Strict worker protection regimes have created a two-tier jobs market
Sacking an employee in the Netherlands is no easy feat.
Ask many managers and they will explain to you the nuisance of having to apply to the courts to obtain a “dismissal permit” for an underperforming employee.
Even if a worker has agreed to leave, they then have a two-week cooling-off period to possibly change their mind.
The process is so arduous that the Dutch are deemed by the OECD to have one of the strictest worker protection regimes in the developed world.
This might sound unambiguously progressive for the Netherlands, and a potential inspiration for Deputy Prime Minister Angela Rayner as she seeks to enhance workers’ rights in the UK.
However, for plenty of workers, the Dutch system has backfired.
Underpinning the problem is the fact that many bosses are increasingly reluctant to hire workers given the difficulties they later encounter when trying to sack them.
The result is that more than one quarter of Dutch workers are employed only on temporary contracts, far more than any other rich country.
“Workers are relatively well and it is expensive for employers to lay off people,” says Jannes van der Velde at the General Employers Association of the Netherlands. “That can make it unattractive to employers to hire people on a permanent basis.”
A further 16pc are self-employed, a status that comes with tax benefits and lower social security costs for companies that give them contracts.
It means only just over half of the workforce is employed on what we might deem a typically permanent contract.
The Resolution Foundation, a Left-leaning think tank whose former chief executive Torsten Bell is now a Labour MP, notes that the Netherlands has a much lower hiring rate than the UK and a much greater use of temporary staff.
It means a far lower share of people move between jobs or into employment each year, suggesting the economy also loses a degree of dynamism owing to the strict rules.
The result is an uncomfortably two-tier jobs market, says Marcel Klok, an economist at Dutch bank ING, in which those with lower skills and wages often lose out.
“It has been considered a dual labour market where you have the permanent side with a lot of protection, and the flexible workers with relatively little protection,” he says.
“There are some people who feel forced into a flexible contract or even into self-employment – people who are really low-wage workers. They might be forced because they are cheaper and will only get hired if they are self-employed. It is prevalent in the construction industry.
“But there are also people who are self-employed because they like the flexible hours, they don’t like having a boss – there are a lot of consultants who do this, because they think they can earn more money working by themselves. We had a very big increase in the number of life coaches – people who really want to be self-employed.”
The surge in self-employment has raised fears over how Dutch pension funds will be financed in future, says Van der Velde, driven by the fact that this cohort of workers is not obliged to make mandatory contributions.
“On a working population of about 9m people, the estimates are there are about 1.5m who are registered as self-employed,” he says.
“If the number of self-employed people keeps growing, it becomes more difficult to maintain the pension funds and social security funds as they are.”
Since the pandemic, the Netherlands has seen a similar hiring boom to the UK, he adds, giving employees more bargaining power to push for higher pay – and a permanent contract.
But that was not the case when the jobs market was weaker.
In the UK’s case, hiring is on the slide.
Worse still, James Reed, the chief executive of recruitment giant Reed, says the prospect of tighter worker protections is already making employers increasingly cautious.
“If you are a school leaver or a new graduate or an ex-offender trying to get back into work or someone who has had a career break – people who employers might take a chance on – you are going to find it more difficult,” he says.
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