Labor Market Reforms in the Netherlands since the Great Recession
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1 Labor Market Reforms in the Netherlands since the Great Recession Pierre Koning VU University Amsterdam and Ministry of Social Affairs and Employment of the Netherlands July , Conseil d Orientation pour l Emploi
2 Contents Setting Developments in politics: the Social Agreement Some facts and figures Reforms since Short Time Work Compensation ( ) 2. Sectoral Plans (2012) 3. The Act on Work and Security (2015) 4. The Participation Act (2015) 5. Fiscal Measures? A short synthesis
3 Contents Setting Developments in politics: the Social Agreement Some facts and figures Reforms since Short Time Work Compensation ( ) 2. Sectoral Plans (2012) 3. The Act on Work and Security (2015) 4. The Participation Act (2015) 5. Fiscal Measures? A short synthesis Social agreement
4 The Social Agreement November 2012: cabinet Rutte-II appointed (consisting of liberals and social democrats) April 2013: Social Agreement ( Wassenaar 2.0 ) Agreement with social partners on important labor market reforms Announced reforms adopted and (recently) implemented
5 Facts and Figures: unemployment in the Netherlands
6 Slow recovery
7 The problem of long-term unemployment
8 Labour market reforms since 2009
9 [1] Short time wage compensation April 2009 July 2011 Conditions: 30% or more drop in turnover 926 firms used STWC, with about employers Dif-in-dif evaluation shows no value added of STWC on employment Still: there may have been reassurement effects on control group as well..
10 [2] Sectoral Plans Sectoral plans are at the initiative of social partners, enabling training projects or job switches of workers. Assist firms in problems in maintaining employment Stimulate switches to sectors with employment opportunities Co-financing (50%) of plans by government, 600 mln euros at maximum. At present, large under-utilization of sectoral plans
11 Basic idea of sectoral plans
12 25 [3] The Act of Work and Security Dual labor market? Share of temporary contracts (Eurostat) Netherlands France Germany Denmark United Kingdom
13 [3] The Act on Work and Security Primary goal: counteract duality in labor market Less rigidity for permanent contracts More protection flexible contracts The Act passed the Senate in June 2014; started this year
14 [3] The Act on Work and Security 1. Amendment on dismissal law: One route for dismissal for economic reasons One route for dismissal for personal reasons In principle, use of transition budgets instead of normal severance payments Severance payments lowered 2. Changes Unemployment Insurance scheme: Reduction from 38 months to 24 months at maximum 3. More protection of flexible workers: Maximum duration of cumulated duration of fixed term contracts: from 3 to 2 years Minimum interval between fixed term contracts: 6 months
15 [3] The Act on Work and Security: some problems 1. Amendment of dismissal law: workers prefer standard severance payments 2. Shortening of UI benefits may be largely counteracted by social partners 3. Risk of firings just before 2 year-criterion (was 3 years)
16 [4] The Participation Act Major problems that may justify the Participation Act: Expensive, substantial social workforce sector High increase in youth disability scheme (Wajong) Due to lump sum budgeting, municipalities experienced large incentive to divert (young) individuals to youth disability scheme
17 The Youth Disability scheme
18 [4] The Participation Act Since 2015, municipalities responsible for social assistance recipients (former) workers in sheltered employment (former) young handicapped (except severely disabled) Employers and government are committed to guarantee 125,000 jobs for these individuals Otherwise: quota will be enforced More room for municipalities to stimulate employment (see next slide)
19 [4] The Participation Law: wage subsidies to fill the gap to statutory minimum wage level minimum wage wage subsidy productivity
20 [4] The Participation Law: major challenges Decentralization of social policies: is local administration well prepared? The Law is combined with strong budget cuts Why would individual employers feel themselves committed to the 125,000-goal? Use of wage subsidies is complex, and prone to inefficiencies and perverse incentives. But still probably more targeted than classic ALMPs!
21 [5] Fiscal reforms? Government aims at tax reduction, probably across the board If there s room for targeted reductions, one may well consider the use of low wage tax deductions or wage subsidies.
22 In hindsight.. The Netherlands did not have fundamental and substantial labor market problems prior to the Great Recession NL was disproportionally hit by the crisis, due to housing bubbles and the large financial sector In principle, fallout of demand justified STWC and sectoral plans, but implementation and effects appear limited Also: crisis enabled government to implement two major reforms: Act on Work and Security and the Participation Law
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