SER reaches agreement on disability benefits

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In January 2002, the Netherlands' tripartite Social and Economic Council reached an agreement on the problematic issue of employees who are unable to work on account of illness of disability. The aim is to decrease dramatically the number of employees receiving WAO disability benefit. The agreement coincides with a fundamental debate that has arisen on the pros and cons of the Dutch 'polder model' of consultation and consensus.

On 19 January 2002, the Social and Economic Council (Sociaal Economische Raad, SER) reached an agreement on a perennial problem in Dutch industrial relations - adapting the Occupational Disability Insurance Act (Wet Arbeidsongeschiktheid, WAO) (NL0105131F). The SER is made up of representatives of employers and trade unions, plus independent 'crown' members. According to the Council, the new agreement will result in a decrease in the number of employees entering the WAO benefit system to less than 30,000 each year, compared with the current 80,000-100,000. The key elements of the agreement are as follows:

• the rights of current WAO recipients (approximately 950,000 people) will not be affected;

• a system of fines, known as the 'Pemba' provision, will no longer be levied on employers whose employees enter the WAO system;

• employees who are off work through sickness will receive 70% of their pay during the first year of absence. In virtually all cases, this is topped up to 100% on the basis of provisions in collective agreements;

• unlike the prevailing situation, employees will continue to receive pay during the second year of sickness absence. However, it will no longer be topped up to 100%;

• only those employees who are declared to be at least 80% long-term disabled by the staff doctors of a new organisation which will administer the system, the UWV, will be awarded the right to full WAO benefits. Full WAO benefits will total 75% of the average salary in the last three years of employment (de facto approximately 72.5% of the last-earned salary, 5% more than now);

• a new scheme will apply to employees who are determined by the UWV doctors to be between 35% and 80% unable to work. The employer will pay their salary for the days on which these employees can work. Overall, these employees will receive 70% of previous pay, topped up by private insurance towards which the employer and employee pay equal amounts. Employer and employee must do everything possible to find appropriate work for the employee, whether in his or her current position or in a different function. Should the employer fail to fulfil this obligation, it may be required to pay benefits for a period exceeding two years. If the employee falls short of meeting his or her commitment, dismissal may result; and

• employees who are judged to be less than 35% unable to work will remain employed by their employer, which must exert maximum effort to allow the employee to resume his or her work activities.

Mixed reactions

The agreement received mixed reactions in the Ministry of Social Affairs and Employment. Minister Willem Vermeend emphatically distanced himself from a prognosis on the effects of the agreement put forward by Hans Hoogervorst, the State Secretary in the department. According to the latter's forecast, the annual cost of the WAO will increase by EUR 2 billion as a result. Mr Vermeend prefers to wait for calculations expected to be issued by the Central Planning Office (Centraal Planbureau).

The reactions of the social partners vary from moderately to extremely favourable. According to Hans de Boer, the chair of the Federation of Small and Medium-Sized Businesses (Midden en Klein Bedrijf, MKB), the SER discussions have provided the answer to the problematic WAO issue. The chair of the Christian Trade Union Federation (Christelijk Nationaal Vakverbond, CNV), Doekle Terpstra stated that 'the government should humbly adopt the [SER] WAO plan.'

However, trade unions affiliated to CNV and the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV) criticise the SER agreement for prohibiting the top-up of WAO benefits in the second year of illness or disability. The unions are calling call for the agreement to be revised in the bipartite Labour Foundation (Stichting van de Arbeid). Employers have declared that such is a revision is not acceptable.

On the party political front, the social democratic Labour Party (Partij van de Arbeid, PvdA), the main party in the ruling coalition, and the opposition Christian Democrats (Christen Democratisch Appèl, CDA) are positive. Most of the criticism has come from the liberal side in the coalition government. Spokespersons for the Party for Freedom and Democracy (Vereniging voor Vrijheid en Democratie, VVD) - and to a lesser extent the social liberal Democraten 66 (D66) - argue that the agreement falls short of its objectives. The VVD worries that higher benefits for employees declared completely unable to work will have a negative effect. The party doubts whether the examining doctors will actually be able to distinguish between long- and short-term disability. Other criticism focuses on the abolition of the 'Pemba' system of fines for the employers of employees who are unable to work. Robin Linschoten, a VVD member on the SER, voiced concern and so far has not been prepared to sign the agreement.

