Government agrees bill on local services and local jobs

In June 2000, the Belgian government agreed on a draft bill introducing a voucher system for the provision of "local services" to households (domestic help, childcare etc). The system will most probably be implemented in September, after its approval by the federal parliament. It aims to guarantee formal employment and "professionalisation" in a sector that has been quite unstable until now, due to both highly sensitive labour relations and complex government subsidy schemes. The social partners are generally in favour of the new system. They are also relieved in at least one respect: at last, the government has clearly voiced its main aims in this field.

In June 2000, the coalition government agreed on a draft bill introducing a voucher system for the provision of "local services". The new system appears simple, but supposedly covers a complex system of earlier policy measures. It includes an important package of services like domestic aid, gardening, childcare and home-supplied aid to elderly or sick people. The vouchers allow both non-governmental organisations (NGOs) and normal companies to supply services at prices that compete with those of the clandestine, underground economy. Within this framework, households - ie the users - benefit from a guarantee in both quality and honesty, while workers receive a normal employment contract and social security. Essentially, the scheme - which will most probably be implemented in September, after approval by the federal parliament - means that the state bridges the financial gap between the companies' labour costs and the preferential price paid by the user. It should result in an increase in the employment rate of low-skilled people. Henceforth, the main question will be: How does this system fit into the current situation of local services?

A Gordian knot

In the past, Belgian governments have successively introduced various subsidy schemes and control mechanisms for local services. The political concern targeted at this sector is quite understandable, since it offers governments the perspective of dealing with several issues simultaneously:

• the low employment rate of low-skilled people (with also relatively more low-skilled people in Belgium than in the neighbouring countries);

• the intensive presence of the occasional and/or organised underground economy in local services; and

• the high need for, and collective relevance of, well established local services.

Should political power be defined as understanding how to influence several levels of society at the same time, then in the case of local services, this has proved to be a tough exercise.

As in many other European countries, local services have become a hot issue for many parties on the Belgian labour market. Due to higher female labour market participation, households face increasing difficulties in combining domestic responsibilities and formal work. In particular, households with young children have a rising demand for local services, both in cleaning and in childcare. This rising trend can also be observed among older and partially disabled people, because many want to remain self-reliant and also because hospitals and care institutions are inclined to reduce their clients' stays. However, although there is a rise in demand for local services, it is also clearly unequal in nature: the average financial possibilities of, for example, a double-income household with middle-aged university-trained partners are obviously much higher than those of minimum pension recipients or lone-parent households.

Low-skilled people have a poor labour market participation rate, a fact which explains that, in the 1990s, local services were seen as having a clear potential for increasing formal employment among this group. Unlike employment in industrial production, however, local services often have very little to offer in terms of skills and productivity improvement. This is especially applicable to services supplied on an individual basis, without any training facilities. Moreover, local services entail a complex relationship between client and service provider, since trust and quality guarantees are far more difficult to provide than for industrial products and services.

The clandestine economy - a phenomenon that occurs more widely in Belgium than in its neighbouring countries - is particularly present in local services. This has been largely attributed to high labour costs, especially when it comes to low-productivity jobs. Both in the case of services supplied by individuals on an occasional basis and those supplied by companies on a regular basis, formal wages cannot compete with lower illicit rates. In painting and decorating, for example, many companies operate with illegal workers from Eastern Europe and Asia. Obviously, companies that stick to the rules of formal employment eventually fail to compete with those that indulge in illegal practices.

Solving the clandestine economy problem has proves to be a complex issue. It is sometimes argued that clandestine labour – when supplied on an individual basis – should be countered via wage policy and subsidies to low-productivity jobs, while the clandestine labour that is supplied on an organised scale should be subject to more control and punishment. Nevertheless, the distinction is not easy to make, as individually supplied services also compete with organised services, for example in cleaning or baby-sitting.

Previous tentative solutions

Since employment legislation and regulations are, to a great extent, delegated to the social partners, the employment status of people providing domestic service has long been of little concern within the framework of interests focusing on the industrial level and on large-scale issues. By the end of the 1970s, given high levels of unemployment, in combination with an increase of clandestine economy services supplied on an individual basis, the issue of domestic services eventually became a priority on the political agenda. In 1986, a first attempt was made to promote formal employment in domestic services, for example by hiring a long-term unemployed person as a first domestic employee. The clandestine economy was countered by substantially reducing the social security contributions due by households - ie the employer - while also allowing them to deduct part of the wage costs from their income for tax purposes. This measure was only moderately successful: at its peak, 700 households were involved, while 180 participate in this scheme at present ( according to the De Standaard newspaper, 13 June 2000).

