Covenants, External Effects and Employability

Covenants, External Effects andEmployability

Ton Korver and Peter R.A. Oeij

Abstract

Employability is on the agenda. Yet, we lack the institutional structures andmechanisms to effectively promote it. Most of our labour instititutions areat the national level on the one hand, on the industrial and company levelon the other hand. Collective bargaining, for example, is typically gearedto industries and companies. For the interindustrial or intersectoral levelswe have some national forums, but no effective intermediate institutionsand mechanisms. In our view, the phenomenon of the covenant may fill thegap. Covenants are an effective way of combining the public interest inenhanced employability, and the collective interests of employers andemployees in an adequate, educated and ‘empowered’ labour force.Against the background of the needs of a ‘knowledge economy’ and theunderinvestment in skills, in particular due to a one-sided ‘flexibility’ ofthe labour market, we first sketch the ambitions of the EU, and the presentstate and the shortcomings of the training efforts in the economy. Next, weexplain what the covenant stands for, what its promises are for triggeringmore training and strengthening employability, and what role the criticalissue of trusting co-operation is expected to play.

1. Introduction

1.1 A European Social Model?

The European Social Model (ESM) combines three types of policy: eco-nomic policy, employment policy and social policy. Simple as this sounds,its realisation is a huge task. Economic policy has to face many tangledissues: the competitive edge of globalisation, new technological trajecto-ries and even paradigms, creating the knowledge economy and so on.Employment policy has to face the challenges of unemployment (loominglarge in the EU), improving the quantity and quality of the working popu-lation, and combating the trends towards splitting and segmentation in

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labour markets. Social policy, finally, addresses the aims of social inclu-sion and decent standards of living for all. Their combination is easily pic-tured1:

Social policy

Economic policy Employment policy

Figure 1 The policies triangle

Economic policy, of course, is at the very root of the EU. Its progress,under the banner of ‘negative integration’, has been impressive. Manyrules and regulations, hindering the free movement of goods and services,capital and finance, have been effectively removed. On the other hand, thecontrasting type of integration, ‘positive integration’, has not fared so well.It relates to harmonising employment chances throughout the EU on theone, harmonising social security on the other hand. Positive integrationstarted much later than its negative counterpart and its road ahead has beenfraught with difficulties, both of a practical and a principled nature. Weneed only think of, for example, the thin line between social policy andfamily policy and the deeply value-laden character of the latter, to get aninkling of the matters of principle potentially involved.

At the same time, we need a standard for making sense of the actualachievements in combining and bringing forward the economic, employ-ment and social dimension in the European Union. Social quality is such astandard. Social quality is about:

• socio-economic security• social inclusion• social cohesion• empowerment.2

In the present context our main focus is on employability, understood asa specific form of empowerment. Its specificity is in the capacities of peo-ple to effect transitions between jobs, between work and care, and workand learning.3 Of course, in enhancing one’s transition capacity one alsocontributes to one’s own resources (security), participation (inclusion), andto the quality of the social fabric one belongs to (cohesion). Important asthese are, they are not our main focus in the present article. Our objective

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Employability through Covenants

is more limited and goes no further than investigating the matter ofempowerment through employability in Europe.

1.2 Lisbon Strategy

The Lisbon Strategy is a commitment to bring about economic, social andenvironmental renewal in the EU. In March 2000, the European Council inLisbon set out a ten-year strategy to make the EU the world’s most dynam-ic and competitive economy. Under the strategy, a stronger economy willdrive job creation alongside social and environmental policies that ensuresustainable development and social inclusion.4

In March 2000, the EU Heads of States and Governments agreed tomake the EU ‘the most competitive and dynamic knowledge-driven econ-omy by 2010’. Although some progress was made on innovating Europe’seconomy, there is growing concern that the reform process is not going fastenough and that the ambitious targets will not be reached. In particular, itwas agreed that to achieve this goal, an overall strategy should be applied,aimed at:

• preparing the transition to a knowledge-based economy and society bybetter policies for the information society and research and develop-ment, as well as by stepping up the process of structural reform forcompetitiveness and innovation and by completing the internal market;

• modernising the European social model, investing in people and com-bating social exclusion;

• sustaining the healthy economic outlook and favourable growthprospects by applying an appropriate macro-economic policy mix.

The Lisbon Summit was designed to mark a turning point for EU enter-prise and innovation policy: it saw the high-level integration of social andeconomic policy with practical initiatives to strengthen the EU’s researchcapacity, promote entrepreneurship and facilitate take-up of informationsociety technologies. The main issues for the realisation of the Lisbonagenda were:

• the necessary investment in R and D, that is three percent of GDP;• reduction of red tape to promote entrepreneurship;• achieving an employment rate of 70 percent (60 percent for women).

However, nearly half-way through the implementation period, many crit-ics complain that not much progress has been made on achieving theseambitious goals. After the recent global economic downturn, governmentsseem to have been reluctant to push through difficult and unpopular eco-nomic reforms or to focus on increasing their national budgets for research



and innovation. Many economists claim that, as a result, the EU has lostvaluable ground to its main competitors, the USA and Japan.

In its traditional Spring Report, which served as a basis for the SpringSummit in March 2004, the Commission set out to assess the progressmade towards the Lisbon goals. This report was accompanied by theImplementation Report of the Broad Economic Policy Guidelines2003–2005, the Joint Employment Report, and the Implementation Reporton the Internal Market Strategy. All these reports paint a dire picture of thestate of the EU’s competitiveness. The Commission has therefore urgedgovernments to give the Lisbon strategy fresh impetus. In particular, it out-lined three priority areas:

• investment in networks and knowledge: starting the priority projectsapproved in the ‘European Growth Initiative’;

• strengthening competitiveness in industry and services: stepping upefforts in the areas of industrial policy, the services market and envi-ronmental technologies;

• increasing labour market participation of older people: promotingactive ageing by encouraging older workers to work for longer.

At their meeting in Brussels on 25 to 26 March 2004, EU leaders adopt-ed conclusions on strategies to meet the Lisbon targets. ‘The EuropeanCouncil reaffirms that the process and goals remain valid. However, thepace of reform needs to be significantly stepped up,’ reads the paper.Moreover, governments pledged to ‘demonstrate the political will to makethis happen’, and they appointed the former Dutch Prime Minister WimKok to head a high-level expert group to give new impetus to the Lisbonstrategy (Employment Taskforce, see also Committee Kok, November2003, its first research report). The group’s mission is to assess the instru-ments and methods used to date and to involve member states and stake-holders more closely to ensure the Lisbon objectives can be delivered.

The high-level expert group presented its review of the Lisbon strategyto the European Commission on 3 November 2004 (High Level Group(Kok Committee), November 2004), based on earlier research (CommitteeKok, November 2003). The report paints a gloomy picture of the state ofthe EU’s economy and analyses the reasons behind a lack of progress onthe Lisbon agenda. While generally agreeing with this analysis, stakehold-ers have criticised the lack of specific remedies suggested by the report.

What does the report state in more detail? Wim Kok’s report takes agloomy view on the progress made in the last four years. The report, adopt-ed by the Commission on 3 November, states that the ‘disappointing deliv-ery’ is due to ’an overloaded agenda, poor co-ordination and conflictingpriorities’but it mainly blames the lack of political will by the member states.



