THE HAGUE – A French multinational’s suggestion in the Netherlands to ask older workers to accept pay cuts as a cost-cutting measure has touched a raw nerve as the Dutch economy faces a slowdown and rising unemployment.
Unions see the idea doing away with the principle of paying older workers more for their experience as an attack on a fundamental right, while employers see it as a solution to avoid layoffs in a crisis-hit economy.
The debate has raged in the Netherlands since French IT giant Capgemini’s Dutch general manager, Jeroen Versteeg, said he was looking at “calibrating” 5,000 Dutch-based employees to see if salaries matched current market value and productivity.
“Previously, this branch has always done well, with skyrocketing salaries to match,” Versteeg told the Financieele Dagblad daily last month. “But the market has changed and we have to bring ourselves in line with it.”
Versteeg said the economic crisis raging in Europe since 2008 has dramatically changed the situation in the sector.
Versteeg said in some cases, specialist fees in the IT market have dropped by as much as half over the past four years.
Consequently, newspaper reports said Capgemini will ask some 400 workers who the company thinks might be earning too much to take voluntary pay cuts of up to 10 percent.
The company denies the policy is about age, but spokeswoman Madelon Kaspers said that “a person aged 23 and at the start of a career is not likely to have a salary imbalance.”
“With a person age 35 or 45, it may well be the case,” Kaspers said. “It’s not about age, but about the balance between market value and reward.”
Kaspers said Capgemini saw the request for a voluntary pay cut as an alternative to mass job losses, which it believed to be “socially undesirable.”
Under Dutch law, a company may not force workers to accept lower salaries, and those who refuse to take a voluntary cut will be offered training to broaden their skills base, Kaspers said.
However, she said, “in the current financial situation, it’s not possible to guarantee jobs.”
In the Netherlands — as well as in France and Belgium — employees have always earned more as they grow older, and Dutch workers see the principle of a salary increasing with age and experience as sacrosanct.
But with aging workforces around much of the world, the Organization for Economic Cooperation and Development warned age-linked pay scales are becoming costlier.
“Seniority-pay arrangements probably make less economic sense for employers today than they did in the past,” the OECD noted in a recent report.
In 1966, half of employees in industrialized nations were under 35, and the average age was 34. By 2011, that figure had dropped to just over a third, with the average age climbing to 40 years. By 2050, the average age will stand at 42.
“It is not possible for employers to pay a growing number of older workers more than their worth in productivity terms when there is a declining number of younger workers who are paid less than their productivity,” the OECD report said.
A recent study by three Dutch academics found that 75 percent of the country’s employers expect the wage-productivity gap to increase further as the workforce ages.
“Except for the United Kingdom, employers do not apply demotion of older workers to balance pay and productivity,” the study said. Undertaken by Wieteke Conen, Kene Henkens and Joop Schippers, the study also looked at the situation in numerous European countries.
Figures from Eurostat, the EU’s statistics office, show that seven eurozone countries are in recession: Greece, Spain, Italy, Cyprus, Portugal, the Netherlands and Finland. The eurozone’s economic output shrank by 0.6 percent in the final quarter of 2012, the steepest fall since 2009, when the global economy was in its deepest recession since World War II.
As a result, unemployment is on the rise in the Netherlands.
The largest bloc of the unemployed is the 45-65 age group, and with the retirement age set to rise from 65 to 67 by 2021, the suggestions of a salary cut have provoked a vociferous debate.
As far back as 1996 the Dutch government’s think tank, the Central Planning Office, noted that the nation’s salaries were out of proportion with performance for certain employees.
Three years ago, the social affairs minister at the time, Piet Hein Donner, suggested that older employees’ salaries “needed to be looked at.” His comments were met by a fierce outcry from unions.
Now that Capgemini has rekindled the debate, unions are once again furious and analysts skeptical.
“The commotion over Capgemini’s plans . . . makes it clear how sensitive the position of older workers in the marketplace is,” Paul de Beer, labor relations lecturer at Amsterdam University wrote in an opinion piece in the Financieele Dagblad.
Capgemini’s plan “is possible, but whether it’s a good idea is another question,” added Lei Delsen, associate professor at the Nijmegen School of Economics. “Companies should be careful of lowering salaries for older workers, it will have an impact on (overall) productivity,” he said.
Dutch unions were blunter.
A spokesman for FNV Bondgenoten, the Netherlands’ largest union with some 475,000 members, called it a “veiled round of layoffs.”
“It’s like being ambushed by a highwayman jumping out from the bushes saying, ‘Your money or your life,’ ” said Reiner Castelein of Dutch union De Unie. “We are advising people not to take the cut.”
Other multinationals operating in the Netherlands have been silent on whether they think Capgemini’s idea is a good one.
However, with the Dutch economy not expected to return to growth until next year due to the ongoing eurozone debt crisis, many companies may find themselves under increased competitive pressure.
Firms in the hardest-hit southern European nations have shed jobs and lowered wages in order to regain lost competitiveness.