Senior Workers’ Participation in the Labour Market and Public Policies:The case of the Netherlands

Joop SchippersWieteke ConenKène Henkens

1. Introduction

The participation of senior workers in the Netherlands has shown a roaring history over the last decades. Until the end of the seventies of the 20th century it was quite common for people to continue working until the age of 65. The age of 65 is the age at which people become entitled to their old age state pension. Of course, there were older workers who – due to health problems - could not continue working life until the age of 65, but practically seen 65 was the rule. Dropping out of the labour market earlier was the exception. This has been the case since the introduction of the public old age pension and the mandatory retirement rate in 1957. However, the economic crises in the seventies hit the Dutch economy relatively hard. High unemployment rates (see Figure 1) went together with high inflation rates and large public deficits. To beat these economic and social problems and to develop a new perspective for the Dutch economy in 1982 the government, employers’ organisations and labour unions negotiated an agreement, which became famous as the so-called Wassenaar1 agreement. This agreement can be seen as the beginning of the heydays of the Dutch ‘poldermodel’.2

One of the worries at that time was the fear that continuous youth unemployment would result in ‘a lost generation’, a generation of young people completing education, but without serious opportunities to gain a firm position in the labour market. That is why, as part of the Wassenaar agreement, all parties agreed that older workers who already had contributed substantially to the post-war reconstruction of the Dutch economy would be allowed and stimulated to retire early to make room for the younger generation. So, most branches of industry adopted early retirement facilities and schemes that allowed workers to retire before the official retirement age of 65.3 With the help of fiscal facilities like tax reductions provided by the government employers could grant the early retirees a relatively high early retirement benefit. These high benefits made it very attractive for older workers to volunteer for the early retirement arrangements. During the eighties the general unemployment rate remained high and more and more older workers made use of the early retirement schemes and left the labour market at ever earlier ages (see Figure 1). While working until the age of 65 had been the norm until the end of the seventies, working until that age became the exception in the eighties, whereas early retirement became the new rule. The unfavourable situation in the labour market justified older workers’ decisions to make room for younger workers and employers’ decisions to let older workers go, especially since they knew that these older workers could count on a relatively big-hearted financial provision. So, increasing numbers of older workers took the first possible opportunity to leave the labour market.

Figure 1: Unemployment rate and average eligible age for early retirement, 1978-2002

Source: own calculations, based on CBS, different years.

This new ‘rule’ contributed heavily to the development of a new social norm about older workers’ participation in the labour market. For employers this new social norm implied that it became the normal thing to do to get rid of older workers as early as possible. For older workers themselves the expectations about the prolongation of working life changed rapidly. Early retirement more and more became a right and someone who did not make use of this right became the exeption. So, employers and workers (represented by the unions) found each other in an entente cordiale around an early exit culture that was beneficial for both parties and that was paid for by the government and society at large, with only minor contributions from workers and employers. Consequently, the average actual retirement age fell to about 60 years around 1990.

At the end of the eighties it became clear that the Dutch welfare state could not afford this early exit culture with low participation rates of older people any longer. Dutch Prime Minister Ruud Lubbers made a famous speech in 1990 in which he concluded that “The Netherlands are ill”. He considered it a major challenge to make the Dutch economy healthy again. From the beginning of the nineties, the Dutch government developed all kind of policies to bend back the trend of ever earlier retirement and increasing disability rates among older workers. It was not until the middle of the nineties when the Dutch economy started booming for a relatively long period that one could notice the first signs of a break in the development towards lower participation of older workers and lower retirement ages. In the next sections we will describe the developments in senior employment (section 2) and the policy measures that have been taken by the government to push back the early exit culture (section 3). In section 4 we will focus on the discussion to promote extending working lives and raising the retirement age beyond the age of 65. Finally, we will (in section 5) evaluate policy measures and summarise our conclusions.

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2. Older workers and the labour market

Developments in senior employmentSince the middle of the nineties of the twentieth century all age groups in the Netherlands show a rising trend in employment. Between 1995 and 2002 the Dutch employment rate rose from 55% to 63% (see Figure 2). Between 2002 and 2008 - after a small decline until 2005 - the employment rate further increased to 65% in 2008.

Figure 2: Trends in employment rates by age groups, Netherlands, 1995 - 2008

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Source: Eurostat, 2009

There is a large difference between the participation rates of older men and older women, even though women are catching up with men rapidly (Figure 3). The large difference is an inheritance from the past. The emancipation of women in the Netherlands and the emergence of the working woman in the Netherlands in the seventies started relatively late, compared to several other European countries (Hartog and Theeuwes 1985; Pott-Buter, 1993). This late start still makes itself felt in the participation rates of older cohorts of women. Given the fact that the participation rates for younger cohorts of women have increased substantially, it is to be expected that the future gap in participation between older men and older women for whom there are no specific early exit pathways will gradually disappear.

