A few weeks ago, there was a plea for higher wages from
an unlikely, and therefore quite unsuspicious source: chairman Klaas Knot of De Nederlandsche Bank
(i.e. the Dutch national bank).
While Knot’s political position is usually firmly based
at the liberal-conservative side of the political spectrum, his plea for higher
wages was heartfelt and ought to be taken serious, in my humble opinion.
Knot argued that the Dutch lower and middle class
suffered from the circumstance that their average wages had been on a virtual
stand-still since the start of the economic crisis in 2008, while their average
expenses had soared since that date. This was due to the increase of taxes,
(social) housing rent rates and general costs of living. The consequences for
the general purchase power among these classes were predictable: it dropped!
This trend was confirmed through Mathijs Bouman’s
column in Het Financieele Dagblad, about which I already reported yesterday:
In
the meantime, the gross domestic product (GDP) [in The Netherlands – EL] has
increased to levels slightly higher than before the crisis started. However,
due to the population growth that took place in these eight crisis years, this
is not true for the GDP per capita.
Consumer
expenditure has been lagging since 2008. There was no 11% growth for private
consumption in those eight years, but in fact a 2% decline between 2008Q1 and
2016Q1.
This had devastating consequences for many Small and Medium Enterprises in the Netherlands and especially for the
retail industry: the ‘middle of the road’, store chains like V&D, C&A, Blokker, D&A and Hema, as well as the traditional, small 'mom & pop' stores, all went through rough times.
While this policy of wage restraint was more or less
defensible during the tough first years of the crisis – roughly from 2009 until
2014 – it has not stopped since, in spite of the fact that the large employers
already enjoy very good sales results and king sized profits.
Yesterday, I created a chart using the data from
Statline, the online database of the Dutch Central Bureau of Statistics. This
chart was based upon the development of collective wages between 2008 and 2016,
versus the indexed price level during the same time frame. The results were
quite surprising for me:
 |
| The Harmonized Price Index, vs the average collective labour income index Chart by: Ernst's Economy for You Data courtesy of: www.cbs.nl Click to enlarge |
During the timeframe from 2011 until roughly 2015, the
rise of the harmonized price level exceeded the lackluster increases of the
collective labour income, meaning that the general public in The Netherlands
was in fact losing purchase power.
The surprising thing is, however, that – probably under
influence of the dropping energy prices and the general deflatory forces within
Europe, as well as the cautious rises of labour income since early 2016 – the
harmonized price index and the labour income index are roughly at the same
level now.
This does not mean at all that the purchase power has
actually improved since 2008, but that it at least has not deteriorated since
that year.
Nevertheless, the mindset of many people is still
crisis-like and they will probably remain very cautious with spending their
hard-earnt money, unless some dramatical happens with their purchase power.
This is a message that Klaas Knot understands very well. Also to these eyes only a drastical improvement of the general
purchase power for the middle and lower classes could solve this
depression-like crisis, that has been lingering for more than seven years in a
row.
Just like so many other countries in the world, The Netherlands has become a country of two
speeds: the high velocity is represented by the large companies and
multinationals, and also by the wealthiest people in the Dutch society. These
parties all enjoyed massive profits and a dramatic rise of their income and they
all have very good prospects in the next few years to come.
The lower and middle classes, including many small and
medium enterprise companies and retail companies, represent the low velocity in
Dutch society, as they still seem to suffer from the financial, as well as the psychological
consequences of the crisis which does not seem to have ended yet.
Not only the income of many lower and middle class
members has been on a virtual standstill since the start of the crisis; the
certainty of receiving an monthly income at all has diminished dramatically too.
Especially countless youngsters do not have the luxury
of getting a fixed contract against a decent salary, when applying for a job. Instead
they are often forced to lead an uncertain life, while meandering from one
temporary contract to another zero hour contract. Or they are only offered
trainee jobs against a token salary, which they accept, hoping that they will be “promoted”
to a fixed contract at the end of their traineeship.
This week it
was in the news (BNR News Radio – in Dutch) that no less than 25% of all workers in The
Netherland works on a flexible contract in 2016 and that 80% of these people (i.e.
1.3 million Dutch workers) is actually a ‘flexworker’ against his/her will.
And while jobless workers, slightly above fifty years of age, still have at least 15 years of working ahead in theory, there are unfortunately
not so many companies who want to take the “risk” of hiring these older workers,
for various reasons. A lot of these people will stay unemployed for a long time for exactly this reason.
On top of that there is also the growing army of (sometimes involuntary)
freelance workers (i.e. ZZP’ers in Dutch), whose horizon of income certainty lasts as long as their current contract does.
Therefore I was very pleased to hear this plea from particularly
Klaas Knot –as chairman of the Dutch national bank an influential, non-political figure – hoping that both politics and large employers would see his statement
as a serious signal for change in the remuneration of their employees, as well
as in the way that large companies employ their workers. That change should be in favour of more
fixed contracts and less freelance contracts, flexible employment and zero
hour-contracts.
Unfortunately, the employers’ organizations have managed
to misunderstand this important signal by Klaas Knot. Their argumentation was again
akin to the fixed mantra that has been used over and over again since the economic
crisis started:
Higher
wages have a negative influence on the competitive power of The Netherlands, as
it makes Dutch products and agricultural produce more expensive. This hampers
the Dutch export capabilities and is therefore bad for employment. Such a
dramatical wage increase should therefore not be demanded by the labour unions
or by Klaas Knot, as a matter of fact!
