Facilitating transitions between unemployment, employment and self employment

Transcription

1 Facilitating transitions between unemployment, employment and self employment Work package 5 Activating labour market policies and escape routes from unemployment Monique Aerts Hugo Sinzheimer Institute University of Amsterdam The Netherlands

2 Introduction Currently in the Netherlands transitions between unemployment, employment and selfemployment are more frequent then thirty years ago. More and more people combine subordinate jobs (employment) with self-employment, simultaneously or consecutively. Also people try to avoid unemployment or escape from unemployment by becoming a selfemployed person. Nowadays the Dutch government, following European labour market policies, even promotes self-employment as a way to re-enter the labour market for the long term unemployed, for people with healthcare problems and for people who have been incapable for work for a long time. Indeed self-employment can smoothen the transitions between work, education, family and household obligations and spare time. For example, women often start up their own business, because self-employment is easier to combine with the care for small children then a job is. Older workers, mostly men, tend to choose selfemployment because it allows them to stay active on the labour market at their own pace and working hours. Despite the above-mentioned advantages of self-employment only approximately 6.5 percent of the Dutch active workforce can be considered a self-employed person. Most workers in the Netherlands are still employees. Why don t more workers choose to be self-employed? Although the Dutch legislator is facilitating self-employment, and not only as a way to reenter the labour market, the number of self-employed persons did not increase. Recently, it is even declining, due to developments in the agricultural sector. In the other economic sectors the number of self-employed persons is stable. Table 1: Active workforce in the Netherland Total Employees Self-employed persons Souce: CBS, Social-economic trends, 2005 According to these numbers about 14% of the active workforce is a self-employed person. This data of the Central Office for Statistics (Centraal Bureau voor Statistiek CBS) also includes traditional sectors such as agriculture and no distinction is made whether or not the self-employed-persons employ staff. According to an European comparative study the number 1

3 of self-employed persons, agriculture excluded, is about 9.7% of the active workforce. Still not distinction is made between self-employed with staff and self-employed without staff. Only 33 percent of the self-employed persons employ staff and are considered employers. Employers in the Netherlands have no social security at all, only welfare. So 66 percent can be seen as self-employed persons without staff (zelfstandige zonder personeel zzp er) Approximately 6.5 percent of the active workforce, 540,000 persons, is a self-employed person without staff. 1 To find the answer to the question why not more people choose self-employment you only have to take a look at the way the Dutch welfare state is organised. In the Netherlands, when social insurances against unemployment and disability caused by illnesses, accidents or old age are concerned, there is a sharp distinction between employees and self-employed persons. Employee are better insured against these risks then self-employed persons, As a result an employee (employed or unemployed) who makes the transition and becomes a self-employed persons loses his or her social insurances, because social insurance against work related risks of disability causes by illness, accidents or old age are not open for most of the self-employed persons. This loss of social insurances frustrates the transition between (un) employment and self-employment. Strangely enough is self-employment considered an escape route from unemployment for people with disability problems and other problems of incapacity for work. This is contradictive and even ineffective. The transition between (un) employment and selfemployment is not such a realistic transition, because people who have been incapable for work for an certain amount of time face difficulties getting social insurances against these kind of social risks and probably think twice before they make this transition. Like Wilthagen says: To become more flexible people need security. 2 Sharp distinction between employees and self-employed persons In most European countries, the legislator made this sharp distinction between employees and self- employment and created different social insurance systems for the two groups of workers. Employees are always more protected than self-employed persons. This sharp distinction between the employees and self-employed persons has a historical base. The 1 Schulze Buschoff (2004) p Wilthagen (2004) p