Figure 3: Trends in employments rates by age groups, Dutch males and females, 1995 – 2008

Men WomenSource: Eurostat, 2009

In 1995 the participation of all Dutch age groups of older workers was still below EU average; in 2008 this is no longer the case (Figure 4). The younger elderly especially contribute to the increase in the employment rate. Notice the gap between the age group of 55-59 years olds’ and workers 60-64 years of age. Notice also that until 2007 the Dutch workers in the group 60-64 had an employment rate below EU average. Following the trend that started in the nineties the number and share of older workers active in the labour market kept rising. This rise seems independent of economic growth or decline, but indicates a major change in the social norms on retirement.

Figure 4: Employment rate of workers, by age group, 1995-2008

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Source: EU LFS, 2009

Participation rates in the Netherlands – just like in many other countries - differ by educational level (see Figure 5). This holds both among men and women. Figure 5 makes a distinction between three levels:

- ISCED 0-2: Pre-primary, primary and lower secondary education- ISCED 3-4: Upper secondary and post-secondary non-tertiary education- ISCED 5-6: Tertiary education.

Unfortunately, we cannot disentangle period and cohort effects.

Not only do higher educated workers live healthier, often they also hold jobs that allow them to continue working longer because of lower physical wear and obsolescence. Moreover, higher educated workers often enter the labour market at a higher age and hold jobs they find interesting and challenging. So, they may more easily resist the challenge of (early) retirement. In fact, the few legal disputes that came up in the Netherlands about the mandatory retirement age during the first decade of the 21st century have been started by university professors who wanted to continue working as a professor. The few people over 65 or even over 70 who continue working for pay can be found among self employed people, like writers, painters and other artists, and among journalists and people who own their own (small) business.

Figure 5: Trends in employment rate by age groups and educational attainment, 1995 – 2008

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25-49 ISCED 0-2 25-49 ISCED 3-4 25-49 ISCED 5-6

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Source: Eurostat, 2009

Industry and occupational structureThe age distribution of the labour force follows the age distribution of industries. The average age of the employed labour force was in 2008 lowest in sectors belonging to ‘Services and trade’ (hotels and restaurants, trade and repairs, business services, other services, financial institutions, transport, storage and communication) and ‘Construction’ (Figure 6). The average of was highest in ‘Public Services’ (education, public administration, health care and welfare), ‘Agriculture’, and ‘Industries’ (energy and water, manufacturing and mineral extraction).

Figure 6: Average age of employed labour force per sector, 2008

Source: Statistics Netherlands (CBS), 2009b

Especially, the educational sector has a large share of 26 percent of its staff in the age bracket between 50-64 (see Appendix, Figure A1). So, many schools and other educational

institutions are currently or will be in the near future confronted with the necessity to replace large numbers of staff leaving the labour market. Many of these older employees are male, while new employees entering the educational sector are predominantly female. Moreover, these new female entrants usually work only part time. Consequently, it requires almost twice as much part time females to replace the retiring males. This makes the problem of an ageing labour market even more difficult to solve.In the agricultural sector the share of 50-64 aged workers is 24 percent. There, the problem of ageing manifests itself in a different way. As many workers in agriculture are self-employed retirement brings along the question of the succession of the company. Many farmers and their families are desperately seeking for a proper successor. However, as profits are relatively low and working in agriculture usually requires working long hours, many young people prefer a desk job with regular hours and a lease car.

Looking from a gender perspective, it can be noted that traditional gender segregation by occupation is still dominant among the older cohorts of women. Many women over fifty still participating work in health care, education, as a sales person in shops or as a secretary. This can be explained from the fact that the process of emancipation started relatively late in the Netherlands. The few women that became active in the labour market in the sixties and early seventies primarily choose for and were accepted in jobs and occupations that were close to the traditional position of women as a mother and housewife.

Self-employment and type of contractIn the Netherlands, 15 percent of employees are self-employed in 2008. Self-employment is higher amongst older workers: i.e. 18 percent for workers aged 45-55 years and 25 percent for those aged 55-64 years (CBS, 2009a). In 2006, the average age at which wage earners retired was 61 years. For self-employed people this was at over 66 years considerably higher (CBS, 2009b). The high share of self-employed among older people can partly be interpreted as a selection effect. As e.g. many civil servants retire around the age of 60 and employees in health care and welfare around the age of 61, among those who ‘survive’ in the labour market the share of self-employed will automatically be higher. Moreover, we already mentioned the situation in agriculture with a high share of older self-employed. In recent years, the privatization of parts of the health care sector has resulted in an increase of the number of self-employed older women. In order to gain a contract, entrepreneurs in health care dismiss their permanent staff and offer to rehire them if they offer their services as a self-employed worker (at a lower pay rate). Usually, these new self-employed women have only limited social protection, often no disability insurance and no opportunities to participate in and save for a decent pension(scheme). The same phenomenon can be found among younger male workers in construction too.