The report provides an analysis of the reasons for lack of progress onthe Lisbon agenda. It paints a mixed picture as some progress was made:the employment rate rose from 62.5 percent in 1999 to 64.3 percent in2003 and overall female employment rose considerably too. But it saysthat ‘net job creation’ stopped in 2001 and that the target of 70 percentemployment rate by 2010 will be difficult to reach (see also EuropeanCommission, August 2004; October 2004: Chapter 3).

The Kok report rejects proposals for the 2010 deadline target to be lift-ed. It also explicitly states that the EU should not become a ‘copy-cat ofthe USA’. It highlights the external challenges (of the USA and the grow-ing Asian economies), describes the overwhelming internal challenge of a‘greying’ or ageing Europe and points to the EU Ten enlargement as anoth-er source of concerns and opportunities.

The Lisbon strategy is too broad to be understood, says the report.‘Lisbon is about everything and thus about nothing. Everybody is respon-sible and thus no-one. The end result of the strategy has sometimes beenlost. An ambitious and broad reform-agenda needs a clear narrative, inorder to be able to communicate effectively about the need for it.’All mem-ber states have to take ownership of Lisbon and the Commission must beprepared to name and blame those that fail as well as publicise the ones thatsucceed.

The Kok report (High Level Group (Kok Committee), November 2004)then goes on to make policy recommendations in five areas:

• Knowledge society:– to attract and keep the best researchers: an action plan to reduce the

administrative obstacles for moving to and within the EU for world-class scientists and researchers and their dependants (to be imple-mented by Spring 2006);

– to make R and D a top priority: establishment by the end of 2005 ofa European Research Council;

– to promote innovation: to agree before the 2005 Spring Summit onthe Community Patent (an earlier version of the report mentionedthe possibility of English-only for the patent, but this was droppedin the final version).

• Internal Market (see the Kok report).• Improve climate for entrepreneurs (see the Kok report).• Build an adaptable and inclusive labour market:

– implement the recommendation of the European EmploymentTaskforce in 2003;

– national strategies for life-long learning by 2005;– member states to develop a comprehensive active ageing strategy



by 2006 (‘radical policy and culture shift away from early retire-ment’).

• An environmentally sustainable future (see the Kok report).

No practical recommendations are made concerning employabilityenhancement of the EU workers and citizens, but the Kok report empha-sized three aspects with reference to the labour market, especially toinvestment in a high-skilled labour force (High Level Group (Wim Kok etal.), November 2004: 31–34). First, to increase the adaptability of workersand enterprises, by finding a balance between flexibility and security(‘flexicurity’). Second, to make more effective investments in human cap-ital. Lifelong learning is in the interest of people and in that of firms, whosemost precious asset is its people. Third, to underpin economic growth morepeople must be attracted into employment, especially older workers.

2. Employability in Europe

2.1 Introduction

Our point of departure is a simple rule: employment follows employabili-ty (Korver 2000). Employability for every person is a crucial condition forsocial and economic participation. As such employability is social securi-ty at the individual level: the ability to provide one’s income. Policies aim-ing at participation, employment and social security from a life-courseperspective should therefore focus on employability enhancement. Toooften initiatives for life course arrangements threaten to become limited tosalary savings schemes instead of long term investments in our knowledgeeconomy through investing in people (Schippers 2004). Employabilitysimply means that a person has skills that keeps him or her employed inpresent and future jobs. If one’s employment is not at risk we can speak ofsustainable employability. Employability can be reached by enhancingindividual competences, and by policies that improve the fit between indi-vidual competences and jobs in a continuously changing economy withchanging work organisations.

Based on quantitative and qualitative information we discuss employa-bility at European level from different angles:

• training and employability;• positions of target groups;• quality of jobs.

An emphasis is laid on training. Our statement is that the market for train-ing does not work well. On the one side it suffers from the Mattheus prin-



ciple – the higher educated get trained more – reinforcing already existingfrontiers and barriers on the labour market. On the other hand, the shiftfrom firm specific skills to more general skills may be a cause to abandontraining initiatives completely due to the ‘hold-up phenomenon’. We willtry to illustrate that the mechanism to enhance employability though train-ing is not working properly. Our argument’s main empirical grounds areOECD data on continuous vocational training (CVT). We will support ourpoint that employability is insufficiently enhanced by illustrating that lackof training affects weak labour market groups the hardest, while thesegroups represent the largest reservoirs of underused labour potential.Additionally, we will try to demonstrate that employability is alsoenhanced through improving the quality of work, but that these improve-ments have a long way to go. In general we conclude that the Lisbon agen-da will probably not be met if we take training activities as an indicator forthe goals set for employment.

2.2 Improving Employability by Training

One way of improving employability is by improving labour force skillsand competences through education and training systems. Two questionswill be addressed: First, are workers’ skills upgraded by training? Second,if so, does it have an impact on their labour market performance?Upgrading skills is part of a comprehensive lifelong learning strategy. TheOECD Employment Outlook of 2003 has gathered and analysed data onformal continuous vocational training (CVT) in OECD countries(Organisation for Economic Co-operation and Development, 2003:237–276). CVT accounts for at least 60 percent of adult education andtraining in almost all OECD countries. On average, two-thirds of totalCVT is (partially) provided or paid for by the employer. However, trainingparticipation and intensity vary considerably across countries and acrossgroups. The data shows that the supply of CVT falls behind the demand.Partly as a consequence, certain groups cannot improve their labour mar-ket position. Eventually, this threatens to slow down the Lisbon ambitionson participation and productivity. This is shown by the following facts(OECD, 2003):

• Men receive 17 percent more hours of training than women.• The average training participation rate of workers aged fifty-six to

sixty-five years (about twelve hours of CVT courses per year) is aboutthree-quarters of that of workers aged from thirty-six to forty-five years(about eighteen hours per year). Workers aged twenty-six to thirty-fiveyears receive most hours (twenty-one per year).



• Participation in low-skilled occupations (13 percent) is about one-thirdof the participation in high-skilled occupations (38 percent).Participation for workers with less than upper secondary education isless than one-half (16 percent) of those having a tertiary degree (35percent).

• Employees with a high degree of supervisory responsibility are twiceas likely to participate in training as are employees without any super-visory role and spend three times as many hours on training comparedto non-supervisors.

• Immigrant participation is about 5 percentage points lower thannatives.

• Finally, workers in small firms receive less training than workers inlarge firms, who receive almost twice as many hours.

We add that this pattern, based on bivariate correlations, is confirmed inmultivariate analysis by OECD.

Firms fully pay for more than 70 percent of CVT courses. Most of theskills provided through training are not firm-specific and considered trans-ferable. This inconsistency between theory – i.e. the optimal amount ofinvestment in firm-specific human capital can be obtained only if costs andreturns can be shared by the worker and the firm – and evidence suggeststhat labour markets are not perfectly competitive, because firms pay for asignificant share of training courses, which are in fact general or transfer-able. This market imperfection may lead to under-investment, because cur-rent employers cannot internalise the benefits from training that will accrueto future employers, due to the external effect of ‘poaching’ – i.e. a firmcan free ride other firms’ investment in training by making better wageoffers to trained employees. Empirical evidence shows that under-provi-sion is likely to occur in all OECD countries, which, eventually, mightreduce disproportionately the training opportunities for low-educatedworkers (Organisation for Economic Co-operation and Development 2003:248).

Beyond market failures training outcomes will depend on employers’and employees’ incentives to invest in human capital. Under-investmentand inequalities can be caused by employers’ and employees’ behaviour.OECD data presents the following picture (2003: 249–256).

