Curing the Dutch disease

Curing the Dutch disease

Are the obligations towards sick employees at the heart of problems at the labour market?

In the run up to the negotiations on labour market reforms between the government and the social partners, an interesting new topic has come to the fore: the obligation of employers to pay sick workers for a period of two years. According to the president of the CNV Trade Union Federation, employers are hesitant to hire new staff (on a permanent basis) because of the duties imposed upon them. He went on to state that the labour market reforms being considered by the VVD-PvdA coalition, in particular a relaxation of dismissal law, will not get our economy back on track. The main problems for employers do not lie in that field, or even in allegedly excessive severance payments.

The argument is that the risks related to sickness are what make employers more and more reluctant to hire staff on a permanent basis. Labour market statistics give some support to this claim. Workers are nowadays more often hired on the basis of a so-called ‘flexible contract’, e.g. a contract for a fixed term, or via a temping agency. In this way the employer’s financial obligations are limited. Another development is the increase in the use of self-employed workers without staff (ZZP’ers in Dutch) instead of employees. A significant number of them are not ‘real’ entrepreneurs, they are just employees in disguise. Some of these only started their ‘business’ because their employer fired them but was prepared to hire them back if they were self-employed. The choice for a flexible contract or self-employed status is most certainly not always dictated by the employer. It offers freedom and opportunities to the workers involved, and a lot of them are quite happy with their status. But there is a significant number of workers, especially low-skilled workers, who have little say in the matter.

Flexible contracts and self employment are not an ill as such, though it is questionable whether it is fair that so-called insiders (employees with a contract for an indefinite period) are better protected than outsiders, such as ZZP’ers. But what is more important in these uncertain economic times, which require consumer trust and a willingness by workers to invest (e.g. in skills and education), is that the uncertainty inherent to the status of ‘flexworker’ might very well have adverse effects. To name just one example: flexworkers and self-employed workers have difficulties obtaining a mortgage, because banks apply more strict criteria to them. The effect on an already shaky housing market is easy to predict.

Most employers do not have to bear the full burden of sickness payments, because they are insured for long-term sickness payments. Insurance cover comes at a price, though, and it might still entice employers to externalize risks by means of a shift towards flexible contracts. We need to rethink the extent of the financial obligations an employer has towards sick staff. In my view, that does not automatically mean abolishing them. One must take into account that these obligations were introduced relatively recently to fight a particular Dutch disease: the enormous (ab)use of social disability insurance. Making employers financially responsible for sickness and introducing a duty to rehabilitate sick staff has helped to cure this disease. Therefore, a balance has to be struck between alleviating excessive burdens on businesses and their responsibility towards sick and handicapped workers. Alas, in these difficult times, there are no easy solutions.