Modernisation of the Dutch labour market

Increasing the labour market dynamics and participation among older age groups presents the main challenge. As population ageing proceeds, the Netherlands will face shortages of personnel. Higher life expectancy and the raising of the retirement age mean that older employees will need to stay active in the labour market for a longer time.

Various reforms over the past few years have helped to keep older workers longer in the labour market. Early retirement options were dismantled and subsidies for continuing in the workforce were introduced. Labour market participation among those aged between 55 and 65 has climbed up from 34% to 54% over the past ten years. This is a major improvement, but it still lags well behind the participation rate among other age groups: 83% of 45 to 55 year olds, for example, are active in the labour market. The participation rate of 54% also looks meagre when compared to that among older works in some foreign countries such as Sweden, where three-quarters of the same age group are active in the labour market. So there is still much to be gained in this regard.

Besides participation, labour market dynamics for older workers are weaker than for other age groups. Older workers are less likely to lose their job. If they do lose it, however, they take longer to find a new one than those in the 25 to 44 year age group (see Figure 1). The figure also shows that, since 2003, the likelihood of an unemployed person in the 45 to 65 year age group finding a job has risen from 10% to 15% per quarter. The chance of an unemployed person aged between 25 and 44 finding a job is much higher, however, at just over 25%. At the outset of the crisis this percentage was as high as over 30%.

Various schemes stand in the way of more dynamics and participation, notably the relatively strong employment protection and the long duration of jobless benefits.

The level of employment protection for older workers is quite high because – particularly in the case of dismissal through the sub-district court – it rises in proportion to both the number of years in employment and age. As soon as older workers lose their job, this system of dismissal costs lowers their chances of finding a new position. For workers older than 55, the dismissal costs run up to the equivalent of two monthly salaries per year in employment. This compares to just half a monthly salary for employees under 35, making older employees considerably more expensive and hence less attractive. The government’s Spring Accord contains plans to equalise the level of employment protection for all workers, an adjustment that will give older workers a better chance of finding work sooner.

A second scheme that hinders greater dynamics in the labour market is the structure of the unemployment benefits. These benefits are intended to provide the unemployed with an income while they look for a new job. Especially for older workers, who generally have a long employment history, unemployment benefits in the Netherlands are paid out over a relatively long period (see Figure 2 for a comparison with some other OECD countries). Employees who lose their job may receive unemployment benefits over a period of more than three years. Reducing the duration of unemployment benefits – to one year, for example – would help prevent the unemployed from losing contact with the labour market and increase their chance of finding a new position.