About the need for reforms within the Dutch lay-off reimbursements and the Dutch Unemployment Benefit law: my answer to Martin Visser’s column of Monday, 8 April

One of the nicest and savviest Dutch journalists in the business is Martin Visser of Het Financieele Dagblad (www.fd.nl).

The former correspondent for European Affairs (i.e. ‘Brussels’) and current correspondent for the national affairs section (i.e.’The Hague’) brought his unique insights to the FD readers during the heydays of the Euro-crisis and wrote a very interesting book about it.

Martin Visser is also a keen opinion maker with his weekly columns in the FD on the Dutch political situation and mostly I happen to agree with him and his opinions. However, this week I didn’t, for a small, but very important part of his column…

Martin wrote in his column about the ‘polder model’ (i.e. the Dutch way of negotiating between employers, labour unions and the government), which seems to go through a revival lately: the large labour unions and the employer’s organizations VNO/NCW and MKB Nederland are all working on a social agreement, which can be used by the Dutch cabinet as a basis for social/economic policy in the coming years.

He comes to the justifiable conclusion that the labour unions and the employer’s organizations themselves have been partly responsible for the crisis in the Dutch housing market, the pension system and the financial industry in The Netherlands, by frustrating past changes upon these important issues. This is where I totally agree with him.

However, the following snips of Martin’s column contain the lines that I disagree with:

It is a scary thought that the same opponents of structural reforms [Chairman Ton Heerts of Dutch labour federation FNV and Bernard Wientjes of employer’s organization VNO-NCW – EL] may now dig in the cabinet policy and take the unpleasant parts out, while putting in some extra pork at the same time.

[…]

Both gentlemen think that Rutte should slightly ease the Dutch budget policy for 2014. When Wientjes and Heerts really agree upon this, then they should actually finish their negotiations.

To be clear, if you think that Rutte should stimulate the economy in 2014, then it should happen under one condition: ruthless reforms, just like the cabinet is planning for the Unemployment Benefit and the lay off reimbursement. You simply can’t postpone austerity measures and reforms at the same time.

The Dutch labour market is currently in an devastating split position:

• Youngsters until 30-35 have a very small chance (‘of a snowball in hell’) for receiving a fixed contract from their employers:
  
• Instead, they are forced into short/medium term freelance contracts, payrolling contracts, flex-contracts for a (half) year and the worst variety: zero hour-contracts (“we’ll call you later this week to tell you for how many hours we need you, next week”);
  
• These contracts leave youngsters with virtually no possibility to build up decent household savings, a career and a house in which they can raise a family. Every end-of-contract period, Damocles’ sword hangs above their heads: ‘Will I be fired or not’;
  
• Besides that, banks will refuse them a loan, because they pose a too big risk without a steady income and even landlords or housing cooperations might refuse them a simple rental house for exactly the same reason; 

• Older workers (above 45-50 years) often still do have fixed contracts. However, when they are fired, it is extremely hard for them to find a new job nowadays:
  
• Due to the difficult economic situation, more and more older workers are either fired individually or during mass lay-offs. Their fixed contract does not give them much protection anymore;
  
• Companies are often prejudiced about older workers, thinking they are not as productive as younger workers anymore and besides that, they are ill more often;
  
• Second, older workers do earn higher salaries in general, which do not fit in the remuneration policy of new employers anymore. Unfortunately, not every worker at this age is able to take a step back in salary, as many of their fixed expenses cannot be reduced quickly. As a consequence, many older workers need more time to find a new job than their younger counterparts.
  
• Rutte’s Cabinet advocates one year of Unemployment Benefit, based on 70% of the last earned income, followed by one year of UB, based upon welfare level. Such policy either forces long-term unemployeds to sell their houses, or to wait a little longer with paying their bills, with mounting debt as a result;
  
• These days, lay off-reimbursements are more and more paid in kind. Instead of paying laid off workers ‘a pile of cash’, employers pay for outplacement programs, thus helping their workers to find new jobs. However, when such a program is finished unsuccessfully, the unemployed worker still needs his Unemployment Benefit.

My conclusion: Martin Visser is absolutely right that reforms are necessary, but he points in the wrong direction.

There is too little flexibility in the Dutch labour market for older workers and much too much flexibility for younger workers these days:

• If you don’t make it easier whatsoever for older workers to find a new job, through reforms of the labour market itself, but take away their lay off-reimbursement and their 70% of last earned wage Unemployment Benefit for 2.5 years, then you sentence older workers to a quick fall into poverty;

• If you don’t make it easier and more attractive for companies to give younger workers a fixed contract, after one or two flex-contracts, then you sentence younger workers to a life of insecurity, without the assets of older workers, like a house, a decently filled piggy bank and the chance to raise a family;
  
• If you soften up dismissal laws too much, without installing some kind of legal safety net for workers, then people can be fired at will, whenever a cheaper worker comes around (Romanians, Bulgarians, Russians and Indian workers);

A cabinet that finds a solution for these three bullets, by reforming the labour market in a sensible way, will have my blessing.

As Martin Visser, didn’t do so and looks in the wrong direction with his proposal, I disagree upon the main conclusion of his further excellent column!