In the Netherlands, 18 percent of the total number of employees holds a temporary contract in 2008; in the EU the average is 14 percent. For older workers (aged 50 years and older) the percentage of employees holding a temporary contract is lower: 8 percent in the Netherlands and 7 percent in the EU (EU LFS, 2009). This has to do with the fact that especially young people entering the labour market start with a (series of) temporary contract(s). Also, people who change jobs often have a temporary contract of three months (in the private sector) to a year (in the public sector), before they are awarded a permanent contract. As older workers tend to show less job mobility than younger workers older workers are less likely to work on a temporary contract (Van Dalen et al., 2009). There is, however, a tendency to rehire older workers who had already retired using an early exit or pre-pension scheme and give them a

fixed-term contract again. This phenomenon is still relatively new and regards only a limited , though increasing number of older workers.

Part-time employmentThe Netherlands have a long standing reputation as a ‘part-time economy’ and older workers are no exception to that. In the Netherlands, 47% of all employees work part time in 2008; in the EU the average is 19%. In 2008, 75% of Dutch female employees worked part time, as opposed to 32% of European female employees. Dutch male employees worked in 24% of the cases part time, as opposed to 8% in Europe as a whole. Amongst older workers, the percentage working part time is higher for both males and females and in both the Netherlands and the EU (Figure 7). The pink line in the upper half of the figure reports the high percentage of Dutch female workers (EU LFS, 2009).

Figure 7: Part-time employment as a percentage of the total employment of older workers (50 years of age and older), by gender, 1995 – 2008

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More detailed figures by Statistics Netherlands (CBS, 2009b) on effective working time show that, including overtime, Dutch workers work on average 30 hours a week (Figure 8). For males this is 35, for females 25 hours a week. The real decline in hours sets in after the age of 60. Especially the group 60-65 year olds’ works relatively few hours per week.

Figure 8: Working hours for different age groups, by gender, 2005

20,523,5

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Source: Statistics Netherlands (CBS), 2009b

3. Pathways into retirement

As discussed in the first section of this chapter, at the end of the eighties of the 20th century the Netherlands had developed an early exit culture that was no longer affordable for the Dutch welfare state. The three most important pathways out of the labor market have been early retirement, disability and unemployment.

The first route that the government attempted to close was the disability route; a route that was frequently used by employers to lay off workers. The Netherlands’ Bureau for Economic Policy Analysis calculated that in 1998 nearly one-third of men in the age category of 55 to 64 received disability benefits (Centraal Planbureau [CPB], 2000). Since the 1990s, during a whole series of almost annual adaptations, which are too complicated to discuss here, disability benefits have been reduced in several steps for different categories of disabled workers, the criteria to enter a disability scheme have become more restrictive and several penalties have been introduced, changed and re-introduced to discourage employers from ‘dumping’ workers (Klosse, 2003). The sickness period, which was previously covered by the Sickness Law, had to be paid by the employer instead of the government was expanded and new legislation introduced in 2002 increased the obligations of employers and employees during the first two years of illness. Though much debated, these measures have been rather successful, as the inflow of workers into disability arrangements had fallen dramatically by the turn of the century and have further declined since.

But the three pathways out of the labour market are not independent: closing one road results in more use of the other roads (Van Imhoff & Henkens, 1998). That is why, since the turn of the century, the government, in its attempts to increase older workers’ labour force participation, has also directed its attention to the other two exit routes: early retirement and unemployment schemes. After the middle of the 1990s, voluntary early retirement schemes, based on pay as you go funding, have been transformed into actuarial regimes, with the possibility for workers to make use of actuarially neutral pre-pensions schedules. Consequently, prolonging the working life becomes financially attractive, as it increases pension levels. In 2006, early retirement regulation was organized by a new law. The so-called law VPL deals with three regulations which focus on early retirement: (1) pay as you go based early retirement schemes (V), (2) actuarial neutral pre-pension schemes (P) and (3) life-course saving schemes provided either by commercial insurance companies or pension funds, based on a new law that was introduced in 2003 and adapted in 2004 and 2006 (L). This law makes it less attractive to stop working before the age of 65, as tax incentives for early retirement and pre-pension schemes have been removed, primarily by abolishing the exchange rule (omkeerregel) and the possibility to deduct premiums for early retirement. On the other hand, there are more tax incentives for saving for (extra) old age pension and life-course saving schemes. Apart from that, part time early retirement was introduced and the starting date of early retirement can be postponed resulting in a higher payment later (see below). In most branches, social partners have chosen to cancel early retirement schemes as of January 2006. The available funds for the early retirement schemes have been added to the funds reserved for old age pensions. In a limited number of cases the contributions destined for early retirement have been made available for the life-course savings scheme, which is also introduced by the new law (Van Dalen et al., 2009).