• Women and immigrants are less likely to be included in employer-paidtraining, possibly reflecting lower expected benefits for the employer.

• Older workers and the low-educated have a low demand for training.For older workers this may reflect lower benefits for the employerbecause the pay-back period is longer than the remaining number ofyears before retirement. Although lower educated workers have a



lower demand for training than higher levels of educational attainment,this is not the case for supply of training by employers. But trainingsupply is affected by workers’ basic competences, like literacy skills.Employers seem to believe that learning increases, and therefore train-ing costs decrease, with basic general skills.

• There are fewer employer-paid training opportunities for most part-time and temporary workers, while the demand for them is not lowerthan the demand for full-timers and those with permanent contracts.Plausible explanations can be statistical discrimination, tenure effectsand higher probability of (voluntary) quitting.

• Supply for training by employers is higher for high-skilled workers andsupervisors, than for low-skilled occupations or tasks, suggesting thatemployers tend to sort more able employees into better career andtraining opportunities simultaneously.

• Finally, training supply increases with firm size while training demandis not, which is consistent with the thought that larger internal labourmarkets offer greater opportunities to reap the benefits of training andhave lower unit costs of training.

About a quarter of non-trained workers (23 percent) and almost one-third of trained workers (32 percent) would like to take more training.Reasons for workers to show a limited demand for training include lack oftime, financial factors (especially for the low-skilled), and family con-straints (more often for women than men).

To foster training the OECD suggests co-financing arrangements. Thiscould make training of older and low educated workers and workers insmall firms, for example, (more) profitable for firms. One example wemention (OECD 2004: 274–275) is the sharing of training costs betweenemployers and individuals, to be fostered by joint CVT agreements, to theextent that unions and work councils are in a better place to monitor train-ing content and quality. Such joint CVT agreements are part of collectiveagreements and play an important role in ensuring an equitable distributionof training. The comparison here with covenants discussed beneath is anobvious one.

Our second question is concerned with labour market performance. TheOECD Employment Outlook of 2004 makes the following observations(Organisation for Economic Co-operation and Development 2004:183–209):

• The importance of education and training for labour market perform-ance is likely to have increased. Global demand shifts associated withthe growth-enhancing role of human capital suggest a positive impactof education and training on aggregate employment.



• There is empirical evidence for links between training and aggregateemployment, such as between employment performance and initialeducation and adult training. Such investments ‘make training pay’.

• At the individual level there is a strong association between traininghistories and employment outcomes. On average, a 10 percent increasein time spent on adult education or training is associated with anincrease in the probability of being active and a fall in the probabilityof being unemployed.

• Employee training has a clear impact on wage growth in the case ofyoung and highly educated employees, and on attaining and maintain-ing the competences required for sustainable employment prospects forolder and low-educated employees.

Training has a positive impact on labour market performance, and thuson employability. Trained workers feel more secure about their employ-ment security. The have greater chances to find and keep a permanent job,so they have more voluntary mobility and are less frequently dismissedthan non-trained workers. And, when jobless, the duration of their unem-ployment tends to be reduced due to training. Training increases the prob-ability of re-employment after a job loss (European Commission, August2004 especially Chapter 4). There is much to win here, since more thanhalf of the employees in the EU still have no access to training at the work-place nor participation in any training programme (Weiler 2003).

The OECD (2004: 207–209) recommends investments in continuedtraining by enabling workers to alternate between working and off-the-jobtraining, by implementing a training levy/grant scheme, and make thevalue of skills transparent like other factor inputs and treat them as long-term assets. One other OECD recommendation is that it seems preferableto favour financing schemes with large leverage potential, which havegreater scope to minimise losses as well as the costs for the public budget.These schemes include arrangements that allow mobilising privateresources from both employers and employees, with public co-financing,as well as policy measures that favour the establishment of training con-sortia pooling together resources from different enterprises. Such firmboundary-crossing co-operation (Korver and Oeij, 2003) is what we shallhave in mind when we will recommend the use of covenants.

2.3 The Labour Market for Target Groups

Policies that have discouraged labour force participation, like early retire-ment and disability schemes, are ultimately unsustainable and do not allevi-ate social exclusion. Labour market participation needs to be fostered,



especially among groups that tend to be under-represented in employment(Organisation for Economic Co-operation and Development, 2003: 68–155).Important reservoirs of underused labour potential are population groups likewomen, older workers and less educated workers (see also EuropeanCommission, August 2004), and to a smaller extent, youths, lone parents,immigrants, and persons with disabilities. To aggregate the employment rate,labour mobilisation is necessary. Estimates of potential labour supply fromOECD indicate that policies to expand participation could plausibly increaseemployment by between 7 and 12 percent of the working-age population.

Among the groups mentioned, women, older and less skilled workersrepresent the largest pools of underused labour potential. Since there is aconsiderable overlap across the different population groups, some, if notmany, individuals face multiple barriers to participating in the labour mar-ket. Some groups show a strong persistence in non-employment. For manypersons in low-paid jobs there is evidence of so-called ‘low-pay-traps’,demanding policies that would broaden access to job ladders for them.However, intentions for labour mobilisation may be hampered by exclud-ing vulnerable groups, owing to rising skill requirements resulting from theapplication of new (IT) technologies and forms of work organisation (cf.Oeij and Wiezer, 2002). Just because relatively little is known about howbest to foster employment stability and upward career mobility the ‘acti-vation’ of jobless individuals probably will help longer-term opportunitiesfor some and will reduce ‘low-pay-traps’ for (some) others.

Common to a large proportion of unemployed persons is lack of train-ing or occupational skills. In order to return to employment it must ‘pay towork’ for them. The challenge here is how best to make work pay by mod-ifying taxes, benefits and minimum wages to encourage labour supply,which must be in balance with the demand side: i.e. it needs to be afford-able for employers. And work must also be accessible, for example for loneparents and disabled persons. To make work pay, affordable and accessiblefinancial incentives and subsidies may provide possibilities. Another sideof the coin is that, if workers are to match firms’ productivity requirementsin the long run, throughout their working life, maintaining their employa-bility is unavoidable as is lifelong training for skills and competencies.Again this emphasises the need to promote training opportunities from alife-cycle perspective, that is, at every stage of a person’s career, inside andoutside the labour market (cf. OECD 2003: 152).

2.4 Improving the Quality of Work

Another indicator for employability is the quality of jobs. Jobs that offeropportunities for learning may enhance the employees competences. Many



subjects can be connected to this topic, such as (professional) autonomy(decision latitude), functional flexibility, participation in decision making,career opportunities, safety and health effects. The Employment in Europe2003 report distinguishes four types of jobs: dead-end jobs, low pay/pro-ductivity jobs, jobs of reasonable quality and jobs of good quality. Itobserves that three-quarters of all jobs are of good or reasonable quality atEU level, leaving a considerable share of jobs of low quality (EuropeanCommission, September 2003: 127).

Looking at job quality, we first restrict ourselves to a few trends in thequality of jobs, namely job precariousness, work intensification and stressat work presented by OECD. Let us start by making a remark on quantita-tive developments. In the OECD area unemployment has risen by approx-imately 1 percentage point in 2003 since its recent low in 2000 to 2001.The employment to population ratio rose during 1991 to 2001. The aver-age increase in the employment rate was 1.1 percentage point. However,some of the policies intended to expand employment may also increase thesegmentation of the labour market between ‘good’ career jobs, available toworkers with skills in demand, and low paid, precarious jobs (for exampleshort-term contracts, temporary jobs, casual employment), available tothose on the margins of the labour market. On the other hand, looking atthese developments from the participation perspective, one could say thesejobs may represent valuable stepping stones to moving up the job ladderand, in any case, are better than no job at all.