The agreement and the 'polder model'

Commentators have called the SER agreement on WAO reform a typical example of the Dutch 'polder model', a term that has caught on outside the borders of the Netherlands. A generally accepted definition of 'polder model' has yet to be formulated, but the model is commonly associated with a highly developed consultation structure and a vital role for social partners in the decision-making process, combined with the willingness to make compromises, wage moderation and a high degree of labour peace. Prominent components of the polder model include institutions such as the Labour Foundation and the SER. Recent achievements include the 1996 Working Time Act (Arbeidstijdenwet) (NL0110102F), the 1998 Flexibility and Security Act (Wet flexibiliteit en zekerheid) (NL9901117F), the 2000 SER compromise on co-determination and the structure of large businesses (NL0011112F) and now the agreement on the WAO problem.

The SER agreement on the WAO comes at a time when the debate on the Dutch polder model has once again started. Although neither the criticism nor the model is new, the frequency of criticism has increased, as well as the size of the legion of critics.

For example, in late 2001, a Harvard Business School economist, Michael Porter, stated the view that the Dutch emphasis on long-term wage moderation has a negative effect on labour productivity. Nout Wellink, the president of the Bank of the Netherlands (Nederlandsche Bank), criticised the drawn-out decision-making process, the weakening of the political system and the lack of differentiation in wage-setting. These are supposedly all products of the polder model.

Furthermore, not a day goes by without at least one prominent spokesperson for the social partners, government or parliament expressing his or her opinion on the topic in the press. The bulk of criticism comes from the liberal side, joined by economists. In addition to Mr Wellink, other political critics include European Commissioner Frits Bolkenstein and the Minister of Economic Affairs, Annemarie Jorritsma, the latter prompted by the WAO discussions within the SER.

Employer and employee representatives raise their own questions, but prefer to emphasise the positive aspects of the model. During the 2002 New Year's reception held by FNV, the largest trade union federation in the Netherlands, its chair, Lodewijk de Waal, said that he felt 'badgered' by the criticism and wants nothing more than for the government to leave the social partners alone. However, he does feel that the effects of the model are not sufficiently visible in the workplace and that the social partners must work towards reaching a consensus, though not if it means giving up everything else.

Commentary

Politically speaking, traditional Dutch society can be split up into three main categories: liberal, confessional and social democratic. Where industrial relations are concerned, the differences between the groups are well illustrated by their very stable views on the extension of collective agreements- whereby the Ministry of Employment and Social Affairs declares collective agreements to be generally binding on a whole sector. Since the beginning of the 20th century, the liberals have traditionally opposed this practice, together with the internationally-oriented large companies. They point to the international competitive position and reject what they believe is a rigid societal structure. The social democrats are advocates of extension, believing that the weaker employees need protection and that the state is responsible for society. The 'confessionals' are rather ambiguous: upholding order, but preferably not one enforced by the state; rather one which comes from below by means of what is characterised in the Netherlands as the 'social middle ground'.

The attitude towards the SER compromise on the WAO follows these dividing lines almost exactly. This also explains why the dividing line does not run between ruling coalition and opposition in the WAO debate -but rather runs within the coalition itself - and not even between employers' associations and trade unions. Instead, the line is primarily between the social partners on the one side and the 'rest' on the other.

The discussion on the Dutch polder model occurs on two levels: relating to the model itself and its concrete elements. The discussion is relatively vague on the first level, but this does not mean that the discussion will not weaken the fundaments of the model in time. As far as the concrete elements of the model are concerned, the short-term effects of criticism are bound to be more severe. Examples include: the criticism of the SER compromise regarding the law on co-determination and the structure of large companies, whereby shareholder representatives were eventually given a better position to voice their opinions (NL0011112F); and especially the trade union representativeness debate (NL0103127F), which recently led directly to an adaptation of the practice of extending collective agreements (NL0112135F). (Robbert van het Kaar, HSI)