Governing a Labouw market crisis : a historical analysis of governance by organised interest groups

(1)

Governing a Labour

Market Crisis

A historical analysis of governance by

organised interest groups

Master thesis M. J. Eekhof

(2)

(3)

Governing a Labour Market

Crisis

A historical analysis of governance by organised

interest groups

Master thesis Comparative Organisation and Labour Studies

Universiteit van Amsterdam

Student: Michael Eekhof, 6158773

First supervisor: Mr dr. J.J. De Deken

Second supervisor: Mr dr. F.H. Tros

10 December 2014.

(4)

Abstract

The aim of this research is to answer the question if it is possible nowadays to reduce high unemployment by reducing the labour supply, as was done in the 1980s, despite the change to the post-industrial era? Reduction of working time can be per day (although this was uncommon), per week (in the form of a shorter working week, per year (more days off) or per career (early pension). In the 1980s, the standard working week changed from 40 hours to 36 (or 38 depending on the sector). There was an early retirement implemented that was financed via a PAYG system. There were no limits or replacement conditions involved in this program. This meant that the program could be misused for labour shedding. When this labour shedding takes place, the group of inactive people grows, and so are the costs of social security. This labour shedding was not only possible with early retirement programmes, disability and unemployment schemes could be (mis)used in this manner as well (Ebbinghaus 2000), and that was exactly what happened in The Netherlands. After these policies of reducing labour supply and because of labour shedding, labour participation in the 1990 was low. Changes had to be made, and not only in The Netherlands, in the way welfare risks were insured in almost all welfare states. The new focus of the social security system was to activate people. During the current crisis, the FNV proposed a plan that was a mixture of measures to create jobs and measures to reduce the labour supply. In the social agreement however, there were no more measures to reduce labour supply. The measures regarding early retirement and temporary unemployment have been left out of the agreement between the social partners and the ministry. It proved to be politically impossible to re-implement measures to reduce the labour supply.

(5)

Preface

During my master program of comparative organization and labour studies at the University of Amsterdam, I have chosen to analyse the measures proposed by the social partners to combat the crisis.

During the writing process, there were some people who have helped me making the completion of this thesis possible. Firstly, I would like to thank my thesis supervisor Johan De Deken for giving me advice and supporting me in the writing procedure and research. It would have been a lot harder to finish my thesis without him. Furthermore, I want to thank Frank Trosfor making the necessary interviews possible. Lastly, I would like to thank Jennifer van Loenen for the moral support and Stijn Eekhof for revising some paragraphs.

(6)

List of abbreviations

Active Labour Market Policies (ALMP)

Algemene arbeidsongeschiktheidswet (AAW) Algemene ouderdomswet (AOW)

Algemene werkgeversvereniging Nederland (AWVN) Christelijk Nationaal Vakverbond (CNV)

Collectieve arbeidsovereenkomst (cao) Economic and Monetary Union (EMU) European Union (EU)

Federatie Nederlandse Vakvereniging (FNV) Nderlands Katholiek Vakverbond (NKV)

Nederlands Verbond van Vakverenigingen (NVV) Sociaal Economische Raad (SER)

Stichting van de Arbeid (Stvda)

vakventrale voor Middengroepen en Hoger Personeel (MHP) Verbond van Nederlandse Ondernemingen (VNO)

Vervroegde Uittreding (VUT) Werkloosheidswet (WW)

Wet op de arbeidsongeschiktheidsverzekering (WAO) Wet Werkloosheidsvoorziening (WWV)

Wetenschappelijke Raad voor het Regeringsbeleid (WRR) Ziektewet (ZW)

(7)

1. Introduction

1.1 Problem indication

Since 2008 the Dutch economy, among many other economies, has been in a crisis. This crisis means that years of prosperity was followed by a steep downturn. And although this downturn is not as heavy in the Netherlands as it has been in southern European countries, the crisis has its impact. As of February 2014 the official number of unemployed is 678.000, more than doubling the number of unemployed in 2008 (CBS 2014). Measures have to be taken to get out of the crisis. In the 1980s the response of the social partners to the crisis was to redistribute labour and reduce the labour supply. During this crisis, there were calls to repeat the measures of the 1980s and to re-use the early retirement programs. The largest Dutch trade union (FNV) has proposed a generational pact, inspired by the redistribution of labour in the 1980s. Is it possible now to release older employees from the labour market to replace them for younger employees? Do the policy makers fall back on the policy to reduce the labour supply or is that impossible during this crisis, since governments have turned to activation instead of reducing labour supply in the recent decades after the negative consequences of labour shedding?

1.2 Research question

How do the social partners and national governments resolve a crisis in The Netherlands? Are they using a strategy to reduce the labour supply, or are the using activation measures? And how has the context for policy making changed from the 1980s up to the current situation?

1.3 Thesis outline

In the second chapter, I will first discuss the labour market and thereafter strategies to intervene in the market. This will be followed by a section on how organized interest groups are included in the decision-making process. This chapter will be closed with an overview of the welfare state reforms since the 1990s. In the third chapter, I will provided an overview of the methods used for this research. The fourth chapter will be an overview of the labour market strategies used in the Netherlands in three different periods. The events that led to the need to intervene in the labour market in the 1980s and the strategies used in that

(10)

decade will be discussed in the first section of the fourth chapter. The next section will be on the developments and the radical changes in security system in the 1990s. The final section of the fourth chapter will be on the policy measures adopted by the social partners and the government. Finally, I will present my conclusion in the fifth chapter.

(11)

2. Theoretical framework

2.1.1 The need for labour market intervention

Before I elaborate on the role of the social partners in policy-making and the different policies that they can adopt, I have to answer the following question first: why do governments want to intervene in the labour market when unemployment is rising during a crisis? First of all, most welfare states are expected to provide employees who have lost their jobs a financial compensation via an unemployment scheme. This conflicts with the duty of the government to make sure that the expenses on social programs remain sustainable. Not only does unemployment cause a rise of the expenditure of the welfare state, but it also decreases the taxincome of the state. Furthermore, political parties have made the promise to strive for full employment after WWII. Rising unemployment will have consequences for the next elections (Offe and Hinrichs 1985). Moreover, the majority of the voters are in the labour market and depend on the labour market for their income. Therefore, governments will, among many other features, be judged by their voters on the performance of their labour market strategy.

