Employment of Older Workers in the Netherlands: Recent Reforms

1. Introduction

Recent Dutch experience of employment for older workers differs significantly from that of other continental countries like France and Germany. In a nutshell, over the last 7 or 8 years, the Netherlands have been able to start reversing the early retirement trend and improving employment at end of career. As a result, the employment rate of 55-64-year-old Dutch workers increased from 30% in 1995 to 42% in 2002 (for men from 41% to 55% and for women from 18% to 29%), and the average age of exit from the labour force rose from around 60 years in 1995 to 62 years in 2002 (cf. EUROSTAT, 2004).
Broken down by age groups, the largest increase in labour force participation occurred among 55-59-year-olds. Beyond the age of 60, the participation rate decreases sharply, as fewer than two out of ten people aged 60-64 years are in work. By the time people reach the age of 65, hardly anyone has a paid job (5%). There are, however, large differences between older men and older women, regarding labour force participation. At the age of 55-59, some 72% of males work, whereas in the 60-64-year age group 27% of men still have a job. The corresponding figures for 55-59-year-old and 60-64-year-old females are 34% and 11%, respectively. Labour force statistics also show that, although older women have lower overall labour participation, their participation rates increase more quickly than those of men. Moreover, there is a clear generation effect in the likelihood of older women working. For younger generations it is far more acceptable and normal to have and remain in a paid job, not only after the birth of a child but also at higher ages (see European Employment Observatory Monthly Newsletter, No. 21).
The most important drivers of the increase in the labour force participation of older people in the Netherlands have been the following:
• Public and company measures reducing early exit and encouraging work at the age of 55-64;
• Promotion of part-time work for all workers at all ages;
• Shortage of qualified workers, already manifest in some areas such as education and health care. Recently, in these sectors, retired workers have returned to work with their level of (early) pension benefits not being reduced. In the health sector, for example, between 2001-2002, 25,000 workers were called back to work.
• Economic growth, the so-called ‘Dutch miracle’, which led to a high rate of employment growth. As labour supply did not keep up with labour demand, older workers were no longer seen as a threat for upwardly mobile youngsters, and employers were also less inclined to use exit routes for older workers (see van Dalen, H. and Henkens, K., 2002).
2. Public measures to promote the extension of working life

Major reforms were initiated around 1995 and accelerated under the second Kok government (1998-2002). To keep the pension scheme affordable and meet the rising costs of care, the Dutch government set — among others — the target of achieving an annual rise of 0.75 of a percentage point in the net participation rate of people aged 55-64 years from 1999 onwards. Efforts have been concentrating primarily on people from the 1945-1960 birth cohorts, who are still largely active on the labour market. To keep these people in work and to prevent them leaving the labour market are the key objectives. Against this background, the basic principles of the government’s efforts are as follows:
• To make it easier and more attractive for people to stay in work longer;
• To avoid forced early retirement where possible;
• Voluntary early retirement must remain an option, but its costs are to be borne individually rather than collectively;
• To encourage reintegration into the labour market.
In 2000, the Dutch government set up the Taskforce ‘Older People and Employment’ with the main aim of keeping people of over 55 in the workforce. The Taskforce was mandated to (i) bridge the gap between policy and practice; (ii) promote changes in attitudes; (iii) foster good practice. The Taskforce started work in June 2001 and presented a final report with recommendations for policy-making in December 2003. A government statement about longer working lives followed in May 2004 (see van der Heiden-Aantjes, L., 2004).

2.1 Public measures to reduce early exit

Changes in the early retirement scheme
Started in 1995, reform of the early retirement scheme (VUT — Vervroegde Uittreding) — previously very generous for wage earners and costly for the state — has been achieved through collective bargaining, with the aim of having the system financed from individual funding. This is a far-reaching reform substituting private responsibility for solidarity (pay-as-you-go financing).
Although there are numerous branch schemes, one general rule is that the withdrawal of a full pension is possible from the age of 60 given a minimum contributory period of 35 years. As a consequence of the reforms, the replacement rate was decreased from 80% to 70% of the previous wage. In addition, favourable tax treatment for early retirement schemes began to be phased out in 2003. By and large, the transition from pay-as-you-go early retirement schemes to funded pension and pre-pension schemes discourages early exit from the labour market and encourages working until the age of 65 years (the statutory retirement age for both men and women in the Netherlands) or even longer. Thus, for example, those working until 70 years can benefit from pensions equal to 100% of the latest gross wage.

This contribution is based on the section “The Netherlands – Encouraging Atypical Work” in the book: Reday-Mulvey, G. (2005): Working Beyond 60 – Key Policies and Practices in Europe, Palgrave, UK.
Geneviève Reday-Mulvey: The Geneva Association, Research on Social Security, Insurance and Employment – The Four Pillars, Geneva, Switzerland.
Katalin Velladics: Netherlands Interdisciplinary Demographic Institute (NIDI), The Hague, the Netherlands.

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