Benefits and burdens of permanent and flexible contracts are still unevenly shared

The coronavirus crisis has had an impact on many flexible workers

The coronavirus has again exposed major differences between permanent and flexible working.  In March and April 2020, primarily agency and on-call workers applied for benefits under the Unemployment Act (Werkloosheidswet – WW). Unemployment is not only detrimental to flexible workers themselves, but the additional risk of unemployment in the case of agency work is also passed on to the social security system, without any adequate premiums paid in return. The Balanced Labour Market Act (Wet Arbeidsmarkt in Balans – WAB) introduced higher unemployment contributions for flexible work, but this does not fully cover the high unemployment risk arising from agency work. There is also an external effect: the type of employment relationship that employers choose has a collective effect which is not sufficiently reflected in the market price of agency work.

Temporary agency workers, in particular, have a high risk of becoming unemployed

Flexible workers have a relatively high risk of having to claim unemployment benefits.  This mainly applies to agency workers. Temporary agency work is after all usually short-term, which heightens the risk of unemployment, and an agency clause under which employers can easily terminate the contract is relatively common in these temporary contracts. In 2018, the risk of having to claim unemployment benefits was around 12% for temporary agency workers and 1.5% for employees on permanent contracts (see figure 1). Strong rises in unemployment in 2014 resulted in 25% of temporary agency workers claiming unemployment benefits.

Figure 1 - Temporary agency workers have a much higher risk of having to claim unemployment benefits than other employees

High expected unemployment costs

In contrast to the higher risk of having to claim unemployment benefits for workers on flexible contracts, the duration of these benefits is usually much shorter than for permanent contracts. The duration that unemployment benefits are paid does after all depend on work history. Moreover, the amount of the benefits paid to former flexible workers is lower, as their previous income was also lower. This is because flex workers work on average fewer weekly hours than workers with a permanent contract, and the hourly wage is also on average lower.  

Nonetheless, the expected costs of unemployment benefits, calculated as the average amount of unemployment benefits, multiplied by the risk of unemployment, are on average much higher for employees on flexible contracts than for employees on permanent contracts. For example, the estimated costs of unemployment benefits are EUR 263 for permanent employees, compared to EUR 738 for agency employees (see table 1).

Table 1 Expected costs of unemployment benefits
In EUR

Towards a more balanced labour market

Flexible contracts have both advantages and disadvantages. Businesses can use flexible contracts to respond to varying levels of demand, as an extended trial period for employees, or to provide temporary cover for sick personnel. Workers on flexible contracts have less income security, they earn lower wages, and they also receive fewer opportunities for training and development. The disadvantages of flexible contracts mainly affect employees and the social security system, while the benefits are mainly for businesses. This results in an imbalanced distribution of risks and job security across the labour market. This year, the government took the first step towards achieving a more balanced labour market by introducing the Balanced Labour Market Act. The Act stipulates, among other things, that companies will have to pay social security contributions for employees on flexible contracts. 

However, further progress still needs to be made, as there are still excessive differences between permanent and flexible labour. For example, if there is insufficient work, temporary agency contracts will in most cases be terminated due to the inclusion of the agency clause.

This can be a good reason for businesses to opt for temporary agency contracts or other forms of flexible labour, above all in these uncertain times. However, temporary workers are increasingly being used to perform work of a non-temporary nature. Flexible contracts entail higher estimated unemployment benefit costs, which are still only partly passed on to employers in the form of higher social security contributions. A more balanced distribution between risks and job security on the labour market is needed.