4 industrial revolution of the late eighteenth century, in the Netherlands in the late nineteenth century, introduced new ways and means of industrial production (Taylor-Ford organisational model) whereby employment became widespread and subordinate. The dominant legal form for exchanging personal labour for financial remuneration is the subordinate employee. Labour law governs subordinate employment. Some workers stayed away from the factories and worked in their own workshops. This more traditional form for exchanging personal labour for financial remuneration is called self-employment. Self-employed persons are often professionals active in occupations, which, whilst not conforming to the Taylor-Ford organisational model, are governed by the principles of civil and commercial law. This distinction between employment and self-employment is not only recognised in most European countries but is also regarded as being clear-cut. 3 In reality this distinction is not clear at all. In fact it is something rather difficult to distinguish the self-employed from the employee, because they both do the same work, under the same circumstances and condition. Often the only distinction between the self-employed and the employee is their legal status. 4 Distinction is subordinate labour In the Netherlands, the most important distinction between employees and self-employed persons is that employees are legally subordinate to their employer and self-employed persons are not. Employees are considered subordinate to and economically dependent of the employer and therefore need to be compensated with social insurances like the Sickness Benefits Act (Ziektewet ZW), the Occupational Disability Insurance Act (Wet arbeidsongeschiktheid WAO) and the Unemployment Benefits Act (Werkloosheidwet WW) en supplementary pension funds. The self-employed do not need to be compensated and in theory they do not have access to social insurances like ZW, WAO and WW and so do not have a supplementary pension funds. Self-employed do not have access to these social insurances because they aren t subordinate to and economically dependent of the employment and, even more importantly, they can divide labour related risks over several, preferably more then three, employers. Or, to put it differently, in theory employees enjoy social security and the self-employed do not. The reason is that the social risks of the employees are considered collective risks; risks the society should take care of and the social risks of the self-employed are considered 3 Perulli (2003) p Van der Heijden (1997) 3

5 individual risks of the self employed himself. 5 In reality some groups of self-employed persons have access to the social insurances, mainly because of their background as an employee. Some groups of self-employed persons even have a supplementary pension funds based on profession. The distinction is not that sharp at all, it is a diffuse distinction. That does not change the fact employees have more social security then self-employed persons. Social security for the self-employed Although the fact that the self-employed have less social security than the employees, they are not totally left to their own devices. Like every other Dutch citizen, they could go on welfare, but this is really a last resort. In the Netherlands the self-employed have sometimes access to the social insurances. The most self-employed have this access to social insurances because of their past as an employee. If an employee was insured for a certain amount of time against sickness by the Sickness Benefits Act (Ziektewet ZW) and incapacity for work by the Occupational Disability Insurance Act (Wet arbeidsongeschiktheid WAO) he can voluntary continue both insurances as a self-employed person. If an employee makes the transition to self-employment, he doesn t immediately lose his rights to certain social benefits, like Unemployment Benefits (Werkloosheidwet WW). He keeps his right to this unemployment benefits the first eighteen months after he started his own company, he can if necessary regain his rights as an employee to this unemployment benefits, but if he does he has to end his company to have access to this Unemployment Benefits. If the self-employed person does not have a background as an employee, unemployment is considered uninsurable. Pension funds Every person who stays legitimately in the Netherlands and is a citizen of the Netherlands and is 65 years of age or older gets a basic pension paid under the Dutch National Old Age Pensions Act (Algemene ouderdomswet - AOW). The amount a person receives will depend on his domestic situation and the number of years he his been insured under the AOW scheme. This pension is related to minimum wage. If a person is married the gross amount of AOW pension is maximized at 631,67 per month, if a person is single it is maximized at 5 Schmid & Schömann (2004) 4