Besides a crisis, there are other reasons for a welfare state to intervene in the labour market. These reasons are, among others, the unequal power distribution that lays at the core of the labour market. The demand side is in advantage on the labour market. In order to understand the resulting vulnerability of working-age adults on the capitalistic labour market, I will start with Karl Marx (Marx 1867/1967). Marx saw a transformation of the value of the products of work in the capitalistic system compared to the period before the industrial revolution. In the past, people made a product which had a use value. The actual value was formulated in the interaction between other actors and their need for the products in order to survive. In the capitalistic system however, this all changed. Workers made products which would be used by a consumer he did not know. The products he made got an exchange value, it became a commodity. This value is detached from the actual quality of the product and became dependent on the balance of supply and demand in the whole economy (Marx 1867/1967).

What also changed was for whom people produced. Where in the past people were working for the survival of their own family or others directly near to them, now people are

(12)

working for the capitalist. Instead of selling the products of their work, people are now selling their capacity to work (Marx 1867/1967). People have become depended for their and their families survival on a wage earned on the labour market and this wage is determined by the supply and demand in, at least after the globalisation, the world economy (Esping Andersen 1990).

The labour market is an institution which provides a solution to a ‘dual allocative problem’. The production system wants labour input, labour power wants income and social status (Offe and Hinrichs 1985). The fact that the means of subsistence for the labour power is acquired on the labour market, and by that, directly related to the contribution of someone, is new in the capital society. Characteristic to a market is that both the supply and demand side have strategic options to manipulate their numbers, such as waiting for an acceptable price, a temporary exit of the market, the forming of cartels and price agreements among the supply side. Globalisation has added a new strategic option for employers: it has opened the possibility of an exit to another part of the world where wages are lower (Offe and Hindricks 1985).

In contrast to capital, Labour is hindered by peculiar disadvantages, whereby labour cannot use all the evaluable strategic options, which results in an asymmetrical power balance between labour and capital. The first disadvantage lies in the nature of the ‘commodity’. While labour is treated like a commodity, it does not share all the features of a ‘normal’ commodity. ‘Real’ commodities, products, usually enter the market in an organised fashion. The timing, quantity and place of the release of products to the market is controlled and adjusted to market prices. Labour cannot control the entrance of labour power to the market. The entrance of labour supply is determined by, for instance, demographic changes, social changes (the emancipation of woman) and the possibilities for getting a means of subsistence outside the labour market (for instance: being a self-supplying agriculturalist). These are all factors that cannot be controlled by labour itself (Offe and Hindricks 1985). Exceptions to these power inequalities are for instance medical professionals in some countries, who control the entrance of medical studies.

A second disadvantage is that labour has very limited time to ‘wait’. Because a member of the labour power is depended on selling its labour on the labour market to earn its means of

(13)

subsistence, waiting for the right wage is only possible for a limited period of time, until its subsistence is endangered. Moreover, while a manufacturer would bring less products on the market when the price is low, in order to get the price up again, labour does exactly the opposite: when wages are lower, labour power is inclined to work more hours to earn the same amount, to maintain the same level of income. This micro behaviour will result in an ever higher supply of labour, causing wages to drop even more. The demand side, the employers, have more options in this direction. When supply is low and wages are therefore high, it can, if it is possible, decide to replace labour power with technological advances (Offe and Hinrichs 1985). This disadvantage, the limited waiting time, is where the welfare state can give labour some help. Developed capitalist societies have, in a greater or lesser extent, a welfare state: they have policies to guard the workforce from the market disadvantages. Esping Andersen (1990) calls protecting working-age adults and their families form the market decommodification. These policies gives the workforce more independency from the market, by giving wage-earners the ability to wait with selling their work until the price is right. These policies can be pensions, disability schemes, unemployment benefits, social assistance, social housing, subsidized healthcare systems and so on.

A third disadvantage is a qualitative one. The supply side of labour is limited by skills, education and training in its search for a job.

2.1.2 Segments of the labour market

However, not all people in the population are in the labour market, even in countries with a low decomodification rate. A population can be classified by the following groups, based on their status on the labour market (Offe and Hinricks 1985):

I: inactive.

“This includes all those groups whose life activity can either not be labelled as ‘work’ (e.g. children, the chronically ill, the retired), or who, when they ‘work’, do not obtain their means of subsistence as compensation for their work, but instead from legal titles and support claims that are not based on labour contracts (e.g. students, housewives)” (Offe and Hindrichs 1985: 26). They live by culturally and legally defined obligations and their labour power has not been commodified. Their means of subsistence are obtained via public institutions (the welfare state) and/or the family. Part of these segments can be viewed as

(14)

the silent reserve, a group of hidden unemployment. This group consists of people who are willing to work, but currently do not because they believe that the circumstances to work are not ideal. For instance housewives who cannot find a suitable part-time job or students who continue to study to anticipate employment problems.

II: Unemployed.

“Following the conventional statistical definition, there are also those individuals ‘in’ the labour market who are not presently involved in a contractual work relationship, but who either actively seek such a relationship by looking for employment themselves, or in any case are ‘available’ for work” (Offe and Hinrichs 1985: 27). They receive insurance benefits or public transfer payments, in exchange for becoming available again on the labour market when a job opportunity arises.

III: Employed

“The category of the actually employed, whose continuous exchange of labour power for waged income takes place in the framework of a labour contract” (Offe and Hinrichs 1985). IV: Self-employed

“Finally, there is a group of working people who are clearly not in the labour market , though for wholly different reasons than the first-mentioned group. This fourth group consist of those who are ‘independend ’or ‘self-employed’. (Offe and Hindrick 1985: 28). People in this group possess their own means of production, which gives them the opportunity to sell the products of their labour instead of their labour power. These people do not work in the framework of a labour contract, but they bring their products to the market. This, in turn, means that they are not protected by labour related benefit schemes.

inactive active

Outside the labour market Inactive (I) Self-employed (IV) In the labour market Unemployed (II) Employed (III)

(15)

2.1.3 Labour market policies

Labour market policy has basically two features: on the one hand to give incentives to people to move from one of the above mentioned groups to the other in order to affect the number of people in the segments in response to labour market crises. On the other hand, labour market policies are used to protect people inside and outside the labour market from the capitalistic system, via in-work benefits (unemployment benefit, for instance) and general benefits (social assistance). A list of examples of labour market policies theoretically possible:

 working time policies: policy to reduce the amount of labour hours for people in group III to rise employment opportunities for people in group II. These policy can be implemented on an individual basis, by making it possible to work part time, and collective by reducing the amount of weekly working hours. Another form of reducing the labour force is via early retirement: allowing people in group 2 to retire before the official pension age whereupon they can go from group III (active) to group I (inactive), with the intention that they leave vacancies in group III.

