Table Of ContentSCIENTIFIC COUNCIL FOR GOVERNMENT POLICY
W 133
WORKING DOCUMENTS
LABOUR PARTICIPATION AND
UNEMPLOYMENT; A COMPARISON
OF DEVELOPMENTS AND
INSTITUTIONS IN GERMANY AND
THE NETHERLANDS
Uwe Blien and Frank den Butter (eds.)
The Hague, July2 003
LABOUR PARTICIPATION AND UNEMPLOYMENT; A COMPARISON OF DEVELOPMENTS
AND INSTITUTIONS IN GERMANY AND THE NETHERLANDS
ISBN 90 59 59 012 0
PREFACE
The Netherlands and the Federal Republic ofG ermany:a n institutional
comparison
Uwe Blien, Frank den Butter
The present volume investigates the institutional structure of the Netherlands
and the Federal Republic of Germany as this affects the labour market situation.
Among the countries of Europe, these two nations are undergoing particularly
dynamic developments. Following changes in the balance of power in
Parliament, a new government has taken office in the Netherlands. In Germany
radical reforms of the labour market have been discussed and a start made on
them. For these reasons it is worth looking closely at the institutional framework
of the labour market and the economy in general in both countries.
The Netherlands and the Federal Republic also lend themselves particularly well
to comparison for other reasons: they are not just neighbours but many of their
regulations have much in common. At the same time there are important charac-
teristic differences, in which respect the question arises as to whether these are
able to explain the major discrepancies that have characterised the development
of the labour market in recent years. Can the fact that the Netherlands has
achieved virtually full employment in recent years while unemployment once
again exceeded the four million mark in the Federal Republic in the summer
2002 be explained in terms of the structure of the central institutions of the
economy? This is the key analytical issue addressed by this volume.
The subjects examined by the individual articles are of interest for the light they
throw on the background to the vigorous institutional reform process in both
countries coming to an end at precisely the present time. How are we to provide
an explanation for the functioning of institutions except by drawing a compari-
son between different countries? Since experiments on a macro-economic or
societal scale are ruled out, one is obliged to turn to international comparison for
an understanding of the way in which institutional arrangements work.
The growing internationalisation of economic processes and further European
integration provide additional reasons for looking beyond national frontiers and
drawing comparisons between countries. Not just the markets for goods but
labour markets have long been internationalised and, for this reason alone,
labour market research has been obliged to take an overarching perspective. The
actors in the labour market have only a limited awareness of the limiting condi-
tions under which they act. Whereas in the Netherlands, for example, pay settle-
ments reached in neighbouring Germany have for some time provided a frame of
reference for wage policy, there has to date been little evidence of any interna-
tionalisation of wage policy in the Federal Republic.
LABOUR PARTICIPATION AND UNEMPLOYMENT; A COMPARISON OF DEVELOPMENTS
AND INSTITUTIONS IN GERMANY AND THE NETHERLANDS
The majority of the individual contributions to this volume have arisen from
papers given at a Workshop held in February 2002 organised by the Scientific
Council for Government Policy (WRR)o f the Netherlands and the Institute for
Employment Research (IAB) in the Federal Republic. Participants in the
Workshop were drawn from the staff of the institutions involved, collaborating
academics and decision-makers in government and the Federal Employment
Services.
The WRR is briefly introduced to the German public in a short message of greet-
ing by its Chairman, Professor Scheltema. The Dutch Council corresponds only
in the broadest sense with the Sachverstandigenrat zur Begutachtung der
gesamtwirtschaftlichen Entwicklung (German Council of Economic Experts), as
it works on an interdisciplinary basis and its reports are not so much concerned
with the current state of the economy as with long-term economic and social
developments.
The Workshop was arranged in such a way that current developments and the
underlying institutional structures in each country were presented by a scholar
in the context of that country. These roles were performed for the Netherlands
by UrRR member Frank den Butter and for Germany by Jiirgen Kromphardt, a
member of the Council of Economic Experts. Further to these leading papers
commentaries were provided from the perspective of each country, with Ulrich
Walwei discussing the developments in the Netherlands and Kees van Paridon
those in the Federal Republic. Based on this round, two further papers reviewing
a number of countries were presented: Rainer Fehn discussed the developments
in the Federal Republic against the background of other OEcD countries, while
Ronald Schettkat drew a direct institutional comparison between the
Netherlands and the Federal Republic. The articles in this volume are to be inter-
preted along corresponding lines, with just the addition of a further contribution
by way of conclusion and completion by the authors of this foreword. The
Workshop arose out of the cooperation between the authors over many years in
the Executive Committee of the European Association of Labour Economists
(EALE) and the shared interest in economic, social and labour market policy
issues.
This volume is designed to present further analytical material for international
comparison purposes. We thank all those who presented papers and the authors
for their cooperation and permission to publish their contributions. We thank
Frau Limberger-Katsumi for her cooperation with the translation and Frau Elsner
and Frau Brehm for helping to organise the Workshop.
