Recommendation prioritises employment growth to offset ageing population

In its medium-term recommendation, the Social and Economic Council prioritises employment growth as the best means of coping with the consequences of an ageing population. The council considers that at least 400,000 jobs will have to be created by 2040. The higher degree of participation is necessary to cover the mounting costs of an ageing population and to withstand competition with fast-rising economies in India and China. Achieving the recommendation was no mean feat,as the social partners are completely opposed on certain issues, such as making dismissal legislation more flexible.

After a year and a half of preparation, in September 2006, the Social and Economic Council (Sociaal-Economische Raad, SER) presented a recommendation for the medium term, entitled ‘Welfare growth by and for everyone’. In its recommendation, SER gives priority to employment growth as the best response to the ageing population in the Netherlands and to competition with the fast-rising economies in India and China.

Future viability of welfare state

In February 2005, the Minister of Social Affairs and Employment, Aart Jan de Geus, asked SER to develop an overall vision of the welfare state in the medium term. The key question relates to the viability of the welfare state with an ageing workforce, implying that far fewer people than at present will bear the burden of taxes and social security contributions in the future. The recommendation is to form the basis for the government’s socioeconomic policy in the forthcoming cabinet period.

However, publication of the recommendation was twice postponed because the social partners could not reach agreement, particularly with regard to the law on dismissals. In the end, it was decided to delay this particular issue to a later stage of the recommendation, as was also agreed for the related topics of further education and the future of unemployment benefits. Part II of the recommendation is expected to appear in December 2006.

Greater participation in labour market

SER proposes a higher degree of participation in the labour market in the medium term: more Dutch citizens will have to go to work and the skills of citizens should be utilised. Over the next 35 years, SER wants to achieve a situation in which 80% of people between the ages of 20 years and 65 years are employed. At present, just 72% of this group are in employment. SER expects that the extra growth can be partly achieved by the inflow of new entrants into the labour market. It is not expected that the growth will come from higher productivity, which will be more difficult to realise.

Matching supply and demand

Higher participation in the labour market, in turn, creates work. Dual earners, for example, hire the services of other people. The key is to take these services out of the illegal economy. The ageing population is also creating work. Some 60,000 jobs will become available in the education sector in the next 10 years because many teachers are retiring. However, according to SER, the most important policy instrument will lie in the better matching of labour supply and demand. For example, the demand for workers in the healthcare sector will increase significantly. At present, one in 18 young people opt for a healthcare education. In 15 years, one in five young people will have to make this choice in order to satisfy demand.

SER is making an inventory of the increasing inflow and outflow and the demand for labour for the next 10 years. The council will then choose a number of tools that can be used to facilitate the inflow of labour and the alignment of supply and demand.

Participation-oriented welfare state

Employees who are potentially at a higher risk of social exclusion, such as long-term unemployed people or those with disabilities, will be encouraged to find a way back into the labour market through supervised work. Furthermore, people who are reluctant to take up paid work will be under greater pressure to do so. The traditional, income-compensation-oriented welfare state must make way for an activating, participation-oriented welfare state. This model facilitates a society in which every citizen joins in, according to their ability. In addition to income protection schemes, work must be carried out on the principle of participation in the coming years.

Financial incentives

Among the possible tools for achieving this aim, SER opts for fiscal measures. To make the move from benefits to paid work more financially appealing, the following strategies have been suggested: individualisation of the tax free allowance, cutting income-related subsidies and abolishing the general employment discount in combination with the marginal tax rate. This financial incentive should also apply to part-time workers who want to work more hours.

Cooperation between education and companies

SER does not recommend changing the official retirement age, although older people should gradually start contributing to retirement premiums. With regard to education, SER recommends an individual education entitlement for each person, which could help to facilitate lifelong learning (NL0609049I). Greater cooperation is also needed between vocational educational institutions and the business community.

While SER rejects further changes in social security, it does recommend more cooperation with the social partners. Finally, SER wants a total reduction of €4 billion in the tax burden and suggests €4 billion of extra infrastructural government investments. All in all, the key message from SER – including the employers, trade unions and the independent members appointed by the Queen – is that work should pay more.

Delay over retirement and dismissal recommendations

SER does not provide an answer to important social questions such as whether to increase the retirement age or abolish mortgage deductions. The council’s compromise on these matters is not included for the time being in the cabinet programme. However, neither point has been taken off the agenda. In the coming period, SER hopes to return to these issues in a separate recommendation. This initial recommendation does not resolve the pressing matter of the future of the dismissal system either. SER will only assess this item in December in the second part of its medium-term recommendation.

Apparently, employers and employees are still diametrically opposed on this issue. Employers want greater flexibility in dismissal legislation, while employees are not in favour of this. At the same time, employers are asked to invest more resources in staff education. Companies must also become more open to employing workers from more vulnerable groups, such as low-skilled unemployed persons and people with a partial disability. Nevertheless, employers want something in return for this extra effort, such as lower redundancy payments and a more flexible dismissal regime.

Marianne Grünell, Hugo Sinzheimer Institute (HSI)