Finally, blocking unemployment schemes was one of the main goals of the cabinets that were in office between 2002 and 2007. During the period 2002-2007, in different steps and for different groups the maximum period of unemployment benefit entitlement was reduced and rules on the eligibility criteria were tightened. In October 2006 the maximum duration was reduced from five years to 38 months (SZW, 2006). This maximum period applies when you have enough ‘past experience’. Usually, this criteria does not pose a problem for older workers. During the years a greater emphasis was put on entry and re-entry into the labour market and in 2004 the obligation for unemployed people over 57.5 years of age to apply for jobs was re-instated after it had been abolished in 1999. Early in 2009, in the middle of the economic recession and growing unemployment, rules with respect to the acceptance of new employment were further tightened. This held for all age categories, even though municipalities may release to some extent the obligations to write job applications for older workers of 57.5 who have been unsuccessful for more than a year to find a new job. A major problem for older workers who become unemployed is the fact that unemployment benefits have a maximum that is 75 percent of a daily wage of € 188,88 (the amount for 2011). All workers who used to earn more than this daily maximum face in fact a much lower benefit than the legal share of 75 percent. As older workers are often at the end of their wage scale and may have made a promotion to a higher scale during their career they are hit much harder by this benefit limitation than younger workers. This holds especially for higher educated older worker who become unemployed. In many cases for them unemployment – even though it might be only temporarily – implies a drastic interruption of their life course, including for instance the need to sell their house.

So, during the period 1990-2005 the main focus of government policies was on the supply side of the labour market. (Older) Workers were discouraged to leave the labour market before the mandatory retirement age. The major instruments were financial incentives. Except for the early retirement system, the pension system as such was not at stake, but primarily social security arrangements that had been used more and more as an alternative for (early) retirement. After the turn of the century, the policy focus broadened and got to include the demand side of the labour market.

4. Current policy measures targeted at older workers’ position in the labour market

Despite the economic boom of the Dutch economy around the turn of the century, older workers’ participation rates only grew slowly and older workers found it difficult to find a (new) job, despite labour market shortages in different branches of industry, policy makers’ awareness grew that it would not be enough to take measures at the supply side of the labour market only. That is why during the first decade of this century gradually more attention has been given to the demand side of the labour market and employers’ behaviour. Partly, this change in focus has been supported by European initiatives like Fair Play for Older Workers (see Van Dalen et al., 2006).

Age Discrimination LegislationOne of the initiatives was on combating age discrimination. Age discrimination might be one of the forces that keeps the phenomenon of the Dutch ‘early exit culture’ alive. Koppes et al. (2009) show that in the Netherlands age discrimination is perceived to be substantial: self-reported rates of age discrimination in the category of older workers (55-64 years) are 20%. Just like in other European countries, age discrimination laws in the Netherlands are of fairly recent date. In 2004, the government introduces specific regulation to combat age

discrimination by enacting the Age Discrimination in Employment Act. This act prohibits discrimination based on age or behaviors which are the result of the difference in age. The act applies on filling vacancies, employment-finding and the beginning or ending of labor relations. Someone who thinks to be a victim of age discrimination can request the Dutch Equal Treatment Commission to start an inquiry. The Dutch Equal Treatment Commission reports that about one quarter to one third of discrimination complaints refers to cases of age discrimination (Commissie Gelijke Behandeling, 2007).

Raising awarenessAs it became more and more clear that it was not just a matter of financial incentives for workers or legislation to forbid discrimination to change the ‘early exit culture’ in the Netherlands, the Dutch government has developed several information campaigns over the past decade. In 2001, the government installed the Taskforce on Older People and Employment (Taskforce Ouderen en Arbeid). The task force included former politicians, experts in the field of HRM and some captains of industry and tried to identify factors that could help to improve employment prospects of older adults. The taskforce was succeeded by the co-ordinating group Grey Works in 2005. Grey Works informed the press, inserted advertisements, organised radio commercials and called work committees. Grey Works also organised lectures to human resources staff, labour market experts, sector organisations and pension funds and has been involved in the publishing of 1250 articles and organises workshops (Senior Power, 2008). All these activities, including publishing brochures, aimed to change images, to arrange agreements and to monitor and support initiatives (SZW, 2005).

Besides the Taskforce and Grey Works, the government organised other campaigns. For instance, at the time it introduced the Age Discrimination in Employment Act in 2004, the government launched the project ‘Age and Labour: to an Enduring Application of All Ages’. This project focused on unions, human resource departments, managers and intermediaries in the labour market. The goal was to promote an enduring application of all ages with a focus on seniors (Dutch House of Representatives, 2004). Most experts agree that the transfer of information and management by speech from the government could contribute to some extent to the awareness of the importance of raising the labour force participation of older adults.

Financial incentivesIn addition to the general measures already described with respect to closing as much as possible the pathways into retirement, the government has developed several incentives to increase older workers’ labour market participation. A first one introduced in 2009 aims at employers and concerns the risk of hiring an older worker that may become ill for a longer period. If an employer hires an older worker (55+) who has been unemployed or disabled for over a year the employer gets a compensation for the wage costs of this employee if (s)he falls ill for a period over 13 weeks (SZW, 2009). A second measure concerns a trial period of three months for 45+-workers that are on unemployment, disability or any other benefit. During the trial period employees can keep their benefit and employers can fire the employee without any legal ‘red tape’. In addition, there are compensations available in case a newly hired worker has to follow additional training in order to acquire the necessary competencies for the job. Another financial advantage for employers introduced at the same time is a annual reduction of social security contributions to be paid of € 6500 during three years in case an employer hires a worker of 50+ who has been on benefits. A similar annual reduction of € 2750 is awarded to employers who continue employing a 62+ worker. In 2013 this reduction will be raised to € 6500.