Tax policies, for example to give spouses in group I incentives to enter the labour market.

Measures aimed at the creation of jobs, for example via wage subsidies, creating more spots in group III.

Flexibilisation of labour contracts. This can be in many forms: allowing part-time contracts, which can be interesting for people who have to match work with other duties; broadening legislation for the self-employed (zzp), in order to give incentives to people to move from group III to IV and from II to IV, where they are not eligible for the employment-conditional benefits.

Training: possible solution to the ‘qualitative’ problems of labour supply. Can unemployed (II) or almost unemployed (III) get a(n) (other) job in (III).

(16)

2.1.4 Redistributing labour

There are two different approaches that both can be categorised as ‘redistribution of labour’. The first approach is the reduction of the standard workweek and/or the amount of working days per year (Tijdens 1998). The strategy of this approach is to distribute working hours over more people so that a greater percentage of the population will be employed. A second approach is to remove people who are now classified as ‘employed’ from that group by allowing them to retire before the official pension age via an early retirement benefit scheme. This is a popular policy tool to both employer and trade unions: it is an easy way to lose redundant older workers for employers and it is satisfying for both the young and old labour union members (Ebbinghaus 2006).

One of the critique’s on the redistribution of labour, is what economists call the ‘lump of labour fallacy’. “One of the best-known fallacies in economics is the notion that there is a fixed amount of work to be done—a lump of labour—which can be shared out in different ways to create fewer or more jobs” (Bishop 2004: 159, in Walker 2007). According to these economists, advocates of redistribution of labour erroneously believe that the amount of work is not affected by how many people actually do the job. Less working hours for more people do not add up to the same amount of work, these economists say. The perception that the amount of labour was fixed was seen as an ‘irrational believe’, by scholars such as Camdessus (2004, in Walker 2007), De Koning et al. (2004) and Boeri et al. (2000). Shortening the workweek is not the way to reduce unemployment, because the same amount of working hours will be divided over more people, which will increase labour costs (Walker 2007). And, reducing the amount of people on the labour market, via early retirement for example, is not the only possible way to give the youth employment options. The creation of jobs – adding to the amount of work – is much more effective (De Koning 2004).

Walker (2007) however, points out the ambiguity of the claim that a lump of labour is a fallacy. The notion that the advocates of the redistribution of labour erroneously believe in a fixed amount of labour is both used as a ceiling to the amount of work (where the current distribution of labour over the people in the workforce is seen as an optimum, and redistribution of labour over more people would decrease the total output due to rising

(17)

labour costs) and a floor (the argument that supporters of early retirement as a policy against youth unemployment do not believe in job creation).

Walker (2007) however argues that the redistribution of labour is not carried out with the intention that the total amount of work is the same before and after. He writes that the redistribution of labour potentially leads to more work since there are more people with an income, who in turn become consumers. The workforce will also be better rested and therefore more productive. Walker supports his arguments with studies on the reduction of hours worked per day in the nineteenth century. These show that the reduction of the amount of hours worked lead to a higher productivity rate. He denounces the fact that a further discussion on an optimum distribution of labour has been distorted by the lump of labour fallacy.

The arguments of Walker (2007) may be true for the redistribution of hours worked per employee: it could be that more people working will lead to a distribution of income that is economically more favourable and a better rested, more productive labour force. This argument however cannot be made for the one-on-one replacement of an older employee by a younger one via an early retirement programme.

Early retirement is a way to reduce the amount of people in the labour market. The idea is that an older employee from group III (employed) leaves the labour market to group I (inactive) and in return receives a retirement. This older employer will be replaced in group III by a younger person who is currently in group II (unemployed) and on a unemployment or social assistance benefit. Early retirement is thus used for reducing labour supply as a solution to high unemployment. It does, however, not affect the active/ inactive ratio. The total amount of people in the labour market will be reduced, but the amount of people who are employed remains the same. Problematic of the early retirement route is that if there is no replacement condition in the early retirement program, it is very likely that the amount of people exiting employment is greater than the amount that is entering employment. When this labour shedding takes place, the group of inactive people is growing, and so are the costs of social security. This labour shedding is not only possible with early retirement programmes, disability and unemployment schemes can be (mis)used in this manner as well (Ebbinghaus 2000).

(18)

2.1.5 Active labour market policies

Most of the recent research on labour market policies in Europe has been focussing on the active labour market policies (ALMP). ALMPs provide a third option, next to passive protection of income or employment and work incentives via (re)commodification. ALMPs are aimed at the activation of the unemployed and are a combination of investment in human capital and work incentives (Bonoli 2009). Bonoli presents the policies on an axes, with the two extremes, protection and recommodification, left and right:

(Bonoli 2009: 58). ‘Parking ALMPs’ are programs that are not directly aimed at re-employing people but have the objective to keep unemployed that are hard to place at a new job occupied so that they maintain as many skills as possible. Evidence from a 5 year research show that the programs more towards the recommodification side of the scale are more effective on the short term but the measures in the middle catch up at the end of the observed period. The effectiveness in terms of number of created jobs is more or less the same (Bonoli 2009). Calmfors et al (2002) describe three policy solutions to raise employment: (1) Job broking activities: improve matching vacancies and the unemployed; (2) Labour market training and (3) Job creation via subsidised employment. Job creation via subsidised employment has some unintended effects that do not contribute to the activation of the unemployment. An

(19)

employment will be landed by firms that would have hired new personnel anyway. The substitution effect may arise as well: Jobs that have been created for a certain category of workers, will be filled in by other categories of workers just because the wage costs differ relatively. Workers that are hired because of this job creation method, might be taking a place that would have otherwise been filled by an unsubsidised worker. Further, there is the risk of displacement or crowding out, which occurs when these schemes cause direct competition with employment opportunities in the private sector or are at the expense of the competitors. Therefore, the net job creation yielded by the subsidised employment scheme will be lower than the total number of subsidised jobs (Boeri et al. 2000).

