Pay freeze agreed for 2004-5

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In October 2003, the Dutch government and social partners agreed on a comprehensive set of measures to confront the current economic recession. One of the key measures is a freeze in collectively agreed wages during 2004 and 2005, in exchange for the government dropping a number of cost-cutting plans. Recent figures from the Labour Inspectorate indicate that pay increases have already slowed considerably in 2003.

The annual autumn consultations (najaarsoverleg) held between the government and the social partners on 15 October 2003 resulted in a 'social agreement' (sociaal akkoord) for 2004, with wage moderation as one of its core themes. The employers’ organisations involved in the deal are the Confederation of Netherlands Industry and Employers (Vereniging van Nederlandse Ondernemingen-Nederlands Christelijk Werkgeversverbond, VNO-NCW) and the Dutch Federation of Small and Medium-sized Enterprises (Midden en Kleinbedrijf, MKB). The trade union federations concerned are the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV), the Christian Trade Union Federation (Christelijk Nationaal Vakverbond, CNV) and the Federation of Managerial and Professional Staff (Centrale voor Middelbaar en Hoger Personeel, MHP).

Under the deal, the trade unions have agreed to support a temporary pay freeze in collective agreements signed in 2004. In the following year, depending on how the economy recovers, a minimal wage increase will be permitted. It remains possible to reach collective agreements on periodic, performance-based wage increases. In exchange for this concession on the part of the the union federations, the government has either scrapped or watered down several previously announced cost-cutting measures (NL0306101N). The most important of these include:

  • the abolition of tax benefits in relation to early retirement and pre-pension schemes announced for 2005 will be postponed for a year (NL9912175F). Existing schemes will then need to be transformed into 'life-span regulations'- an integrated set of measures aimed at enabling workers to manage their working time and leave over their entire working lives so as to better balance their work and family/care responsibilities arrangements (NL0304103F) - to which end government intends to spend EUR 870 million in 2006, EUR 760 million in 2007 and EUR 600 million each year thereafter;
  • a plan to deduct severance pay from unemployment benefits has been scrapped. The tripartite Social and Economic Council (Sociaal Economische Raad, SER) has been asked to issue a recommendation on other planned adjustments to the Unemployment Insurance Act (Werkloosheidswet, WW) (NL0308104F); and
  • benefits based on the Occupational Disability Insurance Act (Wet op de Arbeidsongeschiktheid, WAO) for partially disabled employees will not be linked to the income of the recipient's partner. If the influx of new WAO benefit recipients is below 25,000 in 2006, WAO benefits will increase by 5%. The fines imposed on employers if their employees seek recourse to WAO benefits will be scrapped too. Trade union and employers' organisations will issue recommendations on new WAO entry criteria in 2004 (NL0201113F).

The members of FNV-affiliated trade unions - some 1.2 million in total - will be given an opportunity to express their views on the social agreement. In an initial response, union officials reacted highly critically. Based in part on this response, the Minister of Finance, Gerrit Zalm, announced that no new opportunities for negotiations over the deal will be granted.

Survey of collective agreements

Even before the agreement on a pay freeze in 2004, wage increases in the Netherlands had been slowing. Twice a year, the Labour Inspectorate (Arbeidsinspectie) reviews the main developments in collective agreements, covering a sample of 125 agreements, including all major sectoral accords. In October 2003, the Inspectorate published its autumn report on agreements reached in the 2003 collective bargaining round. As well as developments in wages, the review includes other subjects, such as early retirement and variable pay. The main findings are summarised below.

Pay increases

The report suggests that pay increases have slowed down significantly - calculated on an annual basis, the average pay increase amounts to only 2.8% in 2003, compared with 3.8% in 2002. However, there appears to be considerable disparity: pay increases vary from 0% in the collective agreement for the Atos Origin computer house to 6.3% in the agreement for employees in the disabled care sector. Wages in the overall care sector have gone up particularly sharply - by 4% on an annual basis - in comparison with the average figure. The average increase is clearly less in the private sector and government sector, at 2.7% and 2.8% respectively. Within the private sector, increases varied from 2% in transport to 3% in business services.

Figures published by the Central Statistical Office (Centraal Bureau voor de Statistiek, CBS) show that pay increases fell further in the third quarter of 2003 to a level of 2.5% (against 3% in the third quarter of 2002). The fall is relatively more pronounced in the government sector, at 3.1% compared with 4% a year earlier.

