The Dutch system of employment protection is often perceived as too strict for workers on permanent contracts, because of
the large procedural inconveniences, difficulty of dismissal and high severance pay. It is suggested that the system of employment
protection lowers labour market flexibility by lowering hiring and firing rates, and increasing the employers’ labour costs.
Many parties (e.g. government, employers and trade unions) have opted for reforms of the system in recent years. One of the
proposed scenarios is to allow for more differentiation by decentralising employment protection, e.g. regulations in individual
or collective labour agreements. At present, however, it is already possible to regulate employment protection on a decentralised
level, i.e. in collective labour agreements on a sector or company level. Dutch national labour law is only ¾ binding, implying
that deviations are allowed for in collective labour agreements. Yet, most research on employment protection is on the national
provisions and disregards this sector level differentiation. With this study we contribute to the literature by investigating
employment protection provisions on a sector level.
The level of employment protection on the sector level not only
depends on the national level of employment protection, the system of unemployment insurance, but also of union power and
collective bargaining strategies pursued by the trade unions. Employment protection provisions might be used as a trading
good in collective bargaining, i.e. there might be a trade off with other provisions such as bargained wage development or
extra-statutory unemployment insurance. This might lead to sector differences in the level of employment protection found
in collective labour agreements. In addition, employment protection affects labour market performance. Hiring and firing rates
are expected to be lower at higher levels of employment protection, and the use of temporary contracts as an alternative to
regular workers is expected to be higher. To analyse the collective labour agreements, we use the FNV CLA databank and for
the analysis of labour market dynamics, we use the online databank of Statistics Netherlands.
Our study shows that
sector level provisions on employment protection are at or above the national level, which is related to union density. The
higher levels of employment protection seem to come at a cost for employers who have higher labour costs, both non-wage and
wage costs. Consequently, hiring and firing are indeed lower at higher levels of employment protection. The use of temporary
contracts, however, is not higher at higher levels of employment protection, but the opposite is observed. These findings
can have important policy implications, especially with respect to the debate in shifting responsibilities, in general but
particularly with respect to employment protection regulation, to the sector level.