2.2.1 Industrial relations: governance by organised interest groups.

How the social partners – representatives of employers and employees – and the state relate to each other concerning employment policy is studied in the field of industrial relations. Industrial relations are the relations between employers, employees and their respective organisations and between these organisations and the government, to the extent that these relations exert a structuring effect on the position of labour in the firm and society (Van Voorden et al. 1993:8 in: De Beer 2013: 12). In other words, industrial relations are the formal and informal rules about the position of and interactions between employers and employees on the labour market and in professional organisations (Tros et al. 2004: 11). Bamber et al. (2004) distinguish employment relations, dealing with the individual relation between employer and employee, and industrial relations, who deal with collective labour relation. This research will only be about industrial relations, the relations between representatives of employees and employer unions and their relationship with the state. In the Netherlands, significant changes in the strategy of the labour market policies are generally taken in consultation with the social partners (Van Der Meer et al, 2003; De Beer 2013). The social partners influence the labour market policy by collective bargaining (cao) as well. These collective agreements largely determine the position of labour and of employees within a firm or sector of the economy. The social partners thereby play an important role in the formation of labour policy, from the level of firms to national policy. Internationally, the study of incorporating organized interest groups in the formation of labour market policy has been getting renewed attention after Schmitter (1974) published

(20)

his essay ‘Still the Century of Corporatism?’. In South America, Schmitter discovered, corporatism was still a widely used form of governance. And, upon further research, Schmitter found that there was also in Europe a wide range of modern democratic forms of this type of governance. In this context, corporatism is defined as: “a system of interest and/or attitude representation, a particular modal or ideal-typical institutional arrangement for linking the associationally organized interests of civil society with the decisional structures of the state” (Schmitter 1974:86). This was a surprise to the academic field, as it was generally believed that corporatism has disappeared along with the fascist regimes of the 1930s it was closely linked with (Streeck 2006). However, the forms of corporatism found by Schmitter did differ from the fascist variant. The modern variant consisted of interest representation rather than co-optation and repression. Pre-war corporatism could also be understood as governance by interest groups, but instead of free groups, these groups were authoritarian, compulsory structures: “organisations that ostensibly represented interests in fact subordinated them to the priorities of an authoritarian political regime” (Crouch 2006: 47). The corporatism found after World War II was a liberal variant of corporatism that Schmitter called ‘societal’. It was a voluntary cooperation of organised labour and employer interest groups who reached compromises whit each other and with governments on a central level. The members of the labour organisations benefited from the compromises in a way that it did not disadvantage the national economy (Crouch 2006). Societal interest representation became part of the decision-making and was, as such, linked to institutional infrastructure of the state (Visser and Hemerijck 1997).

Corporatism means allowing interest groups to interfere with political processes. Initially, this seems to collide with democracy. Streeck and Schmitter (1984/1985, in Streeck 2006: 18) argue that it is “blurring of the boundary between state and civil society that is at the heart of any form of corporatism, where organised groups participate in and contribute to the making of binding political decisions”. This blurring can be achieved as problematic since the interest groups, especially employer associations, are not democratically elected. So why is it considered to be an acceptable form of governance? One answer is that it is politically accepted because the organised groups can prevent social unrest among their members and can create support for policies (Streeck 2006).

(21)

Why do we speak now of neo-corporatism? Corporatism as a governance model has been rediscovered in a time in which national governments were looking for ways to handle the increasing power of the trade unions in the era of industrial growth in the first decades after World War II. The stated ambition of national governments to strive for full employment gave the trade unions a strong bargaining position. As a consequence, the trade unions behaved more activist. This was disadvantageous because in the Keynesian economic policy that most western national governments employed in the 1960s, it was important that the trade unions moderated their demands (Streeck 2006). In the Keynesian model, the main tool to manage aggregate demand in the economy was to soften the peaks. During periods of weak demand the state would accept that it would spend more money on programmes than it would raise in taxes, thereby accepting that the deficit would raise. To balance this, the state would bring in more tax than it is spending budget in periods of growth, in order to limit excessive expansion (Crouch: 2006). In this type of policy it was crucial that the trade unions moderated their wage demands, because high wage demands would lead to inflation. The task for politicians was to combine full employment and monetary stability in their policy. Neo-corporatism was the answer to that question. Neo-corporatism was a policy “that combined public ‘concertation’ of private organized groups with liberal democracy and democratic autonomy of civil society from the state” (Streeck 2006: 13). Access to decision-making was being exchanged for moderation of the demands of the trade unions.

Wage politics could be maintained in this way, but this time not by directives of the national government but by agreements with capital and labour. By these agreements, “voluntarily, therefore, and in exchange for a macro-economy favourable to their members’ interests, they would behave as forces supporting social and economic order – something that the authors of fascist corporatism had instigated through authoritarian means” (Crouch 2006: 48).

2.2.2 Changes in the post-industrial era

Internationalisation was an unique opportunity to turn the power balance around for capital and the state vis-a-vis organised labour, who was the winner of the power struggle in the 1960 (Streeck 2006). Capital could threat trade unions that they would move employment towards another state if the unions would not give in some of their demands. The state

(22)

could use the same threat for lowering the social contributions for employers, and thereby diminishing the possibilities of social protection. A new option that is given by globalisation to the state is that the national governments managed to secure a binding mandate for liberalisation on a higher level, the European Union (Streeck 2006, see Moravcsik 1998 for a detailed discussion for this matter). Business associations, on their turn, could pressure national governments towards deregulation, free flow of goods, labour and capital, loosening of labour law and could push governments towards welfare state austerity. “(T)hey reinforced the role of free markets by weakening the control of governments and organized interests over economic activities and the formation of relative prices” (Streeck 2006: 21). The competiveness of national economies became the content of bargaining, forcing employees to lower their real wage demands (Crouch 2006)

Crouch (2006) also argues that neo-corporatism has shifted away from handling inflation but, alternatively, has shifted their focus on employment, skills, etc. Instead, employers and unions set up a ‘shared agenda’ to improve the economic performance of the sectors, firms and even the nation. “The exchanges here are complex and detailed. In general, unions want to insist on their members’ opportunities to improve their skill levels, so that their firms can succeed in the global economy without facing wage competition from low-cost, low-skilled countries. Employers insist on improvements in capital intensity that reduce the numbers of workers needed to produce a given output, usually involving net staffing reductions” (Crouch 2006: 50).