The overall picture of trends in job quality is mixed. There is supportfor the argument that employment growth resulted in increased wageinequality. Little support can be found that this growth was mainly due toa proliferation of low-paying jobs or that mobilizing marginal labour mar-ket groups resulted in lower productivity growth. A weak trade-off mayexist between employment growth and productivity. Changes in workingconditions also give a mixed picture. The number of serious accidents hasdecreased, and so has the number of fatal accidents at work in Europebetween 1994 and 2001 (Weiler 2003). Exposure to health and safety risksat work among European workers has fallen, but reports on working atvery high speed or too tight deadlines is on the rise. Those working longhours or at an intense work pace also report more stress-related healthproblems and greater difficulty in reconciling work and family life.Further, perceptions of employment insecurity are rising (Organisation forEconomic Co-operation and Development 2003: 18–20). Let us take acloser look at some risks.

Although exposure to health and safety risks fell about 3 percentagepoints to 27 percent in 2000 to 2001 exposure to physical hazards, such asintense noise, painful and tiring positions and handling heavy load, had



risen. The number of those working at very high speed and too tight dead-lines rose to 56 percent and 60 percent, indicating a high work intensity.Increasing numbers of workers reported headaches, backaches, muscularpains in the neck and shoulders, overall fatigue and stress. Thirty-one per-cent of workers reported performing repetitive movements on a continuousbasis, although job autonomy was rather high: worker autonomy on orderof tasks (64 percent), pace of work (70 percent), methods of work (70 per-cent). But there is a growing number of individuals who work very longhours (more than forty-five hours per week) in some countries. Workingconditions overall may seem to have improved slightly, but some hazardsand stress-related illnesses are more common than a decade ago. Thenature of tasks carried out present a rising work intensity and job autono-my (see also Oeij, Dhondt and Wiezer, 2003; Weiler 2003).

In sum, some progress has been achieved in generating more and betterjobs, but many improvements remain to be realised (Organisation forEconomic Co-operation and Development 2003: 45–47, 55). Besideshuman suffering there is also an economic price with work-related healthproblems and accidents at work, costing the equivalent of 3–4 percent ofEuropean Gross National Product (European Commission, July 2002: 79).

Another indicator of job quality is flexibility, and how that affects secu-rity and quality in work (European Commission, September 2003: Chapter4). Europe has a wealth of flexible working arrangements, such as transi-tions between various labour market states, contractual flexibility and work-ing time arrangements. At the same time, there is only little evidence thatquality of work and employment stability improved over the second half ofthe 1990s. No significant changes in subjective job satisfaction and objec-tive job quality took place either. Despite all that, transition rates intounemployment and persistence in low quality employment remained high.The balance between flexibility and security, in combination with the needto improve the functioning of labour markets and quality of work seems del-icate. This is because relatively high degrees of labour market flexibilityseem to be consistent with major shares of employees in insecure employ-ment relationships. These are employees at higher risks of job loss, in lowpaid jobs, in low productivity employment, and without access to trainingor further career development opportunities, according to Employment inEurope 2003 (European Commission, September 2003: 152).

The importance of job quality can be deduced from the fact that qualityin work and subjective job satisfaction are found to be positively correlatedwith employment performance and labour market participation. Further,higher productivity goes hand in hand with higher job quality, subjectivejob satisfaction and training. Training in particular is shown to have astrong positive impact on labour productivity. This highlights the need for



creating high quality jobs and promoting transitions into such jobs, whichare also more stable. Improved upward ‘quality dynamics’ can increasenot only quality but also quantity of employment. This once more stress-es the risks of lack of access to training and insecure contract status(European Commission, July 2002: Chapter 3). In order to achieve the tar-gets of the European Employment Strategy improvements are needed,including investment in human capital and promoting a culture of lifelonglearning (Weiler 2003). Another way to improve employability and pro-ductivity is by redesigning work organisations. Weiler (2003: 33)observes that, whereas the design and dissemination of innovative andsustainable forms of work organisation empirically proves to supportlabour productivity and quality of work – also a political goal in theEmployment Guidelines 2003 – work organisation (beyond working time)is not an issue in the recent EU policy documents (so is research on thisissue, cf. Oeij and Wiezer 2002: 73). Although not stated in equally strongterms, the conclusions of the project of the European Foundation of SocialQuality (reported in the double issue 2003/1–2 of this journal) are drawnin practically the same mood.

2.5 Conclusion

Based on different sources it is concluded that training in CVT and train-ing in general are beneficial to the labour market position of employees,because training enhances their employability. From the information pre-sented so far we find support for our statement that the market for trainingis not perfect. Individuals and groups who are already with the best labourmarket positions receive more training than others. Weaker groups that arean important labour potential are underused and remain underused if theyare denied access to training opportunities. Employability will be furtherhampered by the absence of improving job quality. On the one hand thereare still old and new risks for healthy work. On the other hand the lack ofpossibilities to combine work with nonworking situations negatively affectboth the labour market positions of employees and their participation inand productivity rates within firms.

The Lisbon strategy addresses different ‘quantity–quality’ trade-offs(European Commission, October 2004: 116). One between employmentgrowth and productivity growth, which is called into question becausethere are many pro-arguments that a substantial increase in the employ-ment rate can coincide with higher productivity growth. Another trade-offdiscussed is between employment and social cohesion. The EuropeanCommission denies the trade-off by stating that the job is the best safe-guard against social exclusion. A third and related trade-off is between



social protection and economic efficiency. Economic and political choicesmay interfere with the need to improve working conditions, skill levels,and job quality for all labour market groups. On the contrary, market reg-ulation is needed to redesign labour market institutions in such a way as toimprove employment performance without weakening social protection,because markets are imperfect owing to many different societal factors (cf.Ministry of Economic Affairs [Reitsma et al.], October 2004). One suchinstitutional reform, which could improve smooth labour market transi-tions, is the use of covenants.

3. Covenants

3.1 Introduction

Covenants5 are agreements between two or more parties.6 They combinethe public interest (nationally, but in principle the international dimensioncan be included as well) and a shorter or longer series of collective inter-ests, such as the interests of companies, employer and employee organisa-tions, the consumers, environmental stakeholders and so on. They arebecoming rather popular as a policy instrument in the Netherlands for tworeasons. First, the Dutch government has obtained a policy model whichreplaces one-sided steering by the participation of involved institutions(consensus model). This ‘withdrawal’ of public government and its partialreplacement by a form of public governance, went hand in hand with theemergence of many public-private partnerships and forms of privatisation.In this new arena, covenants stimulate self-regulation and guide it. In doingso, they are a major example of ‘regulating self-regulation’. A second rea-son is that covenants do not demand complex judicial frameworks to facil-itate their instalment. In fact, covenants often fill the gaps of inadequatelaws. They make policy more effective.

3.2 Function and Potential of Covenants

A covenant is an agreement between two or more parties. Covenants arenot legal obligations, they are voluntary agreements. They resemble‘promises‘ rather than contracts, and ‘gentlemen’ agreements’ rather thanlaws. Most covenants are drawn up between the government through apublic body and one or more other private and public-private bodies. Themain features of covenants are the following:

• Despite the different interests that participating parties may have, theyshare a common final goal.