Minimum wages

Debate on the statutory minimum wage and the lowest wage scales set in collective agreements surfaces in the Netherlands on a regular basis. It is argued that lowering these wages would promote labour market participation among weaker target groups. As such, government pressure towards the end of the 1990s resulted in a lowering of the lowest wage scales in collective agreements (TN0208101S). The survey conducted by the Labour Inspectorate finds that the lowest wage scale for adult employees (the limit is 23 years of age in the Netherlands) now varies from 101.1% of the statutory minimum wage in the 'other services' sector to 111.5% in the construction sector and 112% in agriculture. Around 40% of collective agreements feature a 'start-up' wage scale and some 20% offer a 'target group' scale for certain groups of individuals including long-term unemployed people, young people, women returning to the labour market and people from ethnic minorities.

The Labour Inspectorate study also finds that younger employees are often paid more - by 13% to 22% - than the statutory minimum wage for their age bracket.

Flexible payment

Since the end of the 1990s, increasing numbers of employers have been pushing for an expansion of the variable component of employees' wages, in order to be in a better position to cope with diminished demand during times of economic hardship. However, employees are often opposed to expanding or introducing a variable payment system (NL0203101N). The Labour Inspectorate report finds that 80 of the 125 collective agreements examined include provisions on one or more forms of flexible payment. In most cases, these provisions relate to an annual payment or one-off bonus. In more than 20% of the collective agreements which include an arrangement on a form of flexible payment (roughly 14% of the total number), these relate to performance-based payment. There would seem to be a marginal increase in this particular form of flexible payment.

Employability

With the exception of one collective agreement, all the agreements examined contain provisions on 'employability'. Most common are provisions on education and training and the associated leave (such provisions cover almost all employees) and incentive-based payment policy (80% of employees), followed by provisions on career opportunities and development plans (over two-thirds of employees). Provisions concerning the labour market or directed at special target groups appear less frequently (covering around half of employees). The provisions on education, training and leave relate largely to job-specific training.

Integration and reintegration of partially disabled employees

The proportion of (partially) disabled employees in the Dutch workforce is relatively high. This forms an important topic of political and public debate, and is also near the top of the social partners’ agenda. The study conducted by the Labour Inspectorate finds that a large majority of collective agreements include provisions on integration policy (taking on partially disabled employees), reintegration policy or adaptation policy (adapting the work situation for partially disabled employees). The provisions are mostly of an intentional character, and only 15 collective agreements include concrete agreements on making jobs available to workers with disabilities, at either a sector-wide or company level.

Early retirement and flexible pension schemes

Since the mid-1990s, the Dutch government has been exerting pressure on the social partners to bring an end current early retirement schemes and replace them with flexible pension schemes (NL9912175F). The present schemes are at risk of becoming unaffordable and government therefore hopes to encourage employees to continue working for longer. This policy seems to be bearing fruit. Only 8% of employees are now covered by a collective agreement offering only an early retirement scheme, while some 83% of are covered by a 'pre-pension' scheme or (in most cases) a transitional scheme from early retirement to pre-pension. The age threshold for retirement under pre-pension schemes is – on average – almost two years higher than it is for early retirement.

Commentary

After several years of economic prosperity, the Dutch economy is now facing stormy waters; the second quarter of 2003 saw a 1.2% fall in GDP - the largest drop in 20 years - and a further decline is forecast for the third quarter. Consequently, the government announced a comprehensive package of severe cost-cutting measures and attempts were made in the autumn consultations to arrive at a broad agreement with the social partners. These succeeded and it is evident that employees have made the greatest concessions and that government was able to make concessions relatively easily because the cost-cutting measures announced initially allowed sufficient leeway. In other words, the cabinet had enough 'small change' to spare. As such, it is hardly surprising that the employers are especially enthusiastic about the social agreement.

Whether this agreement should be awarded the same status as the 'Wassenaar agreement' concluded in 1982 (NL9710137F) – responsible for the revival or even birth of the Dutch 'polder model' of consultation and consensus – remains to be seen. The first hurdle is to generate sufficient support from FNV’s rank and file. In the absence of such support, the agreement will be cast aside and Dutch industrial relations will be in for a rough time. (Robbert van het Kaar, HSI)

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