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Sunday, 26 April 2015

Will the newly found economic growth in The Netherlands survive a sudden rise in the unemployment figures, as a consequence of the new labour legislation coming into effect on 1 july 2015?

As I already argued in my last article, regarding the optimism of chairman Hans de Boer of the employers’ organization VNO/NCW with respect to the Dutch economy, there are indeed some clear greenshoots, which could point at a much more prosperous future.

As far as I’m concerned, there is however one factor which could soon spoil the party and trigger another, prolonged period of disappointing economic growth: the (youth) unemployment.

Lately, especially the youth unemployment seemed to reluctantly drop after more than five years of almost steady growth; especially after 2011 this growth soared until the second half of 2013. In the 1.5 years since, youth unemployment started to drop very slowly until the current level was reached.

Unemployment development from 2003 until 2015
for gender and age category
Data courtesey of:
Chart created by: Ernst's Economy
Click to enlarge
However, at this moment I suspect that this slow drop in the youth unemployment could soon come to an end. The cause for this expected disruption of the favourable unemployment trend will be the deployment of the new labour legislation on the first of July, by Minister of Social Affairs Lodewijk Asscher.

This legislation has been deployed with the best intentions by Lodewijk Asscher, in order to do something about the unfavorable position of flex workers and workers:

(the following excerpt of this new law has been acquired from De Volkskrant):

Per 1 July 2015, the difference between fixed and so-called flex workers becomes smaller. This is agreed by employers and labour unions in the so-called Social Agreement. It will become cheaper to dismiss fixed employees and the duration of the Dutch unemployment benefit (i.e. WW) will be restricted.

On the other hand, starting from July 2015 flex workers will be entitled to a ‘transition payment’, when they have worked in excess of two years for the same employer. This payment is at least one-third of a monthly salary per service year at the employer, capped at €75,000.

At the same time, these flex workers are entitled to a fixed contract earlier: after three contracts in two years (was three contracts in three years). In order to protect employees against ‘revolving door’ constructions – the employee goes away and magically reappears after a few months for a new series of temp contracts – the employee from now on is only allowed to return to the same company after six months, instead of three.

For the 230,000 temporary employees (acquired through an official temporary employment agency), things remain more flexible: six contracts in four years. The first one-and-a-half years, the temporary employee can be sent away at one day’s notice.

In spite of these good intentions by Lodewijk Asscher, this legislation seemed to work at large employers as a red cloth to a bull.

First, ING Bank started with their scheme to dismiss long-term flexible workers and workers from temporary labour agencies before the 1st of July, in order to avoid the mandatory payment of transition fees. Only after the minister stepped in personally, the flexible layer of personnel, that would be dismissed from their long-term work relation with the bank, received a kind of transition fee after all. Their dismissal itself, however, became an undeniable fact of life for these workers.

And soon, the bank was followed by the large insurance company Nationale-Nederlanden (NN). The following snippets also were printed in De Volkskrant:

Nationale-Nederlanden is currently dismissing loyal temporary workers, in advance of new labour legislation, to be deployed on the 1st of July. This new labour legislation should offer more certainty to flex-workers and temps. Just like ING earlier this month, Nationale-Nederlanden tries to avoid the so-called transition fee that it would have to pay to its temporary workers, after a future dismissal in the period after July 2015. This has been disclosed by an internal memo of this insurance company, which is in possession of De Volkskrant.

Temporary workers at Nationale-Nederlanden informed the newspaper that their contracts will not be prolonged, in order to prevent them from unwantedly acquiring a steady job at the company. “We had been promised that we could stay longer at the company than legally allowed, when we would switch to another temporary labour agency”, according to a temporary worker, who spoke on the basis of anonimity, as he still works at NN. However, this revolving door-principle has been explicitely forbidden by the new legislation. At NN there are workers who have worked at the company for more than ten years, using this modus operandi.

The insurance company leaves the dismissal of their temporary workers to the temporary employment agencies themselves. Only when these agencies offer their temps a fixed contract eventually – which happens almost exclusively with specialists who are in very high demand – they are allowed to stay at Nationale-Nederlanden, according to a spokeswoman of the insurance company. ‘When we really want to keep a very talented worker in our service, we offer him or her a fixed contract, of course.

Like I stated in my earlier article (see one of the aforementioned links), this is a very unfavourable development, which could have a substantial impact in the coming months; first and foremost on youth unemployment, but also in other age categories with flexible contracts.

Especially youngsters work at large companies with temporary and flexible contracts, in a majority of the cases. They could become the main victims of this corporate behaviour in the eve of this new legislation.

On top of that, I am convinced that NN and ING are not unique in this behaviour, but rather act as front-runners. They simply caught the heat from the Dutch press, due to their size and importance for the Dutch labour market. Other companies will soon follow in their footsteps and before we know it, the Dutch youth unemployment is on the rise again.

It is impossible to see this development loose from the growing disconnection between (large) employers and employees. Large employers see their personnel more and more as a flexible force of FTE’s, which can be deployed and dismissed at will. The following snippets are again from last week’s article:

While many executives and self-acclaimed leaders at large employers praise themselves for their exceptional qualities and skills, and use this as an excuse for their exceptionally high remuneration, they don’t really search for exceptional qualities among their personnel.

The ideal workers are people, whose knowledge and skills would always be fully up to date. They would not be overly ambitious and would never become bored of their jobs, even when their jobs would be boring, as a matter of fact.

They would be fully skilled and trained at any given moment, and in possession of the latest knowledge and techniques, regarding all important working areas and technical developments. And companies would not have to invest one penny in them, with respect to courses, workshops and trainings!

These workers would only require a moderate salary or hourly fee and when their services would not be required anymore, they would leave the company instantaneously.

Hence: the ideal worker does not require anything special, does not ask for anything and gives his very best on a daily basis, until his services have become superficial.

And an optimal labour market – to the eyes of many entrepreneurs – would be akin to the physical Law of Communicating Vessels: a labour force, which is so flexible that it always appears at the place and time where and when it is needed most. High demand for labour would immediately lead to high supply. Low demand would immediately lead to a magical disappearance of the labour supply…   

While I am an independent, flexible, freelance worker myself, I am one out of my own conviction and at my own choice. Many youngsters, however, do not have the luxury of such a choice: too often large employers simply don’t want to offer them a fixed labour contract.

In order for them to have a job, they are bound to work under a series of temporary or flexible contracts, either until their services are not needed anymore or until maintaining them becomes too risky or expensive for their temporary employers. This is an undesirable situation, which might prevent this youngsters from developing a healthy career, that  leads to a prosperous and financially independent future for them and their future families.

Lodewijk Asscher, the Minister of Social Affairs did a brave attempt to slow down this corporate behaviour, but this development can only really change when the large employers themselves experience the disadvantages and disruptive effects of this corporate behaviour in their own companies. 

Until then, youth unemployment might be on the rise again for quite a while…

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