2.3 Welfare states reform

The welfare states in economically developed countries were build up during the decades after WWII (Bonoli 2007) and thus they reflect the societies as they were at that time. The main task of the welfare state was to protect the (male) breadwinner. It traditionally did this via cash transfers. The type of welfare states was either Keynes – Beveridgian or Keynes – Bismarckian, According to Taylor-Gooby (2004). The states adopted a full (male) employment policy and provided protection when it was needed. This protection could consist of cash benefits, for instance pension and survivor pension benefits, unemployment benefits, sickness benefits and disability schemes. Providing care was the responsibility of the families and was in practice primarily a women’s task.

(23)

In recent decades however, the society changed. The relative size of the service sector increased compared to manufacturing, women collectively entered the labour market, etc. This changed the composition of the workforce and thereby the risk and with that the social needs the welfare state had to cover. Before these changes the male breadwinner with a spouse and children was the dominant family type, after the changes the distribution of work and care between males and females was changed. The composition of families the welfare state had to protect changed as well, there were many more single parents (Esping – Andersen 1999). In the post-industrial labour market a lifetime career with the same employer was less common and was increasingly replaced by a-typical career paths (Bonoli 2005). Additionally, in some countries the wage inequality in the service sector is large that one job is not sufficient to earn the means of subsistence (Bonoli 2007).

“Contemporary welfare states and labour market regulations have their origins in, and mirror, a society that no longer obtains: an economy dominated by industrial production with strong demand for low-skilled workers; a relatively homogenous and undifferentiated, predominantly male, labour force (the standard production worker); stable families with high fertility; and a female population primarily devoted to housewife.” (Esping Andersen 1999:5). These changes put the welfare states in a crisis. “The new global economy, it is said, undercuts polities’ discretionary use of fiscal and monetary policy, necessitates greater employment and wage flexibility, and especially the less skilled will be condemned to unemployment unless wages and social benefits are reduced” (Esping-Andersen 1999: 3) Not only the costs of the social benefits were under debate, there were new risks as well. The changes increased the heterogeneity of types of wage earners, which was difficult for policy-makers since they had to come up with new measures for the new social risks (Bonoli 2005).

Bonoli (2005) distinguishes the following new social risks. The first new social risk is

reconciling work and family life (Bonoli 2005: 433). Because of the entrance of women into

the labour market there has to be found a new solution for the care and in-house chores the women used to do when both spouses work outside the house. The second new risk is single

parenthood (Bonoli 2005: 434). It is on average harder for single parents to earn their means

(24)

more problematic than for two-parent households. The third new social risk, having a frail

relative (Bonoli 2005: 434), is comparable to the first risk as it was once done, unpaid, by the

women in the family, who nowadays have paid jobs outside the household. The fourth social risk is possessing low or obsolete skills (Bonoli 2005: 434). This is problematic since with the relative reduction of the manufacturing industry, the number of jobs for unskilled or lowly skilled people decreased.

The challenge that the welfare states faced was to keep the costs of social protection sustainable and simultaneously they had to come up with a strategy to insure the new social risks. Policy-makers of the increasingly influential European Union saw social investment as the solution to the problems (Vandenbroucke and Vleminckx 2011). Social investment was a third option, next to the old ‘protection’ measures and recommodification because of welfare state retrenchment (Bonoli 2009). This resulted in a reformed welfare state that offered protection against ‘old’ social risks (healthcare, retirement pensions and other social benefits) and ‘new’ social risks (parental leave, elderly care, child care, active labour market policies and primary and secondary education). Key to this type of welfare state is to increase the activity rate via employment strategies, the active labour market policies (Vandenbroucke and Vleminckx 2011). Unemployment benefits have been partly replaced by a combination of incentives and sanctions to get people to work (Ferrara and Rhodes 2007).

2.4 EU Policy

In Europe, the European Commission became increasingly involved with the social policy of its member states. Especially the European summit of the year 2000 in Lisbon was important for the development of European Social policy. The European Council set new ‘strategic goals’ for the following years. The main strategic goals were social investment, activation and fighting poverty (Vandenbroucke and Vleminckx 2011).

Social policy by the European Union however was restricted by some rules. One of those rules was the principal of subsidiarity. This principal meant that the national governments are responsible for the policy unless the goal cannot be achieved by the national governments, than the EU became responsible (Heidenreich and Bischoff 2008). To overcome these restrictions, the EU have developed what was called the Open Method of Coordination (OMC). OMC consisted of commonly agreed goals which were implemented by

(25)

the member states on a voluntary basis (ibid.). One of the commonly agreed goals in 2000 was a country specific activity rate that had to be achieved in 2010 (Vandenbroucke and Vleminckx 2011). The regulations are so called ‘soft’ regulations, there were no sanctions for member states who do not meet the objectives. To what extend and how these objectives will be achieved was up to the individual member states. The results however will be evaluated by the EU and other member states, the so called peer review (Heidenreich and Bischoff 2008).

2.4.1.Flexicurity

One of the by the European Union promoted mechanism to stimulate job growth was flexibilisation of labour market regulations. National governments however also had the obligation towards there population (and voters) to ensure them of employment protection or security. This resulted in a double policy goal: flexibility and security, or flexicurity. Flexicurity had been an official EU goal since 1993 and had a prominent position on the Lisbon 2000 treaty (Wilthagen and Tros 2004). Wilthagen and Tros present the following definition of the goal of the policy:

“A policy strategy that attempts, synchronically and in a deliberate way, to enhance the flexibility of labour markets, work organisation and labour relations on the one hand, and to

enhance security – employment security and social security – notably for weaker groups in and outside the labour market, on the other hand” (2004: 169, based on Wilthagen and

Rosowski 2002: 250).