The
diminished purchase power of the Dutch middle classes is all the fault of the
income and wage taxes and thus the fault of Dutch politics: not the fault of
the large employers in The Netherlands.
It is the same ol’, same ol’ as always and the perfect
argument to kill every discussion about higher wages and remuneration for the
Dutch workers and middle class representatives.
The following snippets come from Het
Financieele Dagblad:
The
plea of DNB to stronger increase the wages is ‘nonsense’, according to managing
director Cees Oudshoorn of employers’ organization VNO-NCW. “Higher wages are
just a recipe for higher unemployment”, he warns. “There is no underpayment in
The Netherlands”.
VNO-NCW
rejects this conclusion of DNB. According to Oudshoorn it is not right that the
real wages have lagged. “If you want to judge the pace of the wage development,
you have to compare it with the development of labour productivity”, he states.
“The development of those two figures is remarkably similar.
The
corporate lobby recognizes the fact that the purchase power has lagged in The
Netherlands, but blames this on the excess difference between the wage expenses
for the employer and the net wages for the employee. “That this wedge has
developed over time is devastating for purchase power”, according to Oudhoorn.
“Tax redemption is the only way, but that is in the hands of politics”.
According
to labour federation FNV it is about time that the wages are increased
drastically. “Employers and large principals have now much more room to
increase wages and hourly rates for professionals”, according to Gijs van Dijk,
vice-chairman of FNV. “Especially the underpayment of “ZZP’ers” (i.e. freelance professionals) must stop.
It
is now much too easy for employers to profit from the fiscal benefits that
ZZP’ers currently enjoy, while hiring them, instead of contracting workers on a
fixed contract.
“The
fiscal benefits [of ZZP’ers - EL]
are now used by employers as leverage in order to force their hourly rates down
and that is a violation of the purpose of their fiscal advantage”, according to
Van Dijk. “Hence, this way it becomes a subsidy on wages and in fact state
support”.
VNO-NCW
actually resists against the equalization of freelancers and normal employers.
“The increase of the number of freelance professionals makes sense, when we
look at the high wage expenses and inflexible labour contracts”, according to
Oudshoorn. “When they make the rules for hiring freelance professionals just as
rigid, as in case of normal workers, the government only creates more
unemployment.”
According
to the labour unions, it is indefensible that especially large corporations
enjoyed soaring profits, but that professionals hardly profited from this
development. According to the investigation of DNB, the shareholders did see
their yields increase strongly over the last decade. At the same time, the
government decreased the taxes on corporate profits, while workers paid more
and more taxes.
Cees Oudshoorn is actually right with his remarks about
the Dutch labour productivity, as the following chart shows. In this chart the
average labour income is compared with the labour productivity [unfortunately,
CBS did not have more recent data than 2014 available, so I extrapolated that at the same level through 2016 – EL].
 |
| The labour productivity index, vs the average collective labour income index Chart by: Ernst's Economy for You Data courtesy of: www.cbs.nl Click to enlarge |
The question is: who is to blame for that?!
Especially the drop in labour productivity in 2009 is
caused by the fact, that employers wanted to keep their workers under contract, in spite of the mounting crisis in those days. When a company has lower production figures to meet with an equal amount of people, every worker has to produce
lower numbers in average. This has definitely a negative influence on labrou productivity.
In those days, the government partly subsidized these excess workers by creating the
so-called “part-time unemployment benefit”. This is what I wrote about it in 2011:
Especially
the [manufacturing industry – EL] will
(in my opinion) suffer from the fact that the part-time unemployment benefit,
which was established in 2009, prevented companies from reducing overcapacity
in numbers of jobs and production facilities. As a consequence of this special
government subsidy, companies kept people under contract that otherwise would
have been dismissed. How noble that may seem initially, it makes companies less
competitive. Especially now a new crisis is looming, due to the continuing
problems in the Euro zone.
In the years afterwards, the labour productivity
improved somewhat, but not dramatically. It is easy to blame the workers in The
Netherlands for that “lackluster” performance, but it is defensible as well to
look at the employers themselves.
As the wages for fixed and flexible workers were restrained or even
reduced during the crisis years, as well as the remuneration for ZZP’ers (i.e.
freelancers), there were fewer incentives for employers to improve their labour productivity.
The ample availability of inexpensive, go-getting
flexworkers and freelancers from inside and outside the European Union made the
need for improved labour productivity diminish. People were relatively cheap,
so a company could hire a few more quite easily without paying a whole lot of money, instead of trying to improve their labour productivity.
I also do agree with Cees Oudshoorn that the wedge
between gross and net salary for many workers is quite high in The Netherlands (in
some cases too high).
However, that is the unfortunate price that our country has to pay for the
fact that a large number of citizens and large companies has become very
cunning in avoiding taxes through the usage of fiscal constructs. When the need for tax money at central and local
governments stays equal, but the number of tax payers diminishes, every tax
payer and tax paying institution has to pay more tax money in any which way
possible. The large employers know that all too well, just like Joe Sixpack does, as he feels it in his wallet.
Nevertheless, as long as the large corporations and the wealthy citizens, who live from their investments and dividends, refuse to pay more taxes on their annual income, the tax wedge for workers will remain substantial.
Personally, I think that the large employers and the
government should lower their resistance against substantial wage increases for
the lower and middle classes, as this would be very good for the Dutch economy
as a whole. In that respect I fullheartedly agree with Klaas Knot and I fully
endorse his message.
Instead the government and large companies should think
about ways to increase their (labour) productivity and to lift their innovative
powers, so that the competition on price with bulky export goods, agricultural produce and
distribution could finally become a thing of the past.
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