The NetherlandsIs long term income growth ensuring social

convergence with better equality and redistribution?

Wiemer Salverda Emeritus professor

Universiteit van Amsterdam

1. To converge or not to converge?2. Bargained wages lag actual earnings and productivity growth, by far3. The stunning Dutch Flexplosion …4. … illustrates the demise of the full-time single-breadwinner model5. Combining individual earnings into household incomes enhances inequality,

but also complicates redistribution6. Social dialogue is as weak as the weakest partner7. Conclusions: individual entitlements to support social dialogue

See Chapter 8 for more.

1. Social convergence or divergence?

• The Netherlands is in many respects an above-average performer for the Pillar of Social Rights

• Employment performance overestimated due to the many part-time jobs• But not all is well: Pay stagnates secularly, flexibility explodes• And, the financial crisis has pushed many Dutch convergence scores

downward, closer to the EU28 average.

Social convergence scores up to and in 2016Dutch scores for most indicators are better than the EU average, but significant exceptions are found for

NLD EU average• full-time equivalent employment rate is low 64% (77) 68% (71)• incidence of low-wage jobs is high 19% 17%• gender gap in part-time employment is large 53% 16% • unadjusted gender pay gap is substantial 16% 15%• incidence of temporary contracts is becoming extreme 20% 12%• transition from temporary to permanent contracts is minimal 23% 34%

And also on a trajectory of decline between 2008 and 2016 for• real disposable household income fell more than EU -7%pt +3%pt• impact of transfers on poverty declined -5%pt -3%pt• risk of poverty and exclusion increased +2%pt --• pension replacement rate shrunk -2%pt +6%pt• participation in activation policies fell substantially -20% -5%• employment rate fell (full-time equivalent) -2%pt (-5) -- (-4)• particularly for youth (full-time equivalent) -10%pt -6%pt• early school-leaving fell more slowly -3%pt -4%pt• involuntary part-time employment per capita grew +2%pt +1%pt• temporary contracts increased fast +3%pt +1%pt

Based on Social Pillar headline and secondary indicators and additional EU indicators.

Note that EU policy making and the Pillar put their trust in the social dialogue but maintain no indicators for this

2. Real bargained (hourly) wages virtually flat, and lagged actual earnings and productivity growth, by far

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Negotiated Earned Hourly labour productivity CBS

+32%

+10%

+4%

3. The Dutch Flexplosion is stunning

• The most important exception concerns temporary employment contracts. These show rapid growth, especially during the period covered by the indicators above. This has led the country on a swiftly diverging path up and away from the EU average.

• Flexibility growth has reached ‘escape velocity’ and left the EU orbit• It has strongly expanded in all dimensions: age, education, weekly working

hours, occupation, industry, and men have almost closed the gap to women. • This is unravelling the permanent labour contract, starting from youths but

now affecting the entire economyOnly employees are considered here – but there is also a strong growth in so-called self-employment

Textbook case of social dialogue: Social partners literally wrote the legal rules.Flexicurity Social Pact 1996 (Temp agencies collective labour contract), turned into Flexicurity Law 1999; EU Directive Temporary work 1999/70; EU Directive Temporary work agencies 2008/104; WWZ law restrictions on temporary contracts 2015. Effects only in a relatively more restrained growth of temp agency work. Dutch job ‘advantage’ reduced to temp contracts only (head count).

For EU average the number of countries hardly matters (1983:8, 1995:15; 2003: 28), and levels are almost identical for EU28, EU15 and EA19.

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Temporary percentage among employees

zone of 1 standard deviationEU27 AverageNLD

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Percentage of employees among population by contract type

NLD Permanent NLD TemporaryEU Permanent EU Temporary

4. Flex case illustrates the demise of the single earnerIntra-household income support complicates fighting against Flex / low pay

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Individual earnings and corresponding equivalised incomes:

Flexible % of permanent contracts

Earnings Disposable income

The household environment brings the flex worker much closer to the income level of the average permanent worker

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1 2 3 4 5 6 7 8 9 10Deciles of overall household incomes:

Percentage distribution of elementary jobs over household income decile

All elementary jobs = 100%

Gross Net Net equivalised

5. Combining individual earnings in household incomes enhances inequality, but also complicates redistribution

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1 2 3 4 5 6 7 8 9 1 0DECILES OF OVERALL GROSS HOUSEHOLD INCOMES

Single earners Dual earnersMultiple earners (3+) Total earnings

27%49

24%

Top share among labour household earnings: 34%

Employee numbers and their earnings over deciles by household-earner types

Percentages shown in boxes are for the shares of all employees in each the three household types

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1 2 3 4 5 6 7 8 9 10DECILES OF OVERALL GROSS HOUSEHOLD INCOMES

Labour household numbers and their earnings over deciles

Growth 1990 to 2013 = 100%

Shares in household growth Share in total earnings growth

6. Social dialogue institutions are essential but the dialogue outcomes shift away from weakest partner

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1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012

Union members as percentage of all employees

BEL NLD

Belgium• Low and non-increasing

percentage of flexible contracts.

• Economy performs equally well.

• Same FTE employment rate, lower head-count rate.

• Very different labour-market structures: full-time, focus on ages 25-55, better earning women.

• Union density is high across the board (esp. women).

7. Conclusions• Economic growth has benefited individual labour earnings barely• Combining earnings in households has rapidly increased as a way around this• However with the consequence of growing household earnings inequality, with a strong

educational gradient, and difficulties of solidarity.• The Flexplosion has added income insecurity to stagnating earnings.• The new Social Pillar (art. 5) aims to reduce flexible contracting and insecurity – however, the

lessons of the two EU directives in NLD are that this will be effective only if supported by individual legal entitlements which can act as a check on work-floor outcomes of social dialogue.

• Temporary contracts for temporary activities only. • Wise to channel all temporary contracts via Temp agencies, as these can be better checked than

the mass of individual employers.• Institute a check on the weakness of the outcomes of social dialogue (add to SPR indicators)• Account in the social dialogue for the replacement of the single earner world.

Thank you

Read this• (with Stefan Thewissen) How has the middle fared in the Netherlands? A tale of stagnation and

population shifts. Institute for New Economic Thinking, University of Oxford, Working Paper 2017-14. https://www.inet.ox.ac.uk/library/view/920

• Individual Earnings and Household Incomes: Mutually Reinforcing Inequalities? European Journal of Economics and Economic Policies, 12:2,190–203. 2015

• EU policy making and growing inequalities. European Economy. Discussion Paper 008. European Commission ECFIN. September 2015. http://ec.europa.eu/economy_finance/publications/eedp/pdf/dp008_en.pdf

• And, naturally, Chapter 8.