In The Netherlands, flexibility was restricted to temporary contracts. Since 1999, there was a legislation, agreed upon by the social partners, which regulated temporary contracts. These contracts were built up so that employees obtained increasingly more rights. After 26 weeks the employer had to give the employee the right to participate in the pension plan and had to give him the opportunity to engage in training programmes. After one year the employee had to be given a fixed-term contract and after 18 months with the same employer or 36 months at different employers, the temporary employee had to be given a permanent contract (Wilthagen and Trost 2004).

(26)

2.4.2 Active aging

‘Active aging’ has been another policy goal for, inter alia, the European Union since the 2000 Lisbon Treaty. Activation of the workforce has been centre of the social policy of the EU and since the activity rate of people over 55 has been extremely low in almost all EU member state, specific measures are recommended for this group. The activation rate of employees over 55 has come to attention to policymakers in Europe mostly because of demographic changes. People are getting older and older, which means that they live longer and longer after their official pension age. Meanwhile, fertility rates have dropped, which means that younger age cohorts are smaller than older age cohorts. This results in a smaller percentage of people active on the labour market and a larger percentage of people in retirement. To release the pressure on social security, two types of measures are possible. One is to rise the official pension age, the other one is to enlarge the percentage of people who actually work until the official pension age. The activity rate of people over 55 is low in most European countries, due to a number of reasons. Financial (attractive early retirement schemes) and stereotyping reasons (older workers are hard to train, do not want to train, lack creativity, are too cautious, cannot do heavy physical work, have fewer accidents, and, dislike taking orders from younger workers) are most important (Walker, 2006).

2.4.3 Economic Monetary economy

Under German leadership, the Schmidt government in the second half of the 1970s, new instruments for managing inflation where found. ‘international monetary cooperation’ and ‘independent central banking’. They were less expensive than the ‘old measures’ (Streeck 2006). The German central bank was already being followed by other European countries and it thereby functioned as a European central bank, long before the European Monetary Union was founded under the Kohl government,

“The German case shifted, as it were, from the demand to the supply side. Now it was no longer monetary stability that neo-corporatism contributed to German prosperity, but high skills, trustful cooperation at the workplace, flexible internal labour markets, rapid adjustment to new technology, successful technology transfer to small and medium-sized firms, and so on, that is, the wide range of capacities that supposedly enabled German firms to prosper under the restrictive zero inflation

(27)

policies of a mercilessly myopic central bank that refused to care about growth or employment (Streeck 1994)” (Streeck 2006: 22).

After the introduction of a shared European currency, the European Central Bank (ECB) took the role of the German central bank over. From now on, the ECB had a steering role in the monetary policy of the member states. The ECB set out the rules regarding the maximal permissible inflation, interest, budget deficits and public debt (Van der Meer et al. 2003)

2.5 Coordination: governing by social partners

In the previous sections I have explained why organised interest groups are incorporated in the political system. In the following paragraphs I will clarify how the social partners influence the political process. Key to this paragraph is the notion that policy is the outcome of a collective endeavour and that this outcome is not always the best optimal possible solution, but an acceptable.

Policy is the outcome of what the policy-maker is pressed (e.g. by voters and interest groups) to do and what it can do (Hall 1986). Both the direction of the pressure and the policy options available are affected by five factors: the organization of labour, of capital and of the state, the position of the nation in the international economy and the political system. The first three factors relate to the socioeconomic structure of the nation. These factors are important because they decide the magnitude of the pressure of interest groups on the policy making and shape the direction of the pressure. These factors combined form the organization and power of the groups who put pressure on the policy maker. Also, the interest of the organized groups is being shaped in relationship to other interest groups. Further, policy is being made collectively, not by individuals. This means that the policy is the outcome of collective negotiations of groups. Within these negotiations, the preferences of the groups are being combined and maybe even altered: “economic policy-making is the output not of individuals, but of organizations that aggregate the endeavour of many individuals in particular ways” (Hall 1986: 233). This has a great influence on the nature of the policies produced. “It is an ‘organizational intelligence’ rather than the intelligence of the individuals that ultimately determines such factors as the capacity of the state for strategic thinking or the quality of the policy” (ibid.). Finally, the organisation of the interest groups is needed for a successful implementation of the policy. The interest groups can be helpful for

(28)

rallying support for the policy among their constituency. Successful implementation of the policy depends on access to organisations in the public and private sectors.

Three of the factors described by Hall (1986), namely the organization of labour, of capital and of the state, form together the system’s capacity to coordinate.

The aforementioned framework of Hall (1986) is part of the historical institutionalism school. The main feature of historical institutionalism is that it aims to explain how political struggles are “mediated by the institutional setting in which they take place” (Thelen and Steinmo 1992: 2). With institutions, “the formal rules, compliance procedures and standard operating that structure the relationship between individuals in various units of the polity and economy” (Hall 1986 :19) are being meant. Or: “institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction. In consequence they structure incentives in human exchange, whether political, social or economic.” (North: 3)

The institutional context in this branch of literature consists of, among others, the electoral system, the structure of political parties within a country, de relationship between different branches of the government, and the structure and organization of collective economic actors such as labour unions. Whether norms and notions such as class structure should also be part of the analysis is part of an ongoing debate in the scientific field (Thelen and Steinmo 1992).

To clarify how contributors to the field of historical institutionalism suppose that institutions steer behaviour, Thelen and Steinmo (1992) compare their perspective of institutions with the perspective of rational choice scholars. Rational choice scholars see institutions as constraints of behaviour. A strategic context which limits the pursuit of self-interest. In a context wherein cooperation is the most important institution (rule of the game), actors will behave differently in order to maximize their self-interest then they would behave in a context wherein competition is the main rule of the game. Historical institutionalists do not challenge the view that institutions provide the strategic context wherein actors define their interest and that a different institutional context can alter the way the actors pursuit their interest, but they do see this view as too narrow.

