Minimum wage, minimum effort?

In contradiction to what you may think, I’m not going to fulminate on how people living on a pay equal or slightly above minimum wage are not putting in enough effort and as a result only get low wages.
I am going to talk to you about this group of people though, yet the lower effort comes not from the employees but from the employers.

Ever since the first wave of guest workers came to The Netherlands, the Dutch have had unforeseen problems. The guest workers did their jobs good, and too cheap for local workers to compete. This has resulted not in the desired gross-income growth, but in a higher unemployment-rate. The guest workers simply took over the places of local workers who have had less education, or have a worse work-mentality or productivity.

No i’m also not going to tell you about our current government who has made the exact same error of opening the borders to Romanian, Bulgarian and Polish workers who are pushing lower skilled Dutch and people who have lower productivity from the labour market.
The, in the world almost unmatched, level of minimum wage is the subject here, it’s the second highest next to Luxemburg.

In Holland, the legally enforced minimum wage is $10,72; where as an equally skilled worker has the right to earn at least $5,15. Yes, that is in US Dollars, and yes, it is less than half of what the Dutch would earn! Luxemburg tops us by only 7 cents, but we still remain one of the world leaders. Why is this bad? I hear you ask.

Because of this high price on lower skilled workers, Eastern-Europeans, younger people and people in the social security are competing with each other to get a job. So far, the Eastern Europeans are winning the battle with ease. All groups are entitled to the same wage, it is however productivity and work-mentality wich puts our Polish friends in favor. They are much more willing to put in some extra hours, and work much faster with less hassle for the employer.
Young people however are less affected by this, they have a separate agreement to adhere to: if they are under the age of 23, there is a minimum youth wage which is lower than the regular minimum wage, making them more attractive for employers.

The main issue here is that the rest of the workforce has a problem: as they are too expensive employers don’t have a drive to take them in. There always is a better equipped or better performing person for the job, like the Polish. In 2005 around 70.000 Polish guest workers arrived in The Netherlands, nearly all of them are working in the agricultural or construction sector; area’s formerly dependant of lower skilled local workers.
So: if this is true, what should be the solution?

Yes: it is quite simple: lower the minimum wage and lower the taxes for lower incomes. This results in lower costs for employers, a better chance for lower skilled workers and people in the social security and an impulse for the latter group of people to gain a notch in income; as this is nowadays not the case due to high taxes.
Ahmed Aboutaleb (PvdA, State Secretary for "Sociale Zaken", the ministry of social matters) and Piet Hein Donner (CDA, minister of "Sociale Zaken") have recently urged employers to take on the task of employing people who now get their income from social security, in an effort to get more people to work. I seriously doubt whether employers will adhere to this call, the laws on the free market of labour tend to dictate otherwise…

9 thoughts on “Minimum wage, minimum effort?”

  1. That’s too easy a solution. You’re advocating more freedom and equality on markets to allow our ‘local’ and ‘low-skilled’ people a fair chance at getting a job that befits them. Polish workers working (legally) in the Netherlands are getting their jobs. Yet, at the same time, you’re argumenting that one of the main reasons that we’re not employing locals but foreigners from Eastern Europe is their better work mentality.

    Quite simply, local workforces are being out-competited on basis of quality there. Naturally, competition with illegal employees or people officially employed in Poland (such as many, many truck drivers) does nót happen on an equal basis, but those are holes in our law and not a matter of minimum wage.

    My vision on this is that as one of the world’s most developed and educated (although I really mostly see morons and idiots wherever I go…) countries, having one of the world’s most complete social security structures in place as well, we’re always going to have trouble competing on basis of low-value added, low-skilled jobs. That’s okay, as it doesn’t fit our mission, vision and ambition anyway: a caring, well-educated and high-tech society. The focus should shift towards service-oriented jobs instead of production-based jobs. To creative jobs instead of execution-based jobs. To orchestrating jobs instead of ordertaking jobs. In a world that’s increasingly competitive, such a position offers a ‘value added’ to the ‘company’ the Netherlands. Low-cost execution does not.

  2. Unfortunately, as you yourself put it, there are a lot of “morons and idiots” out there, not to mention the amount of people living on social security. There are 1.5 million of them, and all are capable of doing a job yet do not for various reasons of which the difference between their income now and the income from work which requires effort is considered too small (which is true in my opinion) is just one.

    The Netherlands is trying to convert from effort-based to knowledge based work fast, and it is partly succeeding well. Education standards are high, knowledge is exported daily and innovations occur even more frequently. (Nuna 4 anyone?) Yet there will always be a part of the residents not able to cope with the society nowadays, may I remind you of the fact that 60% of all Dutch have VMBO, the lowest regular education, as their highest education. In this light, importing laborers is plain stupid as our own workforce is being kept at home enjoying their income from social security.

