Controversy over wage moderation

Download article in original language : NL0107137FNL.DOC

In summer 2001, debate over wage moderation has dominated Dutch industrial relations, with inflation reaching 5.4% in May - the highest rate in the "euro-zone". The government, the president of the Dutch Bank and employers' organisations have called for pay restraint, but the social partners differ over what constitutes "sensible" wage increases, with employers calling for 2% rises and trade unions sticking to 4%. The debate was further fuelled by reports that executive salaries were rising at an annual rate of 14%.

The issue of wage moderation has been high on the agenda of the social partners, politicians and economic and financial institutions in early summer 2001. The context is that Dutch inflation reached 5.4% in May 2001, the highest level in the "euro-zone" (the 11 countries which have joined the third stage of EU Economic and Monetary Union, and the euro single currency), where average inflation stood at 3.4%. The president of the Dutch Bank (Nederlandsche Bank), Wout Wellink, set the tone for the debate by forecasting that what he sees as excessively high wage agreements will further aggravate inflation in 2002, as will any additional reductions in taxes, which may be introduced in new tax legislation. Mr Wellink anticipates an inflation rate of 3% in 2002, whereas the Central Planning Bureau (Centraal Planbureau) is still assuming a target figure of 2%.

Employers' organisations joined the debate by calling on trade unions for a "sensible" wage development. They blame the unions for the fact that recent collective agreements have focused mainly on pay-related matters and neglected "secondary" terms and conditions of employment such as training (NL0104129F). For their part, the main parties in the ruling coalition believe that the government should reach a new agreement with employers and unions in order to prevent a wage explosion. The Labour Party (Partij van de Arbeid, PvdA) in particular is calling for a new version of the 1982 "Wassenaar agreement" between social partners and government, whereby limitations on wage demands were trades for reduced working time and the creation of jobs (NL9710137F). Today, additional investments in healthcare and education and training would be the incentive offered by the government in exchange for putting the brakes on excessive wage demands.

The Minister of Finance, Gerrit Zalm, states that he has few means with which to bargain over wage restraint: given EMU, the Netherlands no longer has an independent monetary policy, while international factors contributing to the high inflation rate, such as energy prices and the value of the US dollar, are beyond the reach of his policies. Furthermore, additional spending on the social sector is a political priority that the minister is obliged to implement. The only offer the government can make to the social partners at present in exchange for pay moderation is an extra NLG 600 million in spending on education, training and policies for older people, and NLG 150 million to facilitate the introduction of flexible pay schemes (NL0101123F).

Wage-price spiral

The collective bargaining coordinator for the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV), Henk van der Kolk, stated that the president of the Dutch Bank was "crying wolf", and his comments will in fact lead people to believe that "inflation is 5%, wage increases are 4% - that's it, we're finished". In his view, the government can take some of the responsibility: inflation has risen thanks to higher VAT, environmental tax, rents and energy prices. At an average of 3.4%, collectively agreed wage increases in 2000 fell short of the prognosis. Hans de Vries of FNV's largest affiliate, Allied Unions (FNV Bondgenoten) states that the central agreement reached by the social partners in the Labour Foundation (Stichting van de Arbeid) in late 2000 (NL0101123F), setting a target wage increase of 4%, has been reasonably successful in influencing collective bargaining in 2001, but the decentralisation of bargaining championed by employers has also had an impact on outcomes. Mr De Vries also enthusiastically championed agreements on secondary terms and conditions of employment, such as childcare, employment and healthcare. However, the provisions on training and education that were recommended by the central social partners have not been included in the collective agreements concluded in 2001.

Wage increases in the public sector will probably turn out to be higher than estimated. Agreements have so far been reached in education, healthcare and law enforcement (NL0104129F). Teachers will receive a basic pay increase of just under 3% over 18 months, while a start has been made on the introduction a "13th month" bonus payment, worth 1.5% in 2001 and 3.75% in 2002. Investment funds for the sector have more than trebled, which means that schools can reward exemplary staff, recruit additional employees and offer more paid maternity/paternity leave. Agreements on a 13th month bonus have also been concluded in law enforcement and hospitals. In these sectors, it has also been agreed that individuals working longer than 36 hours a week will be awarded a 12% wage increase.

Top pay influences discussions

In mid-June 2001, the government and social partners held their traditional tripartite "spring discussions" (voorjaarsoverleg), and the issue of pay restraint was a major theme.

The discussions were influenced by recent studies indicating that executive salaries have increased by 14% over the past year and that the largest pay increases were occurring among top management, and not arising from collective agreements. FNV is calling for limits on executive salaries, for example by fully taxing annual salaries of over NLG 3 million. The president of the Dutch Bank once again intervened by stating that a company such as Philips is sending entirely the wrong signal by giving directors wage increases of 13.8%. Even the chair of the General Industrial Employers' Association (Algemene Werkgevers-Vereniging, AWVN), the largest employers' organisation affiliated to the VNO-NCW confederation, indicated that increases in management salaries should be tempered.

At the talks, there was considerable friction over what constituted "sensible" wage increases. FNV continued to uphold 4% as a sensible level, with the inflation rate forming the basis for this figure. The employers, represented by VNO-NCW, see 2% as sensible. The government offered extra spending of NLG 150 million for promoting flexible pay systems, aimed at meeting employers' concerns, and NLG 600 million for education, training and older people, aimed at unions' concerns. It pleaded for wage moderation among both employees and senior management and announced a study into the development of the latter's salaries.

Commentary

The annual spring discussions between the social partners and the government unfolded in a tense atmosphere, given the combination of the calls on unions to lower wage demands and allow for sensible pay increases, and the revelations of unacceptably high executive salary increases. The demands and offers on the negotiating table were not very spectacular, especially taking into consideration the relatively small amount of the government's "sweeteners" on pay flexibility, education, training and older people. External factors played the key role in making the discussions strained - lagging economic growth, the low value of the euro and rising energy prices. Taking a gloomy view, a simultaneous negative development in these areas may harm the Dutch economy and labour market, with the usual downward effect on wages. (Marianne Grünell, HSI)

Useful? Interesting? Tell us what you think. Hide comments

Eurofound welcomes feedback and updates on this regulation

Add new comment