6 921,12 per month and if a person is a single parent it is maximized at per month (2004). Every self-employed person has a basic pension. Some self-employed persons have access to supplementary pension schemes. Pension funds carry out the pension scheme for everyone who belongs to the scope of the funds. If a person belongs to the scope of funds, this pension scheme is mandatory. In a economic branch like construction and for professions like dentists, midwives, barristers and solicitors the supplementary pension schemes are mandatory for both employees and self-employed people. Self-employed person who have worked in the past as an employee can continue the mandatory supplementary pension scheme belonging to their economical branch or enterprise on a voluntary bases. Disability In the past employees and self employed persons were collectively insured against the risks of (long term) incapacity for work. Only a year ago this situation has changed. Still, employees are collectively insured, but the self-employed are no longer collectively insured in the Netherlands. Their insurances against the risks of (long term) incapacity for work is left to the private insurance market. Incapacity for work is a situation of not working caused by physical or mental disability of the worker. 6 From 1 October 1976 until 1 august 2004 the self-employed were collectively and privately insured against the risks of (long term) incapacity for work, firstly on the basis of the General disability Insurance Act (Algemene arbeidsongeschiktheidswet - AAW) and as from 1 January 1998 until 1 august 2004 on the basis of the Occupational Disability Insurance (Self employed Persons) Act (Wet arbeidsongeschiktheid zelfstandigen - WAZ). Since 1 Jan January 1998 employees are insured on the basis of the Occupational Disability Insurance Act (Wet arbeidsongeschiktheid WAO). Both AAW and WAZ were mandatory social insurances. The General Disability Insurance Act (AAW) applied to all residents of the Netherlands and included the selfemployment. The Disability Insurance (WAZ) applied to the self-employed only. To assure that even self-employed persons with a low risk of incapacity for work insured themselves against these risks, the WAZ had a mandatory character. Approximately one million selfemployed persons were insured for the WAZ. This group contains about 600,000 or 700,000 self-employed persons (among whom 90,000 to 130,000 managing directors) and about 300,000 professionals like dentists, midwives, barristers and solicitors. 7 6 Noordam (2004) p Boot (2004) p

7 The WAZ benefits were on welfare level (70 percent of minimum wage), the premiums for the WAZ however, were income based. The WAZ had a qualifying period of 52 weeks. After this qualifying period of 52 weeks, this first year of illness, the WAZ offered self-employed persons the right to benefits equal to 70 percent of the minimum wage and also paid out 100 percent of the minimum wage for a period of 16 weeks in cases of maternity leave. This qualifying period of 52 weeks implied that self-employed persons in their first year of illness were not insured against the risks of (long-term) incapacity for work. If the self-employed wanted to insure this risk, they had to insure this risk on the private insurance market. If the self-employed wanted a supplementary insurance on top of the WAZ they had to insure that on the private insurance market too. Self-employed persons were often insured against the risks of (long-term) occupational disability in the first year and they are supplementary insured for the following years by the private insurers. On 1 August 2004 the WAZ is abolished. The WAZ is abolished because none of the parties involved were pleased with the WAZ: the premiums were considered too high in relation to the entitlements under the insurance. The main reason for this abolishment is that other European countries already left this type of insurances to the private insurance market. The risk of (long term) incapacity for work for the self-employed is a risk that is considered easy to insure by the private insurers and often already is insured by the private insurance companies. 8 The WAZ is abolished in the sense that since 1 January 2004 nobody any longer pays premiums for this insurance and that since 1 august 2004, after the qualifying period of one year, so technically speaking from 1 august 2005,on no new person receives benefits based on this insurance. People who already receive benefits form the WAZ will continue to receive these benefits. Insurance companies are not obliged to insure burning houses. Insurance companies have the tendency to refuse people because of their age or medical history. These people are metaphorically speaking considered burning houses. If an insurance company does insure people with a medical history, it tends to use a longer qualifying period then usual, raises the premiums or even excludes certain illnesses or complaints. The Dutch government abolished the WAZ, but created an alternative social insurance against the risks of incapacity for work. This insurance is voluntary and only certain groups of self-employed persons can sign up for this insurance. This insurance is only for self-employed personal, who the insurance companies consider uninsurable because of their age or medical background, for people who 8 Noordam (2004) p

