Analysis

Dutch Likely to Reverse Labor Market Liberalizations

Most parties want to encourage the use of regular contracts.

Amsterdam Netherlands
Bicycle traffic in Amsterdam, the Netherlands (Unsplash/Noralí Nayla)

Pressure is mounting on the Dutch government to reverse liberalizations in the labor market.

The OECD, a club of 38 wealthy nations, has endorsed a call by Dutch employers and trade unions to encourage the use of permanent contracts.

But where the OECD prioritizes reforms to make it cheaper and easier to hire workers full-time, the Netherlands’ own Social and Economic Council (SER), in which trade associations and labor groups are represented, would make temporary and part-time work more expensive.

The divide is mirrored in Dutch politics: Prime Minister Mark Rutte’s liberal VVD (of which I am a member) as well as the centrist Christian Democrats would reduce the cost of regular employment for businesses. The Labor Party and Greens would rein in zero-hours and freelance contracts. All four may be needed to form a government.

OECD

The OECD’s top-line recommendations are:

  • Align tax and social security contributions between contract types.

Companies don’t contribute to the pension plans and unemployment insurance of independent contractors.

  • Give companies more flexibility to adapt jobs, workplace and working hours of regular employees.
  • Lower the cap on severance payments for regular workers.
  • Make it easier for companies to fire full-time employees.

Firms can only fire employees who are underperforming or when they are forced to reduce staff altogether.

SER

The SER’s recommendations include:

  • Raise the minimum wage.
  • Introduce a minimum hourly wage of €30 to €35 for freelancers. Lower-paid workers would need to be hired regularly.
  • Keep social benefits tied to the minimum wage.

The VVD wants to tie social benefits to the cost of living.

  • Allow companies to cut working hours and wages 20 percent during an economic downturn. The government would pay the difference.

This is modeled on the German Kurzarbeit.

  • Ban zero-hours contracts.
  • Limit temp work to three years. (Currently five.)
  • Oblige freelancers to get unemployment insurance.
  • Reduce tax benefits for the self-employed.

High-paid freelancers would lose out, argues economist Mathijs Bouman. In addition to paying for their own unemployment insurance (companies pay this for regular employees), the SER would eliminate their tax deduction.

Balance

The SER has the wind at its back. Most political parties, and most Dutch voters, believe liberalization has gone too far. 13 percent of Dutch workers are self-employed, up from 8 percent in 2003 and above the European average. The World Economic Forum rates the Netherlands first in the world in flexible work arrangements. Trade unions have lost members and power. Fewer workers are covered by collective bargaining agreements. Unemployment is low at 3.3 percent, down from 4.6 percent at the height of the corona crisis and far below the worst projections.

The outcome will most likely be a Dutch fudge, but whether the balance favors employers or workers could depend on the composition of the next coalition government.

Rutte’s VVD and the Christian Democrats prefer to continue the four-party coalition with the small Christian Union, which would lean toward the OECD’s recommendations. The social-liberal D66, which is needed for a majority, would swap the Christian Union for Labor and Greens, who side with the SER.

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