• Parties co-operate in order to reach better results, through commonlyagreed activities, that they cannot achieve if they act independently.They formulate superordinate goals, goals that have a compellingappeal for members of each party, but that neither party can achievewithout participation of the other(s) (Sherif and Sherif, 1969: 256).

• Covenants are contradictory in several ways. Parties make bindingagreements, although from a legal perspective the covenant is unre-tainable (‘vormvrij’). Covenants shape voluntary acts that still requirecommitment. On the one hand, parties are kept to the agreement towhich they have morally committed themselves. On the other, formalsanctions are absent. Parties nevertheless have the opportunity to go tocourt in case of another party’s default. To prevent legal actions likethese, covenants provide for agreed procedures on how to act in suchcases. Covenants are public modes of self-regulation. They regulateself-regulation and in doing so the participants voluntarily limit theirfreedom of action. As in collective action generally, in order to achievethat the parties give up some of their options in order to focus togetheron those options that they have mutually agreed upon.

• Covenants are alternatives for steering and management methods.Covenants either have a policy content nature, aiming at policy goalsuch as reduction of environmental pollution, or procedural-institu-tional nature (Tweede Kamer der Staten-Generaal 1995: 16). The latteroffers a framework for co-operation by setting the conditions how par-ties will work together.

Covenants have various advantages and disadvantages. Among theadvantages we mention that the parties involved have substantial influenceon the agreements that are being made. It is obvious that this enhances theircommitment. Their somewhat contradictory legal status makes covenantsfar more flexible than the issuing of rules. There is a low participationthreshold for parties concerned and few restrictions on the necessary activ-ities to be undertaken without restraint. Covenants shape win-win optionsfor those who participate. The major disadvantage is also its vague legalstatus. Partners can terminate their participation at any time and one-sid-edly, without any serious sanctions. Besides, covenants are not always ableto bind all of those who should be bound, because participation is volun-tarily. Agreements and decisions made through covenants are not as secureas public decisions by the issuing of rules and laws.

Covenants are a growing phenomenon in the Netherlands. No suchagreements were made before the 1970s. In the 1980s successive govern-ments initiated them. At the end of the 1980s about one hundred covenantswere negotiated. Today there are several hundreds of them and almost



every government ministry has concluded one or more covenants with otherparties. Examples of topics on which decisions are put into effect throughcovenants are environmental issues, energy saving, educational matters,health care, traffic and transport, housing, working conditions and labourmarket issues. Other countries, like the USA and Japan also work withcovenant-like agreements, but they differ in their voluntary and legal status.7

3.3 Why Covenants Work

3.3.1 Some Reasons for Success and FailureIn general there are a number of reasons that explain why covenants workor why they do not (Louwers, 2004). Factors for success are as follows:

• Participants must regard the goal of the covenant as a winnable option.• The covenant must be provided with the possibility to sanction those

who do not fulfil their obligations.• It must be absolutely clear who are the participants and the target group

members.• The covenant should be a careful balance of needs and wants, of rights

and duties, in order to give partners the choices and motivation to reachthe goals that are set.

• Tough but honest negotiations at the beginning ensure parties to beopen about their own interests, which eventually helps to clarify thedesired common outcomes and helps to create shared goals, sharedvalues and trust.

• Practical facilities like a good functioning project organisation, notmanaged by (one of) the covenant parties but by an external, third partyon behalf of the covenant partners. A third party is focused on the exe-cution of the covenant, even when parties quarrel. A third party mayeven be helpful in resolving and mediating conflicts between parties. Athird party can point out to parties their responsibilities and obligations.

For covenants to be successful a number of elements is of importance,namely formulating specific and measurable goals, commitment to achieveagreements from all covenant partners, and safeguarding actual implemen-tation of agreements at the level of individual organisations (TweedeKamer der Staten-Generaal 1999: 16).

Factors for failure can be the following (Louwers 2004):

• The goals in the covenant are not clearly defined.• The goals are not being monitored during the project.• Parties are insufficiently committed.• Tasks and responsibilities for participants are not made explicit.



• Communication, interaction, knowledge sharing and exchange amongpartners are inadequate.

To this we add:

• The chances for free rider behaviour are substantial.• Co-operation between partners is hindered by external factors.• Rewards for individual parties to continue co-operation fail to materi-

alise.• Situational change.

3.3.2 Social-Psychological Motivation to Co-operateA main feature of successful covenants therefore is a behavioural aspect,namely co-operation. How does co-operation come about? Basic ingredi-ent of co-operation is common ground, which can be achieved through thecollective definition of goals: superordinate goals. Superordinate goals areshared goals that can be attained only if parties work together (Sherif andSherif, 1969: 256; Smith and Mackie, 2000: 542). It is said that co-opera-tion between parties works under certain conditions, which are the follow-ing (Smith and Mackie, 2000: 543):

• Co-operation should be for a valued common goal which eliminatescompetition.

• Co-operation should provide repeated opportunities to emphasize thevalue of co-operation as opposed to competition.

• Co-operation should produce successful results.• Co-operation should take place between equals (in capability, power,

etc.).• Co-operation should be supported and promoted by social norms (i.e.

official institutional facilitation).

These social-psychological research-based findings refer to individualor (small) group behaviour. Superordinate goals help to reduce or preventnegative effects from social dilemmas. A social dilemma is a form of inter-dependence in which the most rewarding action for each (individual orparty) will, if chosen by all (individuals or parties), produce a negative out-come for the entire group (Smith and Mackie 2000: 484–485, 566–570).Social dilemmas are related to the free rider issue (selfish behaviour). Inmany cases, being selfish is the best option in social dilemma situations, atleast, for the short term. But in some situations individuals tend to act forthe good of the group rather than for their self interest, and thus solvesocial dilemmas. This is the case when individuals identify with the groupas an important aspect of the individual’s social identity. Group belongingthen, motivated by social identification, promotes the desire to benefit the



group as a whole regardless of outcomes for the self. Research shows thatgroup cohesiveness, which is related to social identification, has a positiveeffect on co-operation, on social control, and on attracting and keeping val-ued members. Social identification and group cohesiveness can be encour-aged by several factors (Smith and Mackie 2000: 571–572):

• Communication among group members (about how to solve a prob-lem).

• Equality of opportunities and outcomes among group members.• Accessibility of group norms directs behaviour.• Linking individual efforts to the collective good through feedback.

Group identification then is a crucial factor for boundary-crossing co-opera-tion and co-operation is stimulated by superordinate goalsetting. These areprecisely the ingredients that can help make covenants successful: a sharedgoal only to be achieved by co-operation motivated by a sense of belonging.

4. Covenants, External Effects and Employability

4.1 Market Failure, Hold Up, and External Effects

The recognition of shared goals may lead to the discovery of commonproblems, and the latter may lead to the identification of bottlenecks thatstand in the way of solving the problem. In fact, it is likely that problemsand bottlenecks will emerge not just at the start of the trajectory towardsachieving the shared goal. The tackling of one bottleneck probably willlead to the discovery of the next one and so on. If, for example, anenhanced level of employability is a shared goal, problems are sure to ariseconcerning the required scale needed for internalising the costs and bene-fits of more investment in training. Given the scale, the next problem maybe the level of investment as such, followed by, for example finding thebest instruments to develop adequate training methods, the question of thedivision of training between on-the-job and off-the-job, the modes ofimplementing new training in work organizations, the methods of certifi-cation and so on and so forth.