Another measure, also introduced in 2009, should serve as an incentive for employees to keep on working longer. This so-called ‘doorwerkbonus’ (career continuation bonus) is awarded to older workers in the form of a tax credit of a maximum of € 4679 if they continue working after the age of 62. This measure has been severely criticised (see e.g. Sap et al., 2009), as many economists consider it a dead weight loss: the tax credit goes primarily to people who were to stay in the labour market anyway. Those who suffer from health problems or those who cannot find a job will not and can not qualify for the tax credit. The measure still presupposes that there is a substantive group of workers that will able to work until the age of 65 (and over – see below), but does not do so, because the financial incentives are too little.

Employment protection in times of crisisThe final measure we would like to discuss in this section is the temporary part-time unemployment benefit. This employment protection measure, which is not specific for any particular age category, has been introduced by the end of 2008 as it became clear that many companies in the Netherlands had been hit hard by the economic crisis. The arrangement grants employees a temporary and part-time unemployment benefit (just like ‘normal’ unemployment benefits paid from the Unemployment Fund) if their employer is faced with a sudden fall in demand due to the economic crisis (e.g. in the case of a big client going bankrupt). The employer can reduce working hours during a period of 26 weeks for specific groups of employees up to a maximum of 50 percent of their working time. For the hours for which the employees are unemployed they receive unemployment benefits. In addition the employer has the obligation to offer some kind of training to the partly unemployed workers in order to help them to maintain their competencies and human capital. A company can only participate in this arrangement that will end by July 2011 if it convinces the authorities that basically the company is financially healthy and will be able to continue its operations after the period of temporary unemployment with the workers that have worked reduced hours for half a year. This measure has been introduced especially for those companies (often in construction, in the shipping industry, metal industry) where there is a temporary shortage of work, but where it is important to safeguard the knowledge and experience of the existing staff. The government was afraid that massive redundancies caused by the economic crisis would result in the outflow of a large group of skilled workers of 40-50+, who would leave the labour market with little opportunities to come back. This outflow of workers would not only have serious social consequences, it would also result in a once-only depreciation of human capital and it would delay the recovery of the Dutch economy, as it would take time to recruit, hire and maybe train new workers in case the economy improves. So far, more than thousand companies have made use of this employment protection scheme.

5. The pension system under debate

The Dutch pension system: a three pillar modelAs we concluded in section 3, with the exception of early retirement schemes the pension system as such has not been at stake during the period from the early nineties of the 20th century until the middle of the first decade of the 21st century when all kind of measures have been taken to increase older workers’ participation rates. The discussion on the pension system and the mandatory retirement age really took off as a result of the crisis in banking, followed by the financial and economic crises during the 2008-2010 period. The main inspiration for the discussion was not so much raising older workers’ participation rates as such, but decreasing the costs of both public and private pension schemes. The Dutch pension system exists out of three pillars. The first pillar is the public financed basic old age state

pension scheme (AOW), which provides an equal pension for all residents. It is organised by the Old Age Pensions Act. The second pillar is the occupational pension schemes, to which employers and employees contribute to provide pension for the employees of a branch of industry or in a specific occupation. All employers are legally obliged to set up a private retirement scheme for their employees, within the framework set by the Pension Act (Pensioenwet). The third pillar is the private pension scheme, which consists of private provisions that are neither statutory nor part of the collective occupational pension schemes. In the following paragraphs we pay attention to the policy changes in the first and second pillar. The third pillar is primarily the responsibility of banks and private insurance companies and has not been influenced by any major policy changes.

The state pension scheme and mandatory retirementIn 1985, the state pension scheme has been made individual (following and in order to comply with European guidelines). For people belonging to a couple this also implied a reduction of benefits. Until 1985, a single person received 70% of the minimum wage by the old age pension scheme when (s)he turned 65. A married couple received 100% of the minimum wage. When the husband turned 65, the couple received 100% of minimum wage (Eekelen & Olieman, 2003). Since 1985, AOW is paid per individual. When the oldest partner turns 65 (s)he receives 50% of minimum wage. For people who turn 65 before 2013,4 there is a transitional regime. As long as the youngest partner is under the age of 65, the oldest partner receives a partner bonus, which could be up to 100% of minimum wage. When the youngest partner has an own income the bonus will be lower (Eekelen & Olieman, 2003). According to most experts, the abolishment of the partner bonus in 2013 will be an incentive for some people to continue participating in the labour market. FNV, the largest Dutch union, is the only respondent that opposes the abolishment of the partner bonus.

The formal statutory retirement age has not change since the introduction in 1957 and has remained 65. However, the coalition of christian-democrats and social-democrats that has been in office between 2007 and 2010 has developed proposals to raise the mandatory retirement age to 67. In October 2009 the cabinet presented its plans to raise the statutory retirement age to 67 in two steps: to the age of 66 in 2020 and to 67 in 2025. These plans have raised an intense debate that has not been concluded yet. In the evaluation of policy measures we will come back to this discussion.