8 were on WAZ benefits and lost this benefits because they are considered fit to work, and for people who weren t able to get a private occupational disability insurance that insures them until the age of 65. This alternative social insurance has a qualifying period of two years and only pays out benefits when a person has no capacity for work at all. If the self-employed has still some capacity for work left, he won t receive any benefits. The benefits is maximized at 11,500 per year (2004) and the premiums for this insurance are rather high, somewhere between 2,000 and 2,500 per year (2004). Some people say that this insurance is a bogus insurance. The premiums are very high in relation to the entitlements under the insurance. The premiums are even higher then the WAZ premiums. The only difference between this insurance and welfare is that the self-employed does not have to sell or otherwise end this company. Maternity leave With the abolition of the WAZ the paid maternity leave is also abolished. The Dutch legislator is under the impression that a paid maternity leave is easy to insurance on the private insurance market. The legislator forgets the fact the insurance companies use a qualifying period of two years for paid maternity leave. The Equal Treatment Commission already has ruled that this qualifying period is in contravention with the General Equal Treatment Act (Algemene Wet Gelijke behandeling - AWGB) and the directive 86/613/EEG. The minister of Social affairs and Employment promised to ask the Equal Treatment Commission and the international labour Organisation (ILO) about how to insure this pregnancy risk. The minister also believes that the abolition of the public insurance of this pregnancy risk is properly done. 9 Concluding remark In the UK a self-employed person, who has been unfit for work for more that four days may claim Incapacity Benefit as long as they have paid National Insurance Contributions (NICS), which are social insurance contributions that are not invested but are immediately are paid out as benefits. The rate at which Incapacity Benefit is paid increases once the illness has lasted 28 weeks and again when the 52 week threshold is reached. Self-employed people in the UK 9 Asscher-Vonk (2004) p

9 have almost the same disability insurance of the employees, of course the employees have a supplementary insurances. Disability is in the UK included as a self-employed risk because, like evidence in the UK shows disabled people prefer self-employment to employment. Selfemployment gives disabled people enhanced job flexibility that suits their conditions better. 10 Self-employment surely is a way for people with disability problems to re-enter the labour market or a way to stay active on this market, but they do need their security and in the Netherlands they do not have enough security. This lack of security frustrates the transitions between (un)employment and self-employment. If the legislator wants to promote selfemployment as a way for the long term unemployed, for people with healthcare problems and for people who have been incapable for work for a long time to re-enter the labour market, the legislator should also think about a way to insure these people against work related risks like illness and disability. References Asscher-Vonk, I.P., De WAZ de deur uit- en nu?, SMA, nr. 10 p Boot, G.C., Arbeidsrechtelijke bescherming, Den Haag, Corden, A., & Sainsbury, R., Views and experiences of recipients of disabled person s Tax credit, Inland Revenue Research report No. 5, 2003 Deakin. S., The evolution of the employment relationship, in Auer & Gazier, The future of work, employment and social protection, Lyon Heijden, P.F. van der, Een nieuwe rechtsorde van de arbeid, NJB, 1997 Esping-Anderson, G., Social Foundations of Postindustrial Economies, Oxford University Press, Oxford, Noordam, F.M., Socialezekerheidsrecht, Kluwer, Deventer, Corden & Sainsbury (2003) 8

10 Perulli, A., Economically dependent / quasi-subordinate employment: legal, social and economic aspects, Schmid, G. & K. Schömann, Managing Social Risks Through Transitional Labour Markets: Towards a European Social Model, Berlin, Schulze Buschoff, K., Neue Selbstständigkeit und wachsender Grenzbereich zwischen selbstständiger und abhängiger Erwerbsarbeidt Europäische Trends vor dem Hintergrund socialpolitischer und arbeidsrechtlicher Entwicklungen, Berlin Schoukens, P. De sociale zekerheid van de zelfstandige en het Europese Gemeenschapsrecht: de impact van het vrije verkeer van zelfstandigen, Acco, Leuven, Supiot, A., Work, law and social Linkage, IILS Public Lecture, Geneve, Wilthagen, T., Balancing flexibility and security in European labour markets, in SER, Recent developments in European industrial relations, Den Haag,