Each of these problems may lead to bottlenecks and therefore to a ‘hold-up’, in the sense of either a postponement of action and/or to the one-sidedappropriation of the results of the action (‘robbery’).8 In the market fortraining such bottlenecks are quite likely to emerge, as shown above, andthey are all the more likely to emerge as the proportion of purely firm-specific skills is diminishing and the proportion of transferable and evengeneral skills is on the rise.9 On the other hand, employability depends on



the strengthening of transferable and general skills and insofar as theenhancement of employability is a shared goal, the problems of how to getto there and how to identify and tackle the inevitable bottlenecks are sureto become urgent.

The problem of ‘hold-up’ is tantamount to market failure (cf. Ministryof Economic Affairs [Reitsma et al.] October 2004). To a major extent,such failure is due to information problems. These problems loom large inthe market for training. What is effective, under what conditions, withinwhat time frame and for whom are quite often unknowns at the time deci-sions on training are to be taken. Also, parties to the training effort(employers, employees, the training professionals) may have differentinformation sources of different quality; sources which they are not will-ing to share. Although, therefore, the need for more training may be feltand voiced by many, the difficulties of actually instituting training as agoing concern in all companies and for all workers have often proven pro-hibitive. The history of decades of pleas for the institutionalization of ‘life-long learning’ shows it.10

These drawbacks, of course, have not gone unnoticed. Since the 1980sthe instrument of the so-called ‘specific collective bargaining agreement’has gained some popularity in the Netherlands. These agreements aremainly focused on industry-wide problems of, to name the two most con-spicuous ones, early retirement schemes and vocational training. Industryfunds for training and development were developed – and are by now partof the regular results of collective bargaining – and these have contributedto more training overall. However, the record in terms of training for trans-ferable and general skills is not very strong, and neither is the record forimproving the training options and opportunities for the weaker categoriesin the labour market.11

The core of collective bargaining concerns the balance of effort and pay.Its main function is to keep wage costs aloof from cut-throat competitionbetween companies and at least in the Netherlands this goal has been rea-sonably well achieved. It is based on prognoses of relatively short-termdevelopments and experiences and results in relatively straightforward dis-tribution rules, supplemented by a growing array of more ad hoc (‘if-then’)distribution rules. Also, collective bargaining impacts on the national econ-omy as a whole and the interests of sectoral bargaining and the nationaleconomy are balanced, in principle, by the mechanism of the mandatoryextension of collective bargaining agreements to include the non-signato-ries in a sector and the government (by granting or, as the case many be,withdrawing tax favours for example).

Collective bargaining has a legal history of well-nigh a full century inthe Netherlands. During that period it extended not just its scale but its



scope as well. Issues of working conditions, labour market initiatives, andtraining have been integrated, yet with limited success. In our view, the realquestion is not whether these issues are compatible with collective bar-gaining. The real question is not ‘whether’ but ‘how’ and ‘when’. In moregeneral terms: covenants are needed where issues are at stake in which itis not, or not yet, clear what exactly is required of the participants toachieve commonly set and shared values and targets. And since this isunknown it is quite premature to invoke the regular processes of bargain-ing, and thus of deciding on the distribution of the eventual net advantagesof the joint effort. In fact, what net advantages are, how they can beachieved, and how they are then to be distributed can only be clarifiedalong the way. This defies the regular bargaining situation and calls for‘learning by monitoring’, of which the covenant is a major example.12

Where the market does not perform adequately two mutually non-exclusive consequences may result. The first consists in negative externaleffects: the shifting of costs and risks from the micro-level of organizationsto the level of sectors or of society at large. The second consists in theunderuse of capacities: the frontier of opportunities and capabilities is notreached. Here, policy may result in generating positive external effects.Both sorts of external effects may be tackled by covenants: the first isexemplified by covenants on working conditions, sickness absence anddisability, the second may be tackled by the covenants on employability.The former have a relatively successful history in the Netherlands, built upduring somewhat more than a decade; the latter have made a modestappearance.

Covenants on working conditions are mainly a development since theprevious decade. During the 1980s and the 1990s the Dutch governmentsucceeded in pushing back the burden of social risks and costs (sicknessleave and disability) to the industry and organisational level (it transformedsocial risks into organisational risks). In itself, however, this did notachieve very much in terms of improved working conditions, and reducedsickness absence and disability. The costs of the negative external effectswere shifted back to the level of companies. The positive external effects(i.e. a more durable participation in the labour market) were pushed by thecovenant. Covenants were construed to indeed effectively reduce absenceand disability. And they worked. Also, the instrument of the covenant itselfwas adjusted and improved along the way.13

In some covenants aspects of employability have been included, main-ly in the shape of demanding attention for the career perspectives ofemployees in dead-end jobs. Here too, both negative and positive externaleffects can be discerned. On the negative side is the destruction of humancapital through the dead-end job: more unemployment, waste of capacities,



more sickness absence, reduced quality of working life and so on. On thepositive side we find, again, the enhanced chances for durable participationin the labour market. The precise goals to achieve however, and the targetsand standards of performance to adhere to, have so far not been specified.Much remains to be done, but the fact that for employability the instrumentof the covenant has been taken into consideration is a token of hope. Onthat token we want to build.

4.2 The Promise of the Covenant: Learning by Monitoring

Learning, at least related to employability, means acquiring the knowledgeto make and do the things that (labour) markets value (and therewithunlearning the things not so valued). Monitoring means the assessment ofthe partners-in-learning to see whether or not the gains from learning aredistributed acceptably: ‘The dilemma of (…) development is that learningundermines the stability of relations normally required for monitoring’.14 Itis easy to see that combining learning with monitoring may lead to block-ages. For learning leads to winners and losers. Learning may – and proba-bly will – disrupt existing relations of distribution. On a micro-scale newprocesses will lead to an upgrading of some, and a downgrading of otherpositions, functions, and career options. Moreover, in order to guaranteethe progress of learning one may have to enlist the endeavours of both,winners as well as losers. And again, it is rather likely that we do not knowbeforehand where gains are going to accrue and losses be incurred. Thesame holds for the macro level. On a macro-scale, the present prediction isthat the advancing knowledge economy will exacerbate the inequality ofincomes, therewith further strengthening the trend of the past two decades.Yet, if uncorrected, this development might very well end in jeopardisingthe societal attempt to enhance rates of participation and, through partici-pation, of social inclusion.

If uncorrected, therefore, decision traps are likely to emerge. Where out-comes are uncertain and where the odds are that some will lose and otherswill win, with the distribution of the odds unknown, conservatism is morelikely than innovation. Conservatism, here, means that parties revert totheir already established identities (‘I am a manager’, ‘I am a craft work-er’ and so on) and to the interests associated with the identities, includingsocial hierarchies and rank, and ideas of equity. When monitoring issteered by already established identities and vested interests, learning issure to be hampered, if not immobilised, for learning entails a redefinitionof both identity and interest.15 Learning by monitoring captures the essenceof the institutionalisation of training efforts with uncertain and unknownoutcomes.