THE ROLE OF THE SCIENTIFIC COUNCIL FOR GOVERNMENT POLICY
The role oft he Scientific Council for Government Policy
Michiel Scheltema, chairman WRR
It is great pleasure for the delegates of the Dutch Scientific Council for
Government Policy (WRR)t o take part in this seminar, that is organised by our
institutions to compare the German and Dutch policies in the field of employ-
ment and labour market institutions.
Let me say a few words about our Council, the WRR. In a way the Council is a
part of the Dutch model that aims at consensus in the relations between the
social partners. In general we pay much attention to reaching consensus in socie-
ty on important issues of policy.
Scientific information can play an important role in reaching agreements or com-
promises between different parties. E.g. the Council on Social and Economic
Affairs (SER) that advises the government on issues of economic and social poli-
cy, consists of representatives of the social partners, but also includes a number
of independent experts, mostly professors in economics. Because of their partici-
pation the social partners are obliged to give sound arguments for their positions.
Proposals that clearly do not meet the standards of good argumentation, cannot
be upheld.
We can see the same influence of scientific information in the field of politics.
The Netherlands has a number of institutions that do research in order to advise
the government. Well known is the CPB, the Netherlands Bureau for Economic
Policy Analysis (in Dutch still called Centraal Planbureau: CPB)t,h at makes fore-
casts on economic developments and on the consequences of policy decisions.
Even political parties ask the CPB to give an opinion about the economic conse-
quences of their election-programs. It shows the influence that this kind of
information has.
The WRR is the broadest of the 'think-tanks' for the government. It was set up in
1972 to advise the government on long term policy issues, on the base of scientif-
ic information. Members of the Council are mostly university-professors; they
come from various disciplines like economics, law, sociology and biology. At this
moment we have eight members; they spent about three days a week at the
Council. The Council is funded from the budget of the government, but is inde-
pendent in its advices. It chooses its own subjects after consultation with the
government. The subjects are mostly very broad, which means that they are rele-
vant for different ministries at the same time. Since the ministries always have
troubles in looking outside their field of policy, the Council tries to take a broader
look. Examples of recent reports are Generationally-aware Policy (dealing with
the relationship between generations), Safeguarding thepublic interest (on pri-
vatisation), and A continuing Growth of Labour Force Participation. The last one
is most relevant for our discussions today. The most recent reports deal with the
LABOUR PARTICIPATION AND UNEMPLOYMENT; A COMPARISON OF DEVELOPMENTS
AND INSTITUTIONS IN GERMANY AND THE NETHERLANDS
Enlargement of the European Union (Towards a Pan-European Union),a nd with
the important problems around immigration and integration.
I look forward to the discussion of today. I hope they will demonstrate that con-
tinuation of out contacts is in the interest of all concerned.
CONTENTS
CONTENTS
Preface
The Netherlands and the Federal Republic of Germany: an Institutional comparison
PD Dr. U.B lien, prof: dr. F.A.G. den Butter
The role of the Scientific Council for Government Policy
Prof: mr. M.S. Scheltema
Labour market institutions and employment in Germany
Prof: dr. I. Kromphardt
Introduction
Industry-wide wage agreement and employment
Wage restraint and employment: Council majority versus Council minority
On the demand for greater wage disparity
More flexibility on the labour market - but what kind of flexibility?
The German labour market situation, form a Dutch perspective
Prof: dr. K. van Paridon
Unemployment: an unsolvable problem?
Is there a German labour market problem?
From combating unemployment towards increasing the employment rate:
the changing economic and labour market perspective in the Netherlands
since the early 80s
The German economic and labour market policies
Conclusion
Labour participation and institutional reform in the Dutch Polder
model; policy options for the next two decades
Prof: dr. F.A.G. den Butter, dr. C. Hazeu
Introduction
Why is further participation growth desirable?
Future labour dynamics
A scenario for further participation growth up to 2020
Restrictions to further participation growth and policy options to
alleviate these restrictions
Institutional reform for illness and disability provisions
Conclusions: institutional reform in the Dutch polder model
Development of employment and labour market institutions; the
employment-policy success of the Netherlands
Dr. H. Werner, dr. U. Walwei
Countries with successful employment policy
Unemployment
Employment
Economic growth and employment
LABOUR PARTICIPATION AND UNEMPLOYMENT; A COMPARISON OF DEVELOPMENTS
AND INSTITUTIONS IN GERMANY AND THE NETHERLANDS
Working time
Wage development and wage structures
The significance of the institutional framework
More decentral wage determination and wage restraint
Activation of the unemployed
Wage subsidies for low-wage earners
Individual and flexible forms of working time reduction
More possibilities for flexible employment relationships
Conclusion: ways to gain more labour market flexibility
Increased labour market flexibility and unemployment
Prof: dr. R. Fehn
Introductory remarks
Wage policy and labour market performance
Wage moderation
Wage differentiation
Reform of the insurance and transfer payments to the unemployed
Individual unemployment insurance account
Shorter duration of receipt of benefits from the unemployment insurance
Abolition of unemployment assistance
Social assistance only when willing to work
Institutional competition in the transfer payments to unemployed people
How can the wage setting behaviour be disciplined?