    A partial solution to this is to make working much more attractive for local workers by lowering both the minimum wage and the taxes for that specific group. I know, for instance, Polish employees are here legally, and I can only encourage their employment as it reduces net costs and thus improves the position of our products on the global market. I also think there is a beautiful task for our most brilliant minds (and by that I especially do not mean our current government) to come up with an ingenious solution to this problem as you and me, being the young people, will suffer most from the ever increasing taxes.
    In short: outside workers can be a bless for our economy, if and only if, we can get our unemployed or outperformed labor force back in a job.

  3. Of that 60% you’ve sketched to have VMBO level education, quite a lot move through MBO (some of which then proceed to HBO as well) as well, which means they’ll have learned a practical profession, quite a lot of which are nót in the construction or agricultural markets that you claimed to be the most heavily hit by this. In addition to this, innovation and creativity are not limited to academical levels of education. In fact, I’d dare to wager that it’s exactly the other way around: early contact with practical situations will stimulate creative thinking and a problem-solving attitude required for evolutionary improvements. Revolutionary improvements might be the territory of academics, but that’s not where we get our big breaks from.

    You haven’t countered my argument that our ‘own’ workforce is simply being outcompetited by a committed external workforce. Sure, you can be of the opinion that we shouldn’t be ‘importing’ foreign workers to do jobs our own people can do, but considering the fact that those foreign workers do a better job, it doesn’t matter on the meso or micro levels that they’re not any cheaper than those ‘proud dutchmen’. On a macro level you have a point as we can see on a day to day basis, when frictions between foreign groups and local groups cause a general tension in society as a whole. But, that’s not a very economically sound argument. In addition, it’s mostly irrelevant on the short and middle terms, as those groups are here and are here to stay.

    In short: outside workers can be a bless for our economy, if and only if, we can get our unemployed or outperformed labor force back in a job.

    Being outperformed and unemployed makes you a less valuable asset to our society than the factor that’s outperforming and outemploying you. Lowering the minimum wage in combination with lowered taxes – especially to the levels that would be required to encourage the shift in mentality you want, being along the lines of a 25% lowering of minimum wage for everyone, including those in sectors not affected, and a corresponding lowering of taxes in all brackets (or do you want to create a 20-25% percentpoint gap between the first two brackets of tax ratings?) – is not going to solve this root of the problem.

  4. offtopic: sorted 🙂

    I’d like to reply to that: lowering the minimum wage is only going to affect the people to whom this above applies. Higher educated and equipped people tend not to be rewarded the minimum wage, but have higher incomes. Sure, it is related to the minimum wage, but I’m not sure whether a decrease of the minimum wage is going to lead to an equal response in the other wages, if any response can be found at all since the labor market is not a uniform market.
    On the point of lowering the taxes: I would suggest a tax deduction for the specific group only, and this can either be achieved by creating a new law, or by “helping” the suggested group by giving them more money back.
    My intention with both points was to create measures that would only affect the people intended, and not the rest; how this would be implemented in real life is kind of out of my league to be honest. 😉

    Furthermore, I see your point, in your opinion I’m only battling the effects and not the cause.

    What do you think is a solution to this evident problem?
    The outperformed and outpriced local labor force will be there, regardless of what happens.

  5. A solution isn’t easily found, of course. My assumption is that the EU and it’s open borders are here to stay and will not get any stricter than this, generally speaking, the coming decades. That means that changing the inflow of external workflow isn’t really an option, not by changing the situation over here anyway. The new Polish government might influence the situation, but that’s mostly out of our hands.

    As sketched in my first post, I think we should move to an even more service oriented economy (no pun intended). Education should then be moved away from those areas in which we are outcompeted. So, we should stimulate our youth to follow other paths of education in area’s where low-cost, high-motivation workforces aren’t a plus and where quality is a premium. One example that’s quite recent is decent teaching personnel. It doesn’t require any particularly high level of IQ; it does require dedication, attention for children, a good knowledge of the surroundings of children, a good command of local languages. All stuff that gives locals a plus. Might not be a perfect example but it’s the first thing that popped up 🙂

    Simply put, I propose to enhance our strengths, while your proposal involves solving our weaknesses. Solving weaknesses is not any worse than enhancing strengths in general, but I think in this case solving weaknesses would defocus us too much from our strengths while bringing us very little in progress on the efficiency (low cost of work) in return.

    Eh, it’s all guesswork we’re doing. Plus I’m playing advocate of the devil here. Can’t stand your bloody liberal proposals 😛

  6. On a side note: I took Poland as an example, its current state however depicts the problem quite clearly though. The same would apply to Bulgaria an Romania when the time of opening our borders is there…

    No pun taken there, it only eerily resembles our day-to-day business. 😉

    Proposing to strengthen the strong points is good but it still leaves us with the burden of unemployable people who are an addition to the steadily growing numbers of non-active Dutchmen. The babyboomers will turn 60 and 65 soon, and their en-masse resigning will stress the government expenditure and state debts.
    Let’s hope the added value of us being highly skilled workers will counter (both) extra burden(s) in order for our house keeping not to grow over our heads.

    So how about me jotting down a more socio-democratic themed view? 😀

  7. So how about me jotting down a more socio-democratic themed view? 😀

    That’d just be wrong and boring 😀 No more discussions to keep our workdays going!

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