Resources are not the final constraint. Nor is optimal allocation knownbeforehand. What is optimal and which combinations work is a matter offinding out in a process of ‘muddling through’.16 Instead of planning we getexploring, and the need for an adequate pacing device. Learning by moni-toring is exactly such a device and the covenant is the instrumental shapeit can assume.17

Yet, the covenant is not unconditional. For one important aspect ininduced decision making, and learning by monitoring, is that the econom-ic actors involved are in, and know they are in, ‘the kind of high-risk situ-ation where public action can matter most’.18 This, of course, defines thescope of the eventual covenant. The nature of these risks, however, is ofdecisive importance for the issues at hand. For risks can be of two kinds,depending on the situation they are to characterise. Many labour risks referto danger: the danger of involuntary unemployment, the danger of workaccidents, and dangers for health and disability. As a matter of fact, thecovenants on working conditions, absence reduction and reduction of dis-ability, are bent on solving these risks and for fairly distributing the asso-ciated responsibilities, costs and savings. Essential as coverage for theserisks is, these are not the risks we want to emphasise in the present context.We do not emphasise risks we want to avoid, i.e. risks we run (risks wewould not normally choose). In the context of transitional labour marketsone needs to discuss risks that we19 take, for instance when moving fromone job to the next, from one employer to the next, from one combinationof activities in work, care and education to the next and so forth. Here thecontrast of risk is not danger but trust. Where dangers constitute negativeexternal effects, trust relies on positive external effects.

We do not want to insure only for accidents, ill-health, unavoidable oldage or other undesired mishaps, we want to insure for moves we want tomake during our career and, indeed, in our chosen life course trajectories.And as we make such moves in the expectation that they conform to thegeneral goals of more mobility, more transitions and more training, wewant to be able to cash in on our insurance when these expectations are dis-appointed.20 The opportunities for covenants in the framework of transi-tional labour markets are in the transformation of risks: from danger totrust. For it is this transformation that needs to be made in order to tacklethe opportunities of mobility, transitions, and training, and the problems(bottlenecks, linkages) these give rise to. The problems, by this token, aredefinitely not the equivalent of ‘threats’. Of course, covenants may fail, forexample because the problems have been underestimated. Indeed, thechances thereof must not be slighted, in particular where the transforma-tion we advocate will have to cover and discover a lot of new land. At thesame time, the chances are also that the parties may underestimate their



ability to overcome these problems if and when they appear. Learning bymonitoring is learning by doing: by doing we meet problems and we cantest our abilities to overcome them. The two underestimations combinedlead to what Hirschman calls the principle of the ‘hiding hand’.21 But theonly way of finding out whether we underestimated the magnitude of theproblem more than our ability to solve it is by tackling the problem.22

4.3 The Premise of the Covenant: Trust

Trust is a two-way street. We need to trust our partners and the partners haveto trust us. In bargaining, trust may be had by binding oneself. Trust is adevice for coping with the freedom of others, and for others to cope withour freedom. If our partner believes our ‘credible commitment’ then she orhe may accept his own commitments also. Reputation (and the damage itmay suffer) is an instance of commitments, as is a collateral, a confession,and a promise. A contractual commitment, of course, is also possible butprivate contracts have the disadvantage that keeping them depends on acost/benefit calculation. In other words, in order for contracts to be trustedthey depend in their turn on one of the other kinds of commitment.23 In thatrespect, public contracts, or mixes of private/public contracts, will performbetter. On the other hand and for the very same reason it will prove harderto muster the commitment of parties to enter into such contracts.

What we lack is a theory of the genesis of trust.24 In the learning-by-monitoring example trust is sort of a ‘by-product’ of co-operating, but thatbegs the question of the original trust rather than answering it.25 On theother hand, we may rephrase the quest after genesis as a question about theconditions for trust in co-operating. The question then becomes: underwhat conditions do we need trust in order to achieve and maintain co-oper-ation? Trusting someone means ‘believing that when offered the chance heor she is not likely to behave in a way that is damaging to us, and trust willbe typically relevant when at least one party is free to disappoint the other,free enough to avoid a risky relationship, and constrained enough to con-sider that relationship an attractive option’.26 That is, trust presupposes exit(avoiding a risky relationship is viable only if functional equivalents forthat relationship are available), and it requires for its growth and mainte-nance both voice (demanding safeguards – monitoring devices for exam-ple – against disappointment, otherwise the relationship will not beupheld), and loyalty (combining attractions and constraints). Exit requirescompeting possibilities, voice requires modes of communication, and loy-alty requires binding oneself. In the case of allowing for no latitude in per-formance standards, Japanese style, exit reads the possibility of shifting thesupplier relationship, voice reads quality circles, and loyalty reads long-



term employment and supplier relationships.27 It is from examples such asthese that we can derive optimism about trust being generated along theway. Moreover, trust is like knowledge. It grows when used, and depleteswhen unused.

The covenants on working conditions match the requirements of trust-ing co-operation. The agreements are not legally binding, the voice of theparties concerned is enlisted, and the performance standards and support-ing timetables are included. However, in the scarce covenants on labourmarket issues things have not advanced that far, and in the case of employ-ability the proof of the pudding can only be found in the eating of it. Again,the labour market covenants so far are not legally binding, but comparedto the covenants on working conditions the voice of the parties enlisted ismuch more restricted, and targets and standards are at best intentions ratherthan criteria. Nevertheless, in one recent evaluation of some of thesecovenants (on improving the opportunities for ethnic minorities in thelabour market) gains are reported in (1) improved relationships betweenthe government and the participating companies; (2) improved co-opera-tion between the covenanted parties; (3) in organizations learning from oneanother; (4) and in the emergence of networks of organizations.28

This improved record in co-operation may in time lead to the produc-tion of enough trust for clearer goals and targets, for stronger performancestandards and the enlistment of more partners, needed to put into effect theperformance goals (trade unions, for one, works councils and shop repre-sentatives, for another). However, our case, concerning the build-up oftransitional labour markets, is more complex than the examples so far.Exacting performance standards (for example in the shape of benchmarks)do not as yet exist. What co-operation is needed, with what partners, inwhich timeframe, and for what performances is a series of tangled andsimultaneous questions. Learning by doing, and developing accurate andacceptable standards along the way, is the only way to proceed here, in par-ticular if, as we have hypothesised, the development of standards will alsoproduce the trust needed to continue co-operating. We emphasise at thispoint that co-operation does not and should not exclude competition. Thepossibility of not-joining is important for covenants to work, as is the pos-sibility of opting-out after joining. Competition, so to speak, is its ownmethod of learning and monitoring and it may contribute to better stan-dards.29 For example, covenants targeted at older workers are more thanwelcome.30 But they should not exclude or discourage other initiatives and,thus, opportunities to learn. As it stands, the policies of Microsoft for anactive and productive deployment of older workers may well lead to newstandards that can be rejected, adopted, or improved by companies, aloneor together, looking for viable policies for older workers as well.31



Critical is some common ground, as has already been stipulated in sec-tion 3 by ‘superordinate goal setting’. We believe that participation in paidemployment constitutes such a common ground. To work that ground,however, governments, employers, employees and citizens face new con-ditions. We name three: transitions, employability, and mobility. And wename the bottlenecks (the present employment relationship, the hold-upproblem, organisational discretion in recruitment and selection, Korver andOeij, 2004b) that need to be mastered in order for the conditions to becomeopportunities. None of the opportunities and bottlenecks can be mobilisedif the parties have to go at them in isolation. In such a situation the ‘task ofconvening and moderating’ falls to the public authorities ‘by default’.32