Occupational pension schemesRegulation in the second pillar has changed in 2007 by the introduction of a new law: the Pension Act (Pensioenwet). The law replaces the previous law: the Pensioen en Spaarfondsen Wet, which was introduced first in 1952 and has been changed regularly since then. The Pension Act does not aim to raise labour participation of older adults, but to bring order and to remove indistinctness and execution problems in the future (SER, 2001). The Pension Act contains only one adjustment, which could affect labour force participation of older adults. It concerns the introduction of the compelled ‘knipbepaling’. This provision makes sure that if someone makes a backward step at the end of the career (demotion) already build pension rights remain intact. Without this provision pensions based on the last earned wage would be lower after such a step backwards (Dutch House of Representatives, 2004).

In addition, since the introduction of the VPL law many pension schemes have granted workers a possibility to retire full-time or part-time before the age of 65, but – somewhat

contradictory - also to continue contributing to the pension scheme after the age of 65.5 People who retire before the age of 65 will receive a lower retirement income for the rest of their life; people who work longer will receive higher pension benefits for the rest of their life. The age of 65 is the benchmark (spill age) for the calculations of the pension benefits. All calculations are being done on an actuarial neutral base.

Contributions to the occupational pension schemes are being administered by pension funds. Dutch pension funds like the ABP (for civil servants and teachers) and PGGM (for the care and health sector) are among the biggest one in the world. Part of the savings are being invested in stocks and shares. Due to the crisis in financial markets, and despite the strict rules with respect to these investments, the pension funds have seen large amounts of their investments go up in smoke. This has resulted in decisions a. to raise contributions from employers and employees; b. to freeze or – in few cases - to even lower pension benefits for workers that have already retired. Moreover, workers who have not retired yet should expect to receive lower pension benefits after retirement. These decisions – primarily enforced by the government - have shocked the Dutch labour relations system as generations of workers have grown up with the idea that the Dutch pension system stood firm on its three pillars and would guarantee each worker a decent financial perspective during his/her old age. The financial problems of the pension funds have intensified the discussion around the retirement age. Several expert groups have produced reports on the future of the second pillar, in relation to the mandatory retirement age, the state pension scheme and the fiscal treatment of pension contributions and pension benefits.

Raising the mandatory retirement age?As reported above, in 2009 the then cabinet presented plans to raise the mandatory retirement age from 65 to 67 years in two steps: first to 66 years in 2020 and to 67 in 2023. These plans gave impulse to an intense and extensive debate on a series of issues regarding the position of older workers in the labour market. The issues that came up in the discussion ranged from questions concerning solidarity to questions with respect to exceptions for those who work in hard jobs.

A first major question in the debate is the sense of reality behind the idea of raising the mandatory retirement age across the board for the whole population. Currently, a large group of older workers drops out of the labour market before the mandatory retirement age because of health problems or because there is no (suitable) job for them (any longer). Raising the mandatory retirement age would only imply that they will be on benefit for another period of two years. In many cases this benefit is lower than the combination of the state pension and the (often small) occupational pension they will receive after reaching the mandatory retirement age. So, the argument of a wide group of opponents (including e.g. most unions in the Netherlands) to a general rise of the mandatory retirement age without any additional measures is that it lays the burden of the necessary cut backs to a large extent with a group of older workers that cannot change its behaviour and thus cannot counteract the income reduction. That is why many of the critics are in favour of additional measures aimed at workers in heavy jobs. One idea is to grant workers in heavy jobs the opportunity to retire earlier than the general mandatory retirement. Another idea from the then cabinet was to compel employers to offer workers in heavy jobs an alternative job at the end of their career. This idea was opposed by employers, who argued that of course you can create some jobs (sheltered) for workers with health problems, but not enough for all those who can – for one reason or another – not continue work until the mandatory retirement age. The number of

workers requiring such a job would simply be too large to be matched by the number of sheltered jobs an organisation working for profit could afford.

And then the question is, of course, which workers are in heavy jobs? For instance in construction many workers now in their fifties have started their job at the age of 15 or 16. So, at the age of 55 many of them are physically worn out. This brings up the question: which jobs can be qualified as heavy jobs? The then cabinet preferred to limit the discussion on heavy jobs to physically demanding jobs. This, however led, to protests from other occupations. A bus driver that has to work under even more stressful conditions and has experienced threats from passengers may claim that his job is heavy too. And so may a nurse who has taken care of terminal patients in a special ward in the hospital for decades. Even within one job there may be large differences: some high school teachers get burned out when they are 47, while others of 62 may go to their job whistling every day. So, it is very difficult and in the end rather arbitrary to determine which job or occupation should be labelled as a heavy and demanding one. As an alternative the FNV (the largest union in the Netherlands) proposed to use income as a criteria for earlier retirement, as most heavy jobs are poorly paid. Again, there were so many exceptions that this criteria did not prove to be a fruitful alternative. As the previous cabinet fell in the early spring of 2010 social partners and the government gained some additional time to come up with a solution for the problem of heavy jobs.

