If you are without money for a while, you have to be creative. Did you know, says Fred Gersteling, that market vendors throw away unsaleable food at the end of the day? You can take that with you. “If you cut out the bad bits, you can often still eat it.”
The postman pushes his orange cart full of mail bags in front of him, over the puddle-strewn sidewalk of Amsterdam’s De Pijp district – it’s been raining all morning. Gersteling (66) has been earning just above the minimum wage at PostNL for twelve years. He gets 11.16 euros per hour.
Gersteling, an active trade unionist in his spare time, considers himself anything but pathetic. He usually comes around. And if not? “Then I borrow something and pay it back next week.” But he hasn’t been on vacation in years. And after a setback, he has to be extra frugal. For example, when he received a dental bill for “a thousand-something euros”. “That hits hard.”
The Rutte IV cabinet, who took office on Monday, wants more ‘subsistence security’ for the lowest incomes, says the coalition agreement. The most visible intervention to achieve this is the increase in the minimum wage.
Now the minimum wage is still a monthly amount, which amounts to about 10 to 11 euros per hour – depending on the length of the full-time working week: 36, 38 or 40 hours. Soon that will be 11.89 euros per hour for everyone.
Politically, this increase is not controversial, almost all political parties had this in their election manifesto. Nevertheless, the government is taking a risk, because the intervention could lead to the loss of several tens of thousands of jobs for low-skilled and vulnerable employees, according to the calculation of the coalition agreement published on Tuesday by the Central Planning Bureau (CPB). This particularly affects groups that are already vulnerable on the labor market, such as the low-skilled.
The subject was therefore taboo in The Hague for a long time: in the elections of 2017, it was hardly mentioned in any election manifesto. What has changed since then?
Nobel Prize-winning research
The subject was put on the agenda in 2019 by the trade union FNV, which wants to raise the minimum wage much further, to 14 euros per hour.
But political parties feel especially supported by a shift in economic science. Does such a minimum wage increase really lead to job loss? There is now much more discussion about this classical economic theory.
Also read: Politicians are united, but how smart is a higher minimum wage?
For a long time, economists were unanimous: if the minimum wage goes up, ‘labour’ becomes more expensive. So companies will hire fewer people and further automate their work, for example.
The first cracks in that theory appeared in the 1990s, with a startling study by economists David Card and Alan Krueger – awarded a Nobel Prize last year. They compared a US state where the minimum wage was raised to a neighboring state where it did not. In both states, they tracked employment in fast food restaurants. What turned out? The increase had no effect on job growth or the number of new restaurants opening.
More studies followed, also in other countries, that showed little or no job loss. But in addition, studies continued to appear that concluded that jobs are indeed being lost. Since then, there has been much debate among economists about the interpretation of these studies.
But one thing is clear, says Bas Jacobs, professor of economics at Erasmus University Rotterdam. “The effect on unemployment is smaller than we thought twenty or thirty years ago.”
The CPB has also become more lenient about this in its calculations. But the planning office still assumes job loss. This is also because the social assistance benefit is increased by the same amount as the minimum wage. In the CPB models, this leads to people staying at home. Those who receive a wider benefit feel less need to work.
According to the CPB, the two increases together will result in the loss of 0.4 percent of the jobs, about 30,000, according to the calculation.
Disguised Tax
With this increase, the government is therefore taking the risk that low-paid people will lose their job, says professor Jacobs. While there is a much less risky way to help low-income people. “You can also make them pay less tax, or even give tax back.”
The increase in the minimum wage is also a disguised tax, says Jacobs. Because the extra euro that will soon go to someone with the minimum wage, his employer will have to get it from somewhere. “With shareholders, who receive less profit. With consumers, who have to pay more for the product. Or with the other employees, who receive less pay increases. They therefore pay the higher minimum wage.”
The government would be better off keeping such a redistribution operation in its own hands, thinks Jacobs. Although that is politically more sensitive: then politicians themselves have to choose who pays the bill. “Of course it’s more attractive to pretend you can shake a big money tree without anyone seeming to be in pain.”
And the government must also be able to return tax money to low incomes. Jacobs: “With the allowances, that has turned out to be extremely complicated. People get entangled in the systems or do not dare to apply for a benefit, for fear of a government behind them.”
He therefore understands that the government wants to abolish the supplements in the long term. And that a higher minimum wage can help. “Then you take the chance of unemployment for granted, because you yourself will not succeed in reaching low incomes through taxes.”
Subsidy cancelled
Can the government do something to limit the possible job loss? Yes, says Pierre Koning, professor of the labor market and social security (VU University Amsterdam). There are already all kinds of subsidies for employers who hire vulnerable workers. “In this way, employers’ wage costs decrease, so that they can maintain those jobs.”
Strikingly enough, Rutte IV is going to cancel exactly such a proposed subsidy. In recent years, the previous cabinet had devised a new subsidy for employers who employ vulnerable young people who do not earn much more than the minimum wage. That arrangement will not go ahead, resulting in an annual saving of 250 million euros.
That surprises King. Although he also noticed that such subsidies have become less popular in recent years: they are seen as gifts to employers. “Apparently they are willing to pay the price – less employment.”
Or is it even a positive thing these days if jobs disappear? After all, the economy is struggling with serious labor shortages. Koning thinks that in the long run it will be really disadvantageous for vulnerable and low-skilled job seekers. “Even though they may notice it less in the short term, because of the shortage.”
Pleasant ambience
Postman Gersteling is not afraid of losing his job. He just thinks it’s fairer if he and his colleagues start earning more. “I know that some are financially stuck.”
Arjan Vliegenthart, director of the budget institute Nibud, sees this too. For a few groups, the minimum wage is really too low to make ends meet, he says. “Among others for people with a high rent, especially in the Randstad, and people who have high healthcare costs.”
Vliegenthart believes that the coalition agreement “exudes a good atmosphere”. He sees that since the Allowances affair, people with a minimum wage or social assistance benefit have been thinking more positively. “Thinking about livelihood security has changed.”
Even from a number of employers’ organizations there is support. For example, the customer contact centers – where many people earn the minimum wage, or just above – have no objection to this cost increase, says interim director Wietse Westerhuis of the Customer Service Federation, the trade association.
Until now, many wages in his industry have remained low due to stiff competition on costs. But if the government raises the minimum wage, that’s fine with him. “Because then everyone has to stick to it.” Westerhuis even considers it ‘positive and necessary’ that employees should earn more, now that inflation is rising so fast.
There is something else going on for postal deliverers at PostNL, says Gersteling. You cannot work there full-time, due to health and safety regulations. He himself works the maximum five days a week, more than five hours a day. His monthly wage is therefore slightly above the social assistance level of EUR 1,092 net. He finds it impossible to do a second job next door. “You never really know when you’ll be done with this.”
That is why it was a great relief when he recently received his first state pension, on top of his salary. Suddenly he was more generous in the money. The postman will continue to work for a while, not out of financial necessity, but to complete a number of union matters.
As a member of the trade union FNV, he thinks along with the negotiations about new employment conditions for postal deliverers. “I like to stand up for people who are less able to articulate it.” The FNV demands that PostNL raise the lowest wages itself to 14 euros per hour – the minimum wage desired by the union.
Is Gersteling not afraid that this will lead to job loss at PostNL? The company has enough money, he says. He points to the gross profit of 280 million euros that PostNL expects to book in 2021. “Before child labor was abolished, employers also shouted: think of our competitive position. It will work itself out.”
A version of this article also appeared in NRC on the morning of January 12, 2022
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