(29)

Firstly, historical institutionalists do not see actors as “all knowing, rational maximizers” (Thelen and Steinmo 1992: 8) but more as “rule following satisficers”(ibid.). Satisficing is a term introduced by Herbert Simon and is a combination of the words satisfy and suffice. Satisficing means searching through available alternatives until a threshold is met, a solution is found that is perceived as ‘good enough’. Secondly, and most important, historical institutionalists believe that not only the strategies of actors are being shaped by the institutional context, the context also shapes the goals of the actors. And because there are possible contradictory institutions within a context, there are multiple logics available. Thus, where rational choice scholars see maximizing of self-interest as a given, historical institutionalists see preference formation as something that is being formed within the institutional context (Thelen and Steinmo 1992). This is the most important insight out of institutionalism: context and the concept of ‘rule following satisficers together determine the outcome of the process. The outcome of the negotiations between the social partners and the national government is not necessary the best possible solution, but it is a satisfying solution for all the negotiators at the table and their constituency.

So institutions shape the strategies and goals of political actors. Hall (1986) adds to this that institutions at the same time also define the distribution of power of the actors:

“institutional factors play two fundamental roles in this model. On the one hand, the organization of policy-making affects the degree of power that any one set of actors has over the policy outcomes… On the other hand, organizational position also influences an actor’s definition of his own interests, by establishing his institutional responsibilities and relationship to other actors. In this way, organizational factors affect both the degree of pressure an actor can bring to bear on policy and the likely direction of that pressure” (Hall 1986: 19).

Institutions steer and restrict political processes but they are never the sole cause of the outcome of political process. There are, undeniably, forces such ass class struggle and group dynamics that thrive political processes. The outcomes of these political processes, however, are being influenced by institutions. The different institutional contexts present around the world is how historical institutionalism can explain why class struggles have different outcomes in different countries (Thelen and Steinmo 1992).

(30)

2.6 Hypotheses

Based on the findings out of general theory, what kind of policies can we expect from the social partners during the current crisis? Since the strength of the neo-corporatist system has declined, I expect that the social partners are unable to enforce drastic changes in their favour. The national government is limited as well by the EU policies it has committed itself to and is limited by the rules of EMU. This contributes to my expectation that the plans will be small scaled. Because of the EU directive to have an employment policy that is focused on activation and the active aging policy, I expect that it will be difficult to implement measures that reduce the labour supply. Finally, because it is a plan to combat the crisis, I expect that the negotiated measures are on the ‘recommodification’ side of the axis presented by Bonoli (2009) since they are proven to be most effective on the short term.

(31)

3. Methodology and research design

This research is a historical comparative case study consisting of three periods in one country. The sources of this research are both primary and secondary literature, plus interviews for the most recent period.

3.1 Research design

According to Pierson and Skocpol (2002), historical institutionalism has three features: it addresses big questions, it takes changes over time seriously and analyses context and the combined effects of institutions and processes. Historical institutionalism can therefore be a useful analytical tool for this research as I will analyse which strategies the social partners use to combat a labour market crisis (big question) in this and past crisis’s (changes over time) by looking at institutions and the process of policy-making. The main feature of historical institutionalism is that it aims to explain how political struggles are “mediated by the institutional setting in which they take place” (Thelen and Steinmo 1992: 2). With institutions, “the formal rules, compliance procedures and standard operating that structure the relationship between individuals in various units of the polity and economy” (Hall 1986 :19) are being meant.

3.2 Cases

The main object of study is the agreement of the social partners of 2013 (sociaal akkoord 2013). Which measures have been taken and how can they be understood? To understand why the measures of the agreement have been developed the way they are, it is important to research the processes over time that have led to the agreement. Outcomes on critical moments in the past shape the current agreement (Pierson and Skocpol 2002). Therefore, the cases have been chosen on that basis: the critical moments in the past. The first moment in time is the Wassenaar agreement and the period that led to that agreement. The Wassenaar agreement was the first agreement between the social partners in a decade and is the symbol of the Dutch industrial relation system. It is seen as the start of the policy to reduce the labour supply in response to a high unemployment rate, although the first steps to labour shedding were already taken before with the introduction of early retirement programs in 1980.

(32)

The second case are the policy changes in the 1990s. in the 1990s, the social security system was financially unviable because of the many depends on the system. The active/ inactive ratio was extremely unbalanced and a big risk to the budget of the state. The policy was therefore shifted from a policy that was aimed at reducing the labour supply to a policy that was aimed at activation and a stable monetary policy. Without the policy changes in the 1990s, it is hard to understand why the social partners and the government agreed to the current policy.

3.3 Sources

For the period leading up to 1982, I have used both primary and secondary sources. Primary sources are reports of the StvdA (Stichting van de Arbeid) on early retirement and the redistribution of labour and the agreement of 1982. These reports and the agreement can be found in the online archive of the website of StvdA. An important secondary source is the book of van Bottenburg, who wrote a book on the proceedings of the StvdA for its 50 year anniversary. Further resources are the reports of the SER and WRR, which can be found on their websites. The researche of the policy changes in the 1990s have been done based on secondary literature and a study of the rapport of the parliamentary commission led by chairman Buurmeijer, that brought forth the abuse of the social security system.

For the research of the sector plans, I have analysed the plans of Bouw en Infrastructuur, Uitzendbranche, Welzijn & Maatschappelijke dienstverlening, jeugdzorg en Kinderopvang (WJK), Procesindustrie en Schilderen & Onderhoud en Afbouw. These plans are confidential but I have been granted access by Mr. Frank Tros. Further, I have studied the generational pact of the FNV, which was also handed to me by Mr. Tros. The last readable source was the central agreement of 2013, which is also available via the website of the StvdA.

3.4 Interviews

A second type of source I have used for the study of the sector plans is interviews. The respondents were contacted by Mr. Tros. The respondents were contacted via the institutes they worked for. There was not much to choose, we have spoken the people that were willing to be interviewed by us. Mr. Tros and I have done the interviews together. We had a topic list. The first interview was with Mr. P.F. van Kruining on the 21st of February 2014. Mr. van Kruining is a secretary of the StvdA, on behalf of the FNV. The second interview was with

(33)

Ms. M. Xavier, advisor of the general employer union AWVN (Algemene werkgeversvereniging Nederland) and was held on the 26th of March 2014. The third interview was with Mr. J. Hulsmans, policy advisor at an employer union in the construction sector, Bouwend Nederland. The interviewees were chosen because of their position in the decision making process. Mr van Kruining was involved with the first plan of the FNV, the generational pact, and the negotiations of the central agreement of 2013. Ms. Xavier was the counterpart of Mr van Kruining, as she was an advisor for the employer union, where Van Kruining worked for the trade union. Mr Hulsmans was chosen because he was involved with implementing the measures of the central agreement in the sector.

