There are currently no indications that inflation, through wage increases and a self-reinforcing wage-price spiral, will develop into long-term high inflation. This means there is room for more wage growth in the current macroeconomic conditions.Read more
A permanent job, flexible work or working for yourself as a self-employed professional. It is all possible. But it's not always up to you. Opportunities, rights and risks are unevenly distributed between permanent and flex workers. There is excessive flexibility in the Dutch labour market. DNB recommends reforms.
Today's labour market
The Dutch labour market is performing well, especially in comparison with other countries. Many Dutch people are in paid employment. We work relatively few hours, but our productivity is high. In addition, unemployment is relatively low. In the second quarter of 2021 there were 307,000 unemployed. That is 3.3% of the labour force.
During the pandemic and the lockdown, there was hardly any increase in unemployment. This is mainly due to the extensive government support measures. But the coronavirus crisis did increase inequality in the labour market. Flex workers and self-employed people, especially young people, were hit the hardest. While employees on permanent contracts benefited from the support measures, many flexible workers lost their jobs and more than half of the self-employed people saw their income fall.
One in three people work on a flexible basis
The flexibility of the labour market has proceeded rapidly. In less than twenty years, the share of flex workers and self-employed in the total workforce has increased by one and a half times. Today, one third of the Dutch working population has a flexible contract. This amounts to approximately 1.7 million employees on flexible contracts, and more than one million self-employed persons. This means the Netherlands has one of the most flexible labour markets in Europe.
Advantages of flexible work
A certain degree of flexibility in the labour market is desirable. Flexible work contributes to the adaptability of the economy. Employers can hire staff on a temporary basis at relatively low cost during peak times, or replace their own personnel in case of illness. There are also advantages for employees. After all, not everyone wants a permanent job. Three quarters of self-employed people would rather work for themselves instead of for a boss. Young people also often opt for a flexible job. Moreover, flexible work makes the Dutch labour market more accessible to certain groups of people that have difficulty finding a job. Employers tend to offer them temporary contracts, but are less likely to offer them a permanent job because of perceived risks or uncertainty about their productivity.
Unequal distribution of advantages and disadvantages
However, employers sometimes opt for flex contracts based on other risk and cost considerations. Flex contracts can be financially more advantageous than permanent contracts, as employers pays less tax and make no pension contributions. Moreover, they do not have to continue to pay wages when employees are ill. For staff on permanent contracts, employers must pay more tax, contribute to the pension scheme and continue to pay wages for two years in the event of illness. These kinds of differences inhibit workers from getting permanent contracts. The risk is that an increasing proportion of employees will remain in temporary jobs for a long time, when they would rather not. They have no protection against dismissal and no access to paid sick leave. This leads to income insecurity. All in all, the advantages and disadvantages of flexible work are unequally distributed between employers and flex workers.
Employees on permanent contracts are overprotected
Employees on permanent contracts in the Netherlands enjoy a very high degree of protection compared to other countries. For example, they are well protected against dismissal and receive sick pay for two years. These are advantages for the employee, but entail high costs and risks for the employer. Having to continue to pay sick employees while hiring temporary replacement is a major expense, especially for a small company. As a result, employers are sometimes reluctant to employ people on a permanent basis. On top of that, in times of crisis, employers cannot easily dismiss permanent staff, even though not all their services may be required due to reduced demand.
Excessive flexibility in the labour market
We are committed to promoting sustainable prosperity, and a well-functioning labour market contributes to this. Much is going well, but there is now excessive flexibility in the labour market. Flex workers have few rights and little security regarding their work and income. At the same time, employees on permanent contracts have a high degree of protection. This has led to growing disparities between flexible and permanent employment in the labour market. We must tackle these disparities if we want a better labour market in the future.7
The labour market of the future
The Dutch labour market of the future will be about striking the right balance. A smoothly functioning labour market should provide firms with sufficient flexibility to absorb shocks, while at the same time ensuring an equitable distribution of risks and security between workers, businesses and the government. To achieve this, labour market flexibility must be curbed in two ways: by better regulating flexible work and by making permanent contracts more adaptable.
We have made a number of recommendations for reforms to improve the functioning of the labour market:
- Reduce tax differences between employees and the self-employed. One way of doing this is to phase out tax relief for the self-employed. This will lead to a more level playing field for workers.
- Reduce the differences in social protection between permanent and flexible contracts. This could for example mean more regulation and job security for flex workers, and shortening the length of sick pay for permanent employees from two years to one year.
- Create a social safety net that offers protection to all workers. Self-employed people must also be insured against incapacity for work.
- Set up a facility that provides income support in exceptional economic circumstances to the self-employed and flex workers.
Find out more about our analysis and recommendations for the labour market?
Other economic issues
The pension system, the housing market: there are challenges in these areas too. We examine the issues in these areas and seek to contribute to structural solutions. As an independent advisory body, we clearly indicate the possibilities and the consequences of certain choices, and others can make decisions based on this advice. Find out more here.
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