Another big issue around raising the mandatory retirement age is the question of solidarity between generations. Which generation will be the first one that has to work longer? This debate has been going on for several years, and came up already when the changes and limitations of the early retirement and prepension system were under debate (Van den Braak, 2006). Raising the mandatory retirement age (or, earlier, raising the prepension age) implies a breach of expectations for those currently in the labour market. Of course, the consequences of such a breach will differ depending on the age at which one is informed about the changing circumstances and conditions. When someone of 40 is told that (s)he will have to continue working for two additional years this may have less impact than when some of 60 gets this message. The argument brought forward by the government is that older workers should still have some time to adapt their financial position to the less favourable financial circumstances. That is why at the time of the presentation of their plans the then cabinet opted for ‘sparing’ the age group over 55. They would still be allowed to retire at the age of 65, but everyone younger than 55 would have to work one or two years longer. Alternatives presented in parliament addressed the problem that being born one day ‘too late’ would result in a different retirement age of one whole year. To ‘smooth the pain’ some parties proposed raising the mandatory retirement age with one or two months every year, starting this year. This would not only result in a more fair treatment of all cohorts of workers, but it would also result in immediate public savings on public pensions. These alternatives, however, were turned down by the then cabinet, because of the difficulties with respect to implementation and administration, primarily related to the frequent necessary adaption of administrative systems.

Sap et al. (2009) introduced another dimension of fairness into the discussion. With a fixed retirement age that is equal for all citizens, low educated people who start earlier, often already in their teens, contribute more years to the public pension system than high educated people who usually do not enter the labour market before they are in their twenties. One may consider this unfair already. However, there is more to this. Also, when it comes to the benefits on average high educated people benefit more from the (public) pension system as they live longer (see Table 1). So, a public pension system with a fixed mandatory retirement

age that is the same for all citizens results in a reallocation of income from low educated to high educated people. It also results in a reallocation from men to women, as women tend to live longer, although the gender differences are getting smaller.

On a more theoretical level, Sap et al. (2009) add to their argument against a fixed retirement age for all that such a fixed age is in contrast with the trend towards more flexible labour markets. Without much exaggeration, one could say that the fixed retirement age is one of the few remains of the rigid labour market structure from the fifties and sixties of the twentieth century. That alone should make one on guard and ask the question whether we should exchange one fixed general retirement age for another.

Table 1: Life expectancy and healthy life expectancy at birth by educational level

Life expectancy at birth

Life expectancy in good health

MenPrimary education 1997/2000 71.0 51.5

2001/2004 72.3 51.32005/2008 74.1 53.1

Intermediate education (1st level) 1997/2000 73.9 59.42001/2004 74.9 59.32005/2008 76.5 60.1

Intermediate education (2nd level) 1997/2000 76.5 63.12001/2004 77.4 64.12005/2008 78.5 65.1

Higher education 1997/2000 78.5 68.92001/2004 79.3 68.62005/2008 81.4 72.3

WomenPrimary education 1997/2000 78.2 52.9

2001/2004 77.7 50.62005/2008 78.9 52.2

Intermediate education (1st level) 1997/2000 80.1 60.92001/2004 81.4 61.52005/2008 82.6 60.9

Intermediate education (2nd level) 1997/2000 84.1 65.12001/2004 83.7 66.02005/2008 84.9 66.9

Higher education 1997/2000 84.7 70.82001/2004 83.6 68.22005/2008 85.3 72.8

Source: Bruggink (2009).

Their alternative is a system in which everyone works the same number of years. If this number of years were to be fixed at 45 years – as proposed in the debate - this would mean that someone who enters the labour market at the age of 15 should work until the age of 60, while someone who starts at 25 after a prolonged educational career, including university training should work until the age of 70. These 45 years may also include the combination of paid work with the care for young children. Of course, this alternative does not solve the problem of heavy jobs completely, but it accommodates the structural differences between educational levels. Critics have rejected this proposal primarily for reasons of administrative problems, as it is difficult to establish how long everyone has been working in the labour market exactly (even though France is an example of how this registration could be done effectively).

Currently (spring 2011), the debate continues. The right wing party that keeps the minority cabinet in office is opposed raising the mandatory retirement age beyond the age of 66 and has announced that they will block any proposal for a higher retirement age.

6. Conclusions

Since the beginning of the nineties of the twentieth century, the Dutch government has taken several measures aimed at raising older workers’ participation rates and increasing the average age at which older workers actually retire. This age had gone down dramatically since the early eighties, but has been rising again since the middle of the nineties. From a long term perspective, the growth in older women’s labour market participation is noteworthy.

From a policy perspective we can distinguish three periods. During the first period (the eighties of the 20th century) the focus was on facilitating early exit by older workers. During the second period, i.e. the period from 1990 to the middle of the first decade of the 21st century, the focus of government policies has been on the supply side of the labour market. All kind of measures have been taken to discourage older workers to leave the labour market prematurely. Using financial disincentives, the government tried to block the three major pathways into retirement: disability, early retirement/prepension and unemployment schemes. This policy has been rather successful. The annual inflow of workers into the disability schemes has decreased substantially. And most pay-as-you-go early retirement schemes have been transformed into actuarially neutral prepension schemes. Unemployment in the Netherlands has been low over the past ten years, especially when you look at it from a European perspective. However, the share of older workers among those who are unemployed is high and even higher among those long term unemployed. Moreover, once unemployed the chances of someone over 55 to find a new job again are dramatically low in the Netherlands.