Reduction of statutory dismissal costs
More decentralised wage negotiations
Concluding remarks
Labour market flexibility and unemployment regulation and
flexibility of markets; taking the Netherlands and the Federal
Republic of Germany as an example
Prof: dr. R. Schettkat
Introduction
Dismissal protection
Collective bargaining
Transfer payments, taxes, social-security contributions
Conclusions
Scope for future employment policy and institutional reform
in Germany and the Netherlands; a rejoinder
PD Dr. U.B lien, prof: dr. F.A.G. den Butter
Introduction
Some main findings of the articles from this volume
Recent developments and political situation
The Netherlands
Federal Republic of Germany
Prospects
LABOUR MARKET INSTITUTIONS AND EMPLOYMENT IN GERMANY
LABOUR MARKET INSTITUTIONS AND EMPLOYMENT
IN GERMANY
Jiirgen Kromphardt
INTRODUCTION
Although Germany's labour market and employment system show a whole
string of weak points and problems, they are not as bad as they are made out to
be. Reference is made here to the labour force participation rate and the unem-
ployment rate. The labour force participation rate measures the proportion of the
resident population of working age between the ages of 16 and 64 that wishes to
take part in working life, in other words the proportion that finds participation
in the labour market sufficiently attractive to perform a job or look for one. Table
1.1 below shows that in 2000 the labour force participation rate in Germany lies
clearly above the EU average; it is also higher than in the Netherlands, whose
labour force participation rate is below the average. If the unemployment rates as
defined by the International Labour Organisation (ILO) are then examined,
Germany's rate is only slightly better than the EU average of 8.2 percent. Here,
though, the Netherlands come off far better with a rate of only 3.3 percent.
Table 1.1 Labour force participation rate and unemployment rate in Germany,
the Netherlands and the EU
Average 1974-84 1985 1991 1995 2000
I
I I
Labour force
participation
rates (a)
Germany 68.0 (b) 67.4 (b) 73.9 72.8 74.8
Netherlands 58.0 56.0 59.0 61.7 66.2
EU 66.9 66.3 68.5 67.9 69.9
Unemployment
rates (c)
Germany 7.2 7.9 (d) 8.2 7.9
Netherlands 8.3 5.8 6.9 2.9
EU 8.2 10.7 8.2
I L
a) the labour force (i.e. people who are in work or seeking work) aged from 16 to 64 as a
proportion of the resident population of this age
b) western Germany only
c) standardised unemployment rates
d) 1993
Source: OECD, Economic Outlook, No. 80, Dec.2001, Tables lg and 22
Compared with the EU average there is thus no reason to describe the German
labour market as especially incapable, immobile or decrepit. If this occurs any-
way, then it is due to the development in the iggos. During that time the labour
force participation rate and the unemployment rate hardly changed in Germany.
In the Netherlands, on the other hand, the labour force participation rate
LABOUR PARTICIPATION AND UNEMPLOYMENT; A COMPARISON OF DEVELOPMENTS
AND INSTITUTIONS IN GERMANY AND THE NETHERLANDS
increased clearly and the unemployment rate fell clearly. The 1990s therefore did
not bring any improvement in Germany's situation, whilst in the Netherlands
the situation on the labour market improved very clearly, although it is known
that when interpreting the figures it must be taken into account that part-time
work has increased far more strongly in the Netherlands than it has in Germany
and is in the meantime far more widespread there.
In view of the stagnation on the German labour market (measured in terms of
the rates, not the absolute figures: in the 1990s both the size of the labour force
and the number of people in employment increased) there are repeated demands
for reforms and institutional changes to the German labour market institutions.
Here I would like to begin by saying that Germany's labour market is charac-
terised in institutional terms by four features:
Wage determination occurs above all by means of industry-wide wage
agreements which show only a small wage disparity. The state has little
influence, as the collective bargaining autonomy is protected in the
Constitution.
The structure of wages shows a relatively small disparity according to
qualifications.
The unemployed and the economically non-active are relatively well
protected.
Dependent employment is made considerably more expensive by high social
security contributions (above an income of € 325 per month).
As I have been invited as a member of the German Council of Economic Experts
I would now like to present this Council's proposals for reforming the labour
market and to take a critical look at them.
Statements of criticism and ideas for reform made by the German Council of
Economic Experts with regard to these characteristics emerge most clearly from
four consecutive sections of the ~ggagn nual report which are entitled 'Xeep
wage increases below the level of productivity growth" (sections 332-340)~
"Facilitate downward wage differentiation" (sections 341-343), ''A separate pro-
gramme for the low-wage sector?" (sections 344-353) and "Gear the labour mar-
ket system towards more employment!" (sections 353-365). With regard to the
problem of the burden resulting from social security contributions the Council
restricts itself to the low-wage sector.
The main bone of contention for the majority of the Council is the industry-
wide wage agreement, which they see as playing a hampering role in all four
problem areas. I will therefore deal with this institutional regulation first of all.
