastructure projects have been delayed or temporarily halted during the execution. Only for owner-occupied housing there seems to be a genuine recovery in the number of building projects.

Many of the large Dutch construction companies went through very rough times during the last six years and have used up a large share of their reserves, while trying to deal with the crisis and their diminishing order portfolio. Others did not even survive the crisis at all and defaulted earlier.

Therefore I presume that it is simply impossible yet for many of the still existing construction companies to pay higher wages and hourly fees to their workers.

On the other hand; many workers in the construction industry had to cope with very moderate wage growth (i.e. wage restraint) during the last six years: often well below the official inflation rate. That means that the purchase power of these workers has deteriorated over the years.

Other workers lost their steady jobs and were almost obliged to choose for an uncertain life as freelance professional in the construction industry. What made things even harder, is that these freelancers often had to deal with an influx of workers from the East-European low wage-countries, who started to work at much lower hourly rates. That put severe pressure on their own hourly rates, as these freelancers didn’t want to lose their assignments.

All these people - freelancers and the ones with steady jobs - do probably need a significant increase of their wages and hourly rates, in order to get their own finances back on track again, save some money for a rainy day and earn a little extra for consumption.

That is the reason that, with respect to the CAO’s, the labour unions currently play a high stakes poker game with the employers in the construction industry: they want better wages and better secondary arrangements and more job certainty for the workers with a fixed contract. 

The freelancers also want better hourly rates for themselves and especially a level playing field between them and the East-European workers.

Still, the unions and the freelancers have to find a cautious balance between what they want as remuneration and what the employers can afford to pay. In practice this will probably mean, that for the time being, the unions and freelancers have to leave most of their ambitions regarding wage increases and accept another few years of demure labour contracts. 

If they all not succeed in finding this important balance,  large parts of the construction industry will remain without a CAO. This could lead to further stagnation and frustration within this battered industry and that is not in the interest of anybody.

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