Is a 7 percent wage increase good for the Dutch economy?

The FNV (Federation of Dutch Trade Unions) is aiming for a 7 percent wage increase in the upcoming collective labor agreement negotiations. According to the union, this improvement in purchasing power would benefit the economy. Is this really the case, or are employers rightly concerned about this wage demand? And what else can be said about this ‘figure of the week’? We ask Frank van Weegberg, expert strategist at APG.

The union has a point that wages have been lagging behind price increases for several years, says Van Weegberg. “Between 2021 and this year, inflation has on average been higher than wage increases. Cumulatively, wages are now about 2.5 to 4 percent behind price rises. Assuming that prices will rise by about 3 percent next year, a wage increase of between 5 and 7 percent would compensate for the loss of purchasing power over the past four years. So, it makes sense that the FNV is now proposing a wage demand higher than inflation."

The FNV's wage demand would therefore result in maintaining purchasing power, not improving it, as the employers' association AWVN claims. Managing director Raymond Puts described the FNV's demand to NU.nl as "an excessive demand, where reality has disappeared." According to Puts, what constitutes a realistic wage demand should be determined per sector, an argument with which Van Weegberg agrees. “In a sector where the labor market is very tight and wages are relatively low, such as healthcare, inflation compensation seems very desirable to me.”

Four-day workweek
In addition to a wage increase, the FNV is advocating for a four-day workweek. "If healthcare workers work fewer hours, it could lead to less burnout. That would be a positive effect of the four-day workweek. At the same time, more people would be needed to maintain capacity. Those extra hands could then be attracted by a higher salary and other attractive working conditions." Van Weegberg understands that employers are not necessarily eager for higher wage demands. “But they are in need of staff, so they may have little choice but to meet some of these demands. From January 1, AFAS Software will introduce a four-day workweek for its staff, without reducing their salary. They mostly employ IT professionals, who don’t necessarily need more salary but do welcome more free time. However, in healthcare, working less would result in a loss of salary, making it harder to afford rent. Tailored solutions are therefore needed for different sectors.”

A higher wage or lower income tax is, in Van Weegberg's view, a better remedy against rising prices than the current system of allowances. “If the minimum wage is increased and tax rates for lower income brackets are reduced, fewer allowances are needed. This would simplify the system. Employers argue that a higher minimum wage makes labor too expensive, which could lead to higher unemployment, but that’s not always the case.”

More permanent contracts
Unions are also advocating for more permanent contracts. Flexible contracts benefit the dynamism of an economy, as you can attract staff more easily in good times and let them go more easily in bad times. "But for an employee, a permanent job provides a sense of security. Without a permanent contract, for example, it is very difficult to get a mortgage. In certain sectors where seasonal work is involved, such as agriculture, it makes sense to work with flexible contracts. But in the context of job security, permanent contracts should be the goal in sectors that are less affected by economic fluctuations.”

Catch-up
In recent years, a relatively large portion of revenue has gone to company profits, which mainly benefits shareholders. “The wage share, which shows how much of the total income earned by a country is paid to workers and the self-employed, has fallen from 78 percent to 69 percent in the last ten years. Dutch employees are now receiving relatively less for their contribution to the economy than they did in 2014. There should therefore be room for companies to increase wages so that the wage share rises again. Employers naturally argue for the lowest possible costs, but if you ensure that employees have more to spend thanks to higher wages, this benefits companies and the economy as a whole. It is therefore particularly important now that the catch-up to restore purchasing power through higher wages is achieved.”