Unfortunately, it was only possible to get in contact with three persons involved with the sector plans. Ideally I would have more respondents. However, the respondents we have interviewed had valuable information and the fact that they are spokesman for organised interest groups and they are speaking on behalf of those interest groups, their information counts more than that of a ‘normal’ interviewee.

(34)

4. Labour market policies in The Netherlands

4.1 Labour shedding in the 1980s

In this section, I will describe the most important measures to reduce the labour supply taken in the beginning of the 1980s. The labour policy of the 1980s is most famous today by the collective agreement of 1982. This agreement is known as the ‘Wassenaar agreement’ because of the location where the agreement was signed by the social partners. The reason why the collective agreement of 1982 is now so famous is because it meant a deviation from a trend. During the 1960’s, the Dutch ‘pillars’ that have structured the society have become less important and they eventually even disintegrated. This resulted in a more polarized society in the 1970s wherein the position of the employers and employees differed widely. It proved impossible for the social partners to reach an agreement in these circumstances. The agreement of 1982 was the first time that the social partners did come together and reached an agreement and was followed by a period of close cooperation (Visser and Hemerijck 1997). The agreement however was not the first step towards reducing the labour supply, that process was already started in the years before the agreement.

Since the late 1960s the guided wage policy that characterised the centrally-planned economy intended to reconstruct the Dutch economy after World War II had officially been released as it had proved to be socially unsustainable. Central wage setting, characteristic to the guided market economy, was suspended and the system that reviewed and revisited collective agreements was abolished. Wage setting was from now on officially open to the social partners. The government however had the possibility to intervene in the wage negotiations when it was of the opinion that the wage agreements of the social partners turned out to be destabilising the economy (Van Bottenburg 1995).

The Dutch economy was hit by the oil crises in the 1970s, which led to an economic crisis. The central left coalition that governed the Netherlands in the first half of the 1970s, led by the social democrat Den Uyl, tried to solve the problem by experimenting with Keynesian reflation but that was not successful. It only caused an increase in wages and deterioration of the competitiveness of the Dutch economy (Hemerijck 2011).

(35)

The social partners, who were responsible for the wage negotiations, were unable reach an agreement in those years. This opened up the possibility for the government to interfere in the negotiations, with the argument that the current wage levels where harming the economy. To the frustration of the social partners, the government interfered often in the years between 1970 and 1982, nine times in total. The social partners themselves only reached a central agreement once in those years, in 1972 (Van Bottenburg 1995).

The inability to reach a central agreement can be explained by the polarisation of the position of the trade unions versus the position of the representatives of the employers. The members of the trade unions were willing to strike and the prevailing social sentiment was against industrialists and in favour of the trade unions. Employees were after the abolishment of central wage setting strengthened in their believe that higher wages were possible after years of wage restrictions, and this believe was reinforced by the central left government of Den Uyl. It therefore was virtually impossible for their representatives to reach an agreement with the employers.

The topic the social partners disagreed most strongly about was the automatic price compensation of wages (Van Bottenburg 1995). This automatic compensation meant that the negotiated wage increase in the collective agreements was a real wage increase, corrected for inflation. During the oil crisis the automatic price compensation had as a consequence that employers where hit twice. Initially by the increase of production costs caused by the high oil price and then followed by the price compensation for the wages of their employees. An annual wage increase of 15% was no exception in the period 1969-1974 (Van Bottenburg 1995). Moreover, social benefits where indexed and they also rose with the same percentage.

Further, the Dutch economy was hindered by what was called ‘The Dutch disease’. The Netherlands had large reserves of natural gas, which was highly demanded in the rest of Europe. This led to a large budget surplus and thus to a high currency rate compared to the countries which were important for the export of the Dutch economy (Hemerijck 2011). The automatic price compensation and the large reserves of natural gas combined caused a rapid deterioration of the international competitiveness of the Dutch economy.

(36)

During this ongoing stalemate between the social partners, there where changes in the composition of the Stichting van de Arbeid (StvdA, Foundation of Labour), a bipartite private organisation founded by the social partners (employer and employee representatives). The two largest trade unions, the NVV (Nederlands Verbond van Vakverenigingen) with socialist roots and the catholic NKV (Nderlands Katholiek Vakverbond) merged into the FNV (Federatie van Nederlandse Vakbewegingen) in 1976. After this fusion, the ratio of members was 4.1:1 in the favour of FNV over CNV (Christelijk Nationaal Vakverbond). This would secure the dominance of the FNV in de StvdA in the coming years. Meanwhile, several unions focusing on the interest of technical and managerial workers joined forces in reaction to the levelling path the other, ‘general’ trade unions were going down and merged into one in 1976, named the MHP (vakventrale voor Middengroepen en Hoger Personeel). By this merge, the MHP was large enough to gain entrance in the Sociaal-Economische Raad (SER, social-economic council) and with that entrance the union gained participation in the tripartite negotiations.

The biggest changes however were on the side of the employers. The largest employer union, VNO, evolved in the 1970s towards a full organisation with a professional staff. Van Veen, an experienced administrator and former Secretary of State and minister, would become the first full time chairman. In 1982, the VNO had a budget of 20 million guilder and a supporting staff of 175 people, of whom 75 where specialists. This professionalisation provided the employers the opportunity to develop plans of their own. Before, the trade unions, who already had a backing staff of professionals, would propose a policy line in the StvdA and the employer union would consult their membersif they approve or not. The fact that the employers were now able to come up with their own propositions, evened the balance at the level of the social partners (Van Bottenburg 1995).

From 1976 onwards the social partners moved closer to each other. Bankruptcies and mass layoffs raised the awareness that employment was a joint interest. The first period of mass-unemployment called for measures. Representatives of the employees and employers almost reached an agreement in 1979, if only the members of some trade unions would have agreed.