Free Market Fundamentalist

Dutch Labor Reforms Will Do Little to Encourage Hiring

Companies still need to pay two years of sick leave.

Karien van Gennip
Dutch labor minister Karien van Gennip in The Hague (ANP/Laurens van Putten)

Instead of making it easier for companies to hire workers on a permanent basis, the Dutch government is banning various types of temp work and making freelancers more expensive.

Labor minister Karien van Gennip argues:

Too many workers with a flexible contract or who are self-employed don’t have … security. At the same time, especially small business owners are reluctant to hire people on a permanent basis. This needs to change.

Yet she is doing little to reduce risks for entrepreneurs while taking abundant steps to give workers more “security”.

Dutch get two years of sick leave

64 percent of Dutch workers are employed by a small business. That is low by European standards. In all EU countries except France, Germany and Sweden, small business is a larger employer.

The reason — and the Dutch small-business association has complained about this for years — is that the Netherlands is the only country in the world that requires companies to pay up to two years of sick leave.

Big companies manage, but for small businesses the threat of having to pay an ill worker 70 percent of their wages for two years is a major reason for not hiring workers at all. Or they hire contractors, who aren’t eligible for sick pay.

It doesn’t often happen that companies go bankrupt because they can’t afford sick pay. But it happens.

Van Gennip’s proposal is to have an independent body “evaluate” after one year of illness if the employee may still be able to return to their job.

Again, this is the sort of policy that helps large companies, who can deal with the paperwork and afford to leave a position unfilled for a year. It won’t convince a business with one or two employees to hire a second or third person.

Companies could reducing working hours in a crisis

Another reason companies are slow to hire is that firing employees can be costly and time-consuming. Companies need to either prove cause to a judge or pay severance, which can reach up to one year’s salary.

Van Gennip would introduce a Dutch version of the German Kurzarbeit, allowing companies to reduce working hours for a maximum of six months, and with a 10 percent salary cut, in order to weather a crisis.

But only external crises would count: pandemics, recessions, wars. If a company is going through a downturn of its own, because it made a bad investment or lost a major client, it wouldn’t have the flexibility to temporarily reduce working hours. So this doesn’t help startups and scaleups.

Flexible work contracts are banned

All the minister’s other proposals would make employees more expensive:

  • Ban on-call contracts.
  • Ban zero-hours contracts.
  • Give workers hired through an employment agency the same salary, pension rights and holidays as employees in the firm.
  • Limit workers to three temporary contracts for the same employer, down from four. Afterwards, firms must either hire the worker full-time or wait five years — up from three months — before hiring the same worker on a temporary contract again.
  • Require freelancers to buy unemployment insurance.

Van Gennip estimates that unemployment insurance would set the average freelancer back €200 per month.

Government has already made work more expensive

The reforms come on top of this government’s:

  • Reduction in the tax deduction for self-employed workers from €7,000 in 2020 to €5,000 this year to under €1,000 in 2030.
  • Increase in minimum wage from €10 to €12 per hour.

The median wage in the Netherlands is over €2,900 per month, or about €38,000 per year.

Dutch employees are automatically enrolled in a pension plan and unemployment insurance. Employers pay half the costs.

Workers don’t want Van Gennip’s “security”

Van Gennip is clear about her goal: to make regular employment the norm. But it’s unclear if that’s what workers want.

1.2 million Dutch workers are self-employed, another 2.7 million have an on-call, zero-hours or other type of flexible work contract that will soon be illegal: altogether 40 percent of the labor force.

There are 440,000 job openings and more Dutch people in work than ever before.

If workers wanted a regular job, with a pension, protection against summary dismissal and unemployment insurance, this is the time to get one. Yet the share of self-employed and flex workers isn’t falling. Many seem to prize flexibility and independence more than the “security” Van Gennip is offering them.

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