Latest pay claims: a threat to the Dutch concertation economy?

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The almost unprecedented growth in jobs in the Netherlands, along with low unemployment figures, have aroused the attention of other countries. In the success story - dubbed "the Polder Model" - the leading roles are played by the social partners and the outcome is seen as an "employment miracle". This article discusses the extent to which this success is also shared by actors outside the spotlight. It also examines the chances for continued employment growth, since in late 1997 employees are threatening to depart from the script.

In October 1997, the European Commission proposed guidelines which, it hopes, will enable the EU member states, with EU support where appropriate, to create 12 million jobs over the coming five years, reducing the European unemployment rate from 10.6% (July 1997) to 7%. The unemployment rate in the Netherlands is already well below this figure (5.6% in July 1997), ranking second only to Austria in the EU for the lowest number of registered unemployed people. OECD figures reveal that the Netherlands succeeded in establishing employment growth of 1.8% between 1983 and 1993. Over the same period, this figure was a mere 0.4% for the EU as a whole.

The Wassenaar Agreement: a basis for pay moderation

The explanation for these remarkable employment figures can be found mainly in what many call the Dutch "concertation economy" or consultation system. This concept refers to an almost continuous process of consensus-oriented consultation between employers' associations and trade unions and between these social partners and the government. In the Netherlands, representatives of employers' associations and trade unions frequently meet on many different consultative bodies. At present, the most important of these bodies is the Labour Foundation (Stichting van de Arbeid, STAR), on which both employers' associations and trade unions are represented. Negotiations take place and major agreements are concluded within STAR. Every spring and autumn, STAR meets government representatives in order to discuss the national budget and the forthcoming round of collective bargaining. The tripartite Social and Economic Council (Sociaal-Economische Raad, SER), which serves as an advisory body to the government, is also considered to be an important part of the concertation model. The SER consists of both representatives of the social partners and independent members appointed by government.

These consultative bodies are seen as essential tools in the creation of support for new policies. Indeed, it was on one of these bodies, the Labour Foundation, that the social partners reached their historic agreement on pay moderation in 1982. Employers' associations and trade unions were forced to conclude this Wassenaar Agreement (Akkoord van Wassenaar) as a result of the economic crisis. Both parties were convinced of the need to combat unemployment and create employment growth. Moreover, trade unions were aware that their low level of organisation had placed them in a poor bargaining position. In exchange for pay moderation, a start was made on reducing the working week. This allowed an agreement to be concluded on the redistribution of employment. In 1993, the social partners reaffirmed this agreement in their STAR agreement entitled A New Course (Een Nieuwe Koers).

The agreement on pay moderation in the private sector provided the opportunity for government to cut spending in the public sector. Salary increases for civil servants, the minimum wage and social benefits were curbed. This policy, which began in the early 1980s, was intended to reduce the financial deficit. In order to limit inflation, the Dutch guilder was linked to the German mark. This mixture of wage moderation, deficit reduction and inflation-fighting measures is considered to be the main formula for the Dutch growth in employment. The Central Planning Bureau (Centraal Planbureauor CPB) has estimated that half the growth in employment can be attributed to the pay moderation policy.

The other side of the coin

Three-quarters of the job growth mentioned above consists of part-time or flexible work. At the moment, one out of every three employees in the Netherlands works on a part-time basis. Employment growth has been beneficial mainly for those who have just entered the labour market, namely people who have just left school and women. Newly created jobs are rarely occupied by people who have been unemployed for more than a year. The high rate of long-term unemployment in the Netherlands remains a difficult problem, and even exceeds the EU figures (49% versus 44%). Although employment has risen enormously, OECD figures show that the participation rate in the Netherlands is only 64%, lagging behind the EU average of over 66%. As previously reported (NL9708125F), the low participation rate of people aged over 55 (approximately 25%) has serious consequences for the future of the Dutch social security system.

The low rate of registered unemployment belies the large number of people who are part of the labour force but do not work. There are estimates as high as 1.5 million for the number of people between the ages of 16 and 65 who do not participate in the labour process due to a (partial) disability or early retirement (VUT). Furthermore, the large number of so-called "inactive persons" places a great deal of pressure on the financing of the social security system. Consequently, the government began to rationalise the system, and it is now much more difficult to receive a disability allowance. Instead, people are given a lower unemployment benefit. Unemployment benefit recipients, in turn, then find themselves in even less advantageous social welfare programmes. One important drawback of Dutch economic success is that those groups who end up at this income level notably do not share in it.

The centralist concertation model has also received its share of criticism. It is charged with promoting sluggish decision-making and even leading to "policy inertia". On the other hand, the centrally concluded agreements within STAR, especially those which concern social policy, would not have been followed under a decentralised system (see "De doorwerking van aanbevelingen van de Stichting van de Arbeid", AH Van Heertum-Lemmen and ACJM Wilthagen, SDU, The Hague (1996)). Similarly, agreements would be difficult to reach within the tripartite Central Board of the Employment Service (see "Arbeidsvoorziening in perspectief: Evaluatie Arbeidsvoorzieningswet 1991-1994 - Rapport Commissie Evaluatie Arbeidsvoorzieningswet", CP Van Dijk et al, VUGA, The Hague (1995))

End of pay moderation?

In the summer of 1997, trade unions affiliated to the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV) stated that the policy of pay moderation should be ended. Over an above cost-of-living adjustments, the unions have demanded a wage increase of 1.5%. According to the unions, their members want to have their share of the increasing profits enjoyed by Dutch companies. Senior managers and directors already receive additional rewards through share option schemes. Moreover, a pay increase in certain sectors (like steel, construction and banking) would better reflect the current need for skilled personnel.

So far, the VNO-NCW employers' association has rejected these pay claims, fearing that an increase in labour costs might negatively affect current economic growth. The VNO-NCW prefers to conclude agreements on personnel training in exchange for further wage moderation.

Commentary

It is not clear whether a possible demise of the pay moderation policy could lead to the end of employment growth. On the one hand, a wave of pay increases could ultimately lead to mass redundancies and a recession, thereby creating fertile soil for a second Wassenaar Agreement. Another scenario is that the role of trade unions in the pay moderation policy (and therefore also in ending this policy) should not be overestimated. In this view, the strength of the concertation model - and the role the unions play - is reflected in its ability to regulate labour relations, keep the industrial peace and protect employees. Institutionalised consultation between employers and employees is maintained under both scenarios. It is obvious that the Dutch Government values highly the presence of public support for legislation aimed at social and economic development. It can therefore be assumed that, at least for the time being, the concertation model will not disappear from the socio-economic policy field. (Martijn van Velzen, HSI)