This is not because the government has better knowledge. It is because itis the task of government to offer an organisational form for taking theissue further, if the social partners (trade unions, SMEs and possibly alsothe larger companies) and the citizens recognise the utility of co-operationbut do not have the muscle bring it about, and if the co-operation concernsissues of general interest or ‘common ground’. At the same time, there arelimits to the public authorities as well.33 Government today is governancerather than directorship. And governmental interventions are reflexive,rather than prescriptive. Again, the format of the covenant expresses thisquite clearly, for it is based on voluntary consent and participation on theone, on equal terms on the other hand. It is a form of democracy, in whichdemocracy is the equivalent of ‘reflexive authority’: the exercise of author-ity by those who are subject to it. The covenant concerns the partners, not,however, those who did not sign or who decline further membership underthe covenant.34 It is not a democracy of all, but only of all those who will.And provided access is not denied to those not or not yet participating, thisformula has the advantage of both flexibility and adaptability.35

Yet there is one strong assumption involved. For however needed anduseful exits are, exits are not to be used carelessly. The minimal require-ment is that exits are communicated in writing and with the reasons for exitstated (as, in fact, they must be under the already established known Dutchcovenants). Since all reasons are valid, at least in the Dutch case, it is clearthat the value of having exits is not underestimated. This puts a huge pre-mium on the quality of the covenant itself: it will have to prove its worthas it proceeds. A shared common ground, therefore, is a necessary condi-tion for a covenant, but it is not in itself also an adequate condition. Thelatter will have to be generated by the covenant in process. The chances forthe process depend on the parties partaking in it. Since the covenantimplies many unknowns the covenant can succeed only if the parties do notstick to their pre-established identities and interests. If something new hasto be produced, it stands to reason that identities are of limited value only.



They are the base-line, like socialisation is the baseline for the take-off ofeducation.36 But the success of learning and of educating is in a changedidentity at the end of the road. Learning-by-monitoring is akin to learning-to-learn. It is learning by conquering bottlenecks and guided by common-ly developed goals, targets, timetables and standards of achievement. Thepremise of the covenant is that in order to ban the dangers of hold-up, noone has the final say, and that all are willing to learn.

4.4 Coda

Employability is on the agenda. As a form of empowerment it requires theenhancement of the ‘transition capacity’ of workers. In plain prose thiscalls for forms of training and education that bridge both jobs and employ-ers. Its promise is in improved social quality: better jobs, better transitions,better trained employees, better and knowledge-intensive competitive con-ditions. We argue that covenants are a fruitful mode for moving ahead inthe direction of an improved social quality. Covenants, to be sure, do notguarantee optimal outcomes. Yet, in enlisting the skill and action of all rel-evant partners, covenants are in themselves an instance of institutionalempowerment, that may well lead to better scores on the standard of socialquality in the world of work and employment.

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Notes

1. Source: Van der Maesen 2003: 41.2. Beck et al. 1997, 2001.3. See also Gordon et al. 2003a, 2003b.4. In the short history of the European Employment Strategy (EES), Lisbon

stands out as the very first occasion where quantifiable targets were integratedinto the strategic employment aims of the Union. The main source used for thissection is http://www.euractiv.com.

5. This section is derived from Korver & Oeij 2004b and mainly based on thepractice of covenants in the Netherlands (Louwers 2004; Ministerie vanSociale Zaken en Werkgelegenheid, April 2004; Tweede Kamer der Staten-Generaal 1995).

6. A covenant can be defined as an undersigned written agreement, or a system ofagreements, between one or more other parties or partners, which is meant toaffect governmental policy (Tweede Kamer der Staten-Generaal 1995: 8).

7. In particular in the USA we find covenants ‘not to compete’. These are a dif-ferent game altogether for they refer to the practice that companies forbid theirformer employees for a specified time to engage in the same activities as theyperformed during their employment with those companies. In our use of theconcept of ‘covenant’ we do not include these practices.

8. As in the classic study of Ivar Berg (1973) on education and jobs, subtitled‘The great training robbery’.

9. Many of the present labour market problems (for example: the precarious posi-tion of the older worker) are directly connected to the demise of internal labourmarkets. The very emphasis on employability is, indeed, one of its signals.

10. See van Lieshout and van Liempt 2001: 101.11. See also Oeij, Korver and Gründemann 2004: 163–165.12. On the distinction between collective bargaining and covenants, see Korver

and Oeij 2005.13. Two phases have been discerned: the first phase, characteristic of the major

part of the 1990s and the ‘new style’ covenant since 1998 and 1999. The dif-ference is mainly in a better translation of targets into performance standardsand time-tables. See Popma 1999: 178–182, and Popma 2003: 96–98.

14. Sabel, 1994: 231.15. Sabel 1994: 267–268, 272–273. See also Hirschman’s discussion on ‘trait-tak-

ing’ (with identities and interests given) and ‘trait-making’ (with identities andinterests changing in the course of development). The latter is within the realm



of learning by monitoring, the former is not. See Hirschman 1967: 128–139;Hirschman 1995: 130–131. Also, Toye 1995: 28.

16. Hirschman 1971: 63–84; Lindblom 1959: 79–88.17. In developing the concept of ‘learning by monitoring’ Sabel explicitly refers to

Hirschman’s idea of unbalanced growth. Sabel 1994: 265. We prefer the con-cept of learning by monitoring to the concept of ‘policy learning’ as developedby Visser and Hemerijck, 1998, if only because it implies not just that policy isa learning process, but also that finding the adequate policy as such is a prod-uct of a process of learning by monitoring.

18. Sabel 1995: 14.19. We describe these risks from the vantage point of the employee. It is not diffi-

cult, however, to also describe them from the vantage point of the employer orthe government.

20. On risk, danger, and trust, see Luhmann 1988. Applying the risk-trust combina-tion to social security in the context of transitional labour markets see Korver andOeij 2004a, and Korver 2003, where we attempt to bring together the threads onrespectively transitional labour markets (Schmid 2001) and modern forms ofsocial insurance (modelled after the path-breaking work of Dworkin 2000).

21. Hirschman 1967: 9–34. The principle is a play on words as it refers to, andinvalidates at the same time, both the ‘invisible hand’ of the market and the‘visible hand’ of the corporate hierarchy.

22. As in the Nike advertisement: Just do it!23. Schelling 1963: 22–28; Frank 1988.24. Gambetta 1988: 231.25. The word ‘by-product’ is actually suggested by Elster and Moene 1989: 4–5.

Axelrod’s (1984) idea about the evolution of co-operation is also in this trainof thought. See also Gambetta 1988.

26. Gambetta 1988: 219.27. Including, to be sure, the action in ‘shifting involvements’: going from private

to public action or the other way around. See Hirschman 1982.28. Ministry of Social Affairs and Employment, April 24, 2003 (ABG/DB/03/27296):

2, 5. TNO Work and Employment is also active with ‘learning networks’. Itsresults are promising; once the participating companies have identified a commoninterest (for example: continuing deployment of the elderly worker) they learnfrom one another’s problems and they learn how to cope with them.

29. See Baecker, 1988.30. Despite the writing on the wall: the recently disbanded Dutch ‘taskforce’ on the

elderly and employment did not even propose a covenant.31. On Microsoft see Mosner et al. 2003, and Microsoft Press© 2002. See also De

Vos 2004.32. Sabel 1995: 16.33. Selznick 1992: 477, 505.34. McMahon 1994: 12–13.35. See The European Journal of Social Quality (2003, 4/1–2), devoted to ‘flexi-

bility and security in employment’.36. Luhmann 2002.



Documents

Covenants, External Effects and Employability