The insight that the structural position of older workers in the Dutch labour market is weak lead successive cabinets that were in office since the turn of the century to take measures to combat age discrimination in the labour market and to raise awareness among employers about the necessity to increase older workers’ labour market participation. With these measure a third period emerges (from the middle of the first decade of the 21st century). So far, these measures have not been very successful. One reason may be that the measures on the demand side of the labour market lack coherence and continuity. One taskforce is replaced by another; one project to identify good practices is followed by a new one, even though the outcomes of

the first project have not been properly evaluated and disseminated. First, the government subsidises an expert centre on ageing and older workers for some years and then it abolishes the support for the centre, so that it has to close and the expertise crumbles and disappears. A major piece of evidence of lack of coherence, brought up by employers in any discussion on older workers’ labour market position, is the so-called ‘Remkes-measure’. Only few months after the reintroduction of the job-search requirement for older workers (of 57.5 years old) in 2004 the minister then responsible for the civil service in the Netherlands, Johan Remkes, negotiated an agreement with the unions that civil servants of 57 years and older could retire using a very attractive financial arrangement. This arrangement was so attractive that many older civil servants considered themselves to be the thief of their own wallet if they would not make use of this golden opportunity. Consequently, many older civil servants left. And despite the gilt-edged financial arrangement, the minister could enter substantial savings in his books for the next few years.

This might be another explanation why measures aimed at changing employers’ behaviour towards older workers have not been very convincing (Conen et al., 2011). So far, the Dutch government – with a strong focus on budgetary problems and a strong ideological desire to restructure the welfare state - has stressed primarily the financial side of the coin. Increasing older workers’ participation rates and raising the effective retirement age is primarily motivated in financial terms, and far less from a more pragmatic demographic and labour market point of view. Defining the problem in these terms makes it a problem many employers cannot relate to easily; the problem is perceived as a macro-budgetary one that is beyond the horizon of an individual employer.

The focus on the budgetary dimension also stands in the way of addressing the long term problem of active ageing. The current, partly real and partly perceived, problems of many older workers – worn out, outdated or depreciated human capital, a narrow focus of experience – that make them less attractive for employers can – at least partly – be attributed to the lack of maintenance and new investment in employees’ skills and competencies during the life course. Also, working conditions, not to mention health promotion have not always been given the attention they should have got. Up till now, the government and social partners have held moving speeches on life long learning and sustainable labour market participation. But so far, concrete actions have been limited. As a matter of fact, the Dutch department of Social Affairs and Employment has only recently (early 2011) appointed someone who is to co-ordinate all actions by the department aimed at increasing sustainable labour market participation. This might be a first step towards more consistent, integrated and coherent policies aimed and raising older workers’ labour market participation, not only in the short run, but also for future generations.

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APPENDIX

Figure A1: Share of workers by age groups and economic activity, 2008

68%

100%

82%

79%

83%

82%

83%

77%

83%

90%

90%

82%

82%

86%

81%

72%

79%

79%

79%

80%

24%

18%

21%

17%

17%

15%

19%

13%

10%

10%

18%

16%

12%

19%

26%

19%

21%

21%

18%

8%

1%

1%

2%

3%

4%

3%

2%

2%

2%

2%

0% 20% 40% 60% 80% 100%

Agriculture, forestry and fishing

Mining and quarrying

Manufacturing

Electricity, gas, steam and air conditioning supply

Water

Construction

Wholesale and retail trade

Transportation and storage

Accommodation and food service activities

Information and communication

Financial and insurance activities

Real estate activities

Professional, scientific and technical activities

Administrative and support service activities

Public administration and defence; compulsory social security

Education

Human health and social work activities

Arts, entertainment and recreation

Other service activities

Total - All NACE branches

%25-49

% 50-64

% 65+

Source: Eurostat, 2009

1 Wassenaar is a small village near The Hague, where the president of the VNO (the biggest Dutch employers’ organisation) lived at the time. The agreement was concluded at his home. 2 The Dutch ‘poldermodel’ can be described as the system where major socio-economic issues are discussed between the government and the social partners before the government makes final decisions. Government and social partners frequently meet (at least twice a year) to discuss economic outlooks, the development of wages and prices, unemployment and means to strengthen the power of the Dutch economy. The recommendations of the meetings serve as unofficial guidelines for government policies and the actions of employers’ organisations and unions. In addition, social partners also meet separately to discuss their common interests and their position towards the government.3 We will come back to the details of the early retirement schemes (VUT) later on in this chapter.4 For a long time this transition period was supposed to last until 2015. Driven by budgetary problems the current Dutch government has lowered this date to 2013. 5 This does not mean that workers automatically have the right to continue working beyond the age of 65. Many collective agreements still contain the clause that someone who reaches the age of 65 will have to retire.