Current Development Regarding Flexible Labour in the Netherlands

It has been nearly three decades since Dutch employers, trade unions and the government decided on a course of action to combat unemployment, which involved increasing labour market flexibility. Since then, total employment rose steadily. However, despite these successes, there are issues that still need to be addressed. Many of these problems are outlined in a recent European Commission Report, and include “rising long-term unemployment and the potential segmentation of the labour market”.

In the 1980s the Dutch government introduced legislation that led to a pivotal reformulation of the economy and the labour market in the Netherlands. This became known as the “Dutch Model”, and attracted attention from economists and policy makers globally. It inspired the likes of British Prime Minister Tony Blair and the German Chancellor Gerard Schröder in their own reformulation of labour market policies in their respective countries. The Wassenaar Agreement of 1982 forms the core of the Dutch model. The main terms of the agreement included wage increases (with an eye to overall productivity growth), a growth in the number of part-time jobs for job redistribution purposes, and more labour market flexibility. These various changes resulted in the success of the model, leading to an increase in employment and a decline in the unemployment rate.

Since then, the model has been successful in reducing the unemployment rate in the Netherlands through the liberalization of the strict rules on hiring and firing. However, despite these successes, there are fears for the future. As the European Commission Report mentioned above notes: “Low transition rates from temporary to permanent contracts pose a risk of labour market segmentation. Self employed workers are more often under insured against disability, unemployment and old age, which could affect the sustainability of the social security system in the long run”. Hence those on flexible contracts are placed at a disadvantage in comparison to colleagues with more permanent contracts. In addition,according to the Netherlands Bureau for Economic Policy Analysis, firms are reluctant to hire permanent workers for jobs with little human capital investments.

The forces that drive an economy towards more flexible labour are more market based than lifestyle based, according to a University of Groningen study. They argue that “there is an inverse relationship between the unemployment rate and the probability of having a permanent contract…if there is excess supply in the labour market, workers have to lower their demands and settle for a temporary contract sooner”. The authors conclude by stating that there are no real “losers” in the introduction of labour market flexibility. However they do note that those with flexible contracts earn less than those with permanent contracts (as much as 81% of permanent contract wages in 1996). The challenge is how well the flexible labour market holds up in adverse economic conditions, and how well the economy absorbs increasing numbers of migrant workers and refugees. Dutch labour laws have so far kept pace with these changing circumstances.

Dutch government policies, together with agreements reached between trade unions and firms, are taking aim at reducing the negative consequences of flexible contracts (such as a lack of financial compensation). Furthermore, the government has introduced legal protection for flex workers, including a reversal in the liberalization of hiring and firing rules, making it more difficult for employers to unduly dismiss flex workers. Although the majority of employment in the Netherlands is of a more permanent nature, flexible labour in the Netherlands is in a healthy state and this looks set to continue into the foreseeable future.

Adam Watson