In the 1980s, expenditure for social security in the Netherlands reached unsustainably high levels. Fuelled by adverse economic developments, unemployment rose sharply. The costs for occupational disability benefits also posed a structural problem (see Figures 1 and 2).
DNBulletin: The Netherlands is no longer ill, but long-term unemployment increases
|Date||23 July 2015|
Schemes for disability and unemployment have seen major reforms in the last few decades. Whereas the Netherlands used to be a negative outlier in this respect, public expenditure for unemployment and disability has meanwhile been reduced to the level of comparable countries. Inflow into these schemes decreased as well. The main exception to this positive development is the long-term unemployment rate.
Note: Comparable countries: Germany, Belgium, Austria, Finland, Sweden and Denmark
Effective reforms of disability schemes
At their peak in 1989, almost 20% of the working population was eligible for disability benefits. In the early 1990s, prime minister Ruud Lubbers claimed that the Netherlands was "ill", and the WAO occupational disability scheme was referred to as the "raw nerve of Dutch society".
By the end of the 1980s, government spending for disability amounted to 7% of GDP – which was considerably higher than other European countries. Assuming that the general health of the population in the Netherlands does not differ significantly from that in comparable countries, this difference in costs could be explained by policy differences. Following the WAO reforms and the subsequent introduction of the Work and Income (Capacity for Work) Act (WIA), the number of new benefit claimants fell sharply, and since 2002 the number of claimants has been steadily on the decrease. Currently, the number of people incapacitated for work in the Netherlands is below the average of that of the group of comparable countries. However, this decline conceals the fact that the inflow into the Occupational Disability Provision (Young Disabled Persons) Act (Wajong) scheme has increased dramatically. Since the introduction of the Wajong in 1998, the number of benefit claimants has nearly doubled. Recently the Wajong was also reformed, resulting in a decline in the number of new claimants. Existing claimants are periodically re-examined. All in all, expenditure for disability in the Netherlands has been strongly reduced, to around 4% of GDP in 2011, a percentage that is comparable to that of peer countries.
Long-term unemployment still on the rise
Following the sharp rise in unemployment during the crisis in the 1980s, unemployment facilities underwent successful reforms: unemployment expenditure in the Netherlands is now lower than the average in other countries. Since the 1990s, unemployment also fell below the average of comparable countries. However, as the Netherlands was disproportionately hit by the recent crisis, unemployment has risen more steeply in the last few years, reaching a level above the average of its peer countries for the first time in twenty years.
The number of 'very long-term unemployed' (i.e. people who have been unemployed for a period of more than two years) is sharply on the increase (see Figure 3). This upward trend is alarming: of all countries mentioned, only Belgium has a higher percentage of very long-term unemployed.
Long-term unemployment can have many causes, but in the Netherlands, older workers seem to be overrepresented in this group. There are indications that this may be due in part to the structure of the Dutch unemployment benefit system: research shows that outflow from unemployment schemes is related to the duration of benefit entitlements. The average unemployed person in the Netherlands is entitled to benefits for a relatively short term: approximately ten months. In comparable countries this term is usually longer (see Figure 4). Older workers, however, are able to accrue unemployment benefit entitlement for a considerably longer period than in most other countries (up to a maximum of 38 months). The Work and Security Act (Wet Werk en Zekerheid – WWZ), which will restrict the maximum benefit period to 24 months effective from 1 January 2016, may contribute to counter the unfavourable development of long-term unemployment.