The Local Employment Agency (Plaatselijk Werkgelegenheidsagenstschap/Agence locale pour l'emploi, PWA/ALE) system, which is a distinctive feature of the Belgian approach, has been by far the most important policy measure in local services (BE9708213F). These agencies were introduced as of 1987, but became a major instrument in countering long-term unemployment from 1994 onwards. PWAs/ALEs are established at municipality level, while a PWA/ALE board is appointed one half by the municipal council and one half by the social partners. The main activity of PWAs/ALEs is to organise and monitor occasional domestic work and gardening performed for private persons and "social profit organisations" by long-term unemployed people. Domestic services organised via PWAs/ALEs also use a voucher system, where each voucher stands for one working hour. The voucher is bought by registered users (who again benefit from substantial tax reduction by deducting the costs from their household income). For each voucher, the unemployed worker receives a (very) moderate wage, which is however paid on top of his or her unemployment benefit.

PWAs/ALEs have been praised for offering real work to long-term unemployed people with poor employment chances, often living on the brink of poverty. However, they also tend to demotivate people with real chances on the primary labour market. Furthermore, it should be noted that PWAs/ALEs organise a free market in services without much concern for actual social needs and local priorities. In contrast, social economy projects, organised by NGOs, offer domestic services with all due attention to the quality of services. They also vary their prices according to the users' capacity.

A last policy measure - fairly recent and of short duration - is also worth mentioning. It relates to the more substantial service of painting works. In April 1999, one of the last measures of the former Dehaene government was to introduce a voucher system allowing for a substantial reduction of labour costs in qualified painting work. This measure was adopted following a request by the Organisation of the Self-Employed (Unie van Zelfstandige Ondernemers/Union des indépendants et des PME, UNIZO - formerly the National Christian Self-employed Organisation (Nationale Christelijke Middenstandsvereniging, NCMV). UNIZO states that the reduction of gross wage costs is the only way to counter the clandestine economy and do-it-yourself work in labour-intensive services. The measure was an immediate success in terms of vouchers purchased: the budget was drained in no time. Painting companies, however, reported that the employment effect was probably quite low, as the clients that benefited from the system were well-off people who already had a customer's account (quoted in De Standaard, 26 October 1999).

The social partners have always been very wary of subsidy schemes applied to local services. The PWAs/ALEs, for example, were and still are a highly controversial issue, both in terms of the actual status of the employment contracts they offer and of out-competing regular companies. In this respect, the association of temporary agency work firms has been claiming declining market shares for its members in the local services market for several years. With the new voucher scheme, the employers' criticism of the competition aspect is neutralised. However, a more controversial prospect of competition is that the scheme could oppose social economy-oriented NGOs and regular (profit-oriented) companies. Highly differentiated subsidy schemes would, however, imply the threat of relapsing into the current complex situation. The social partners are generally in favour of the new system. They are also relieved in at least one respect: at last, the government has clearly voiced its main aims in this field.

Commentary

Subsidies to users of, and employers in, local services always bring up the issue of determining their effect. In the case of the voucher for painting works, the "dead load effect" appeared to be rather clear: the constituencies did not increase and the voucher only accelerated people's decision to have (formally paid) painting works carried out. In the case of the PWA/ALE vouchers, the "cleaning-up effect" on the clandestine economy is clearer, although it also leads to a "shadowy" economy, with users paying part of the work with vouchers and the rest in cash. The new voucher system - at least on paper - permits less abuse, since it involves competing companies employing formally employed workers.

One of the main problems in local services is to avoid restoring the master-and-servant situation that prevailed in the 19th and the early 20th century. In this respect, the PWA/ALE voucher is still highly questionable: in principle, it offers very cheap labour while, put at its extremes, it also sets double-income university-educated households against unemployed, low-skilled households. Once again the formal employment planned by the new voucher system should allow for a more neutral and specific relationship between the user and the service provider. (Jan De Schampheleire, TESA - VUB).