Social Security Systems in the Netherlands

From decades social security policies are in question all across Europe. Moreover, the future expectations of changes in the social security systems due to the variations in household structures and ageing of the society bear new social security systems. As most of the European countries the Netherlands, had a substantial growth in the 1960s. After the oil crises, the economy of the Netherlands worsened. Despite the successful creation of a large number of new jobs in the 1980s the growth of unemployment continued and remained persistent in character and still today. However, the social security system in the Netherlands is not alike to the 1970s and 1980s. The Dutch government expenditure on social benefits is characteristic of the well-developed welfare states - at 27.4 percent it is now above the EU average of 22.9 percent. It is among the high taxation countries and over average GDP per capita. Public employment is low and it has one of the lowest poverty rates.

The extraordinary level of economic growth of the 1960s created the economic surplus in the Netherlands but by the world’s two oil crisis in the early 1970s the economic climate started to deteriorate. A stunning increase of unemployment in the late 1970s provoked a policy of labor cost reduction and cuts in the social security budget. It was believed that an increase in the real wages and social benefits would imply a further rise of unemployment. Moreover, it was predetermined by the government that the country could only recover from the economic downfall of the 1970s if free entrepreneurship and the functioning of market mechanisms would be restored. Gradually social policy lost its position as a more or less independent domain. It became the servant of economic policy as it was strongly believed that once the aim of a healthy economy was reached, social and economic deprivation would consequently vanish.

In the 1980s the reduction of public expenditures became a keystone of Dutch socio-economic policy, partly to decrease a growing budgetary deficit of the state, partly to reduce the costs of labor as many social insurances were paid for by employers’ and employees’ contributions. As a result the levels of social security benefits like social assistance, unemployment and disability benefits were significantly lowered, while at the same time the definitions as to the eligibility for these benefits were reduced. Moreover, the Dutch social security system offered too few incentives for the non-active part of the labor force to participate in the market. Consequently, “the replacement ratio which was in the period 1954 -1964 less than 60 per cent and reached in 1975 a peak of 75 per cent, after 1983 started to decrease with about 2 per cent annually. The proportion of long term unemployment in total unemployment rose from 15 per cent in 1970 to 21 per cent in 1980 and 50 per cent in 1984.19 In the years 1992 and 1993 about 45 per cent of the Dutch unemployed were without a job for more than one year. It is argued unemployment in the Netherlands is foremost a social problem because of its persistent character. Firstly, there were many new entries to the country from foreign countries. Most of the jobs were occupied by newcomers. What is more, women participation to the labor market increased. Secondly, in the 1970s and the 1980s the employment structure changed. A shift took place from industry to services. Especially those branches within industry characterized by low paid labor suffered from the rise of the New Industrializing Countries. The last factor may be the Dutch social security system and the existence of a minimum wage level. The unemployed people are enabled to be selecting the jobs while at the same time the costs of labor of a low marginal utility become too high. Thus the unions complain that the jobs available at the bottom of the market are of low quality, have no job security and offer no prospects to the employees. On the other side, employers’ associations try politically to promote the abolition of the minimum wage level as a major barrier to the solution of the unemployment problem.

In the Netherlands, the system of social security arrangements is highly sophisticated. All of the social security arrangements can be classified into three main categories. The first one is the ‘General social insurances’ which apply to all citizens and have been implemented in the form of a compulsory insurance. The general social insurances consist of Old Age State Pensions, Widow’s or Orphan’s allowances, Child allowances and Disability benefits. The second category is the ‘Employees’ social insurances’ which are compulsory for only employees. They are: Sickness Benefits, Disability benefits and Unemployment Benefits. The last category is ‘Social provisions’ in which there is no insurance principle. Expenditures are totally financed by the tax revenues. These provisions are welfare and unemployment benefits. Although, the Netherlands is one of the most developed countries of the Europe, it still has problems in the health care system.

In the Netherlands, the administration of unemployment insurance is transferred to different parts of the industry. The tasks of these parts are to allocate, suspend and pay unemployment benefits as well as to collect the contributions that provide the financing. The Netherlands has unemployment insurance schemes that pay cash benefits for unemployment to insured unemployed applicants who satisfy certain qualifications. Moreover, the Netherlands has social assistance schemes for unemployed workers who are not entitled to unemployment benefits nor have access to other sources. What is more, there are supplementary or alternative unemployment support systems. Unemployment support is different from unemployment benefit. To get unemployment benefit, in the Netherlands, the applicants need to work for 26 weeks previous employment during 12 months immediately before the period of unemployment. As in the most countries, the age requirement for entitlement to unemployment benefits is between 15 and 65. In the Netherlands, the benefits provide 70% of previous earnings and flat-rate amounts are applied.

When the illnesses of the employees is taken into consideration, it can be said, if employees are sick for more than a year, they are considered as being disabled to work. In 1967 the Disability Law was adopted which gave disabled employees the right to receive a life-long benefit. “The law distinguished between 7 degrees of disability, arranging from 15% to 100%. The benefit % arranges from 10% of last earnings in case of 15% disability to 80% of last earnings in case of 100% disability.” In time this service became increasingly popular, especially among older people, who were afraid to become unemployed without real chances to become reemployed. In 1987 the benefit percentages were decreased by the government to 70% for a fully disabled worker. Nevertheless the number of benefit recipients remained very high, which made an increasing number of people prepared to support a strategical shift. There was a need to change this policy in order to not worsen the economy. “The legal basis for this operation is the TBA Act (Act Reduction of Appeals to Disability), introduced in 1993. The intended financial effects were realized: a decline in the total amount of money spent on disability benefits. About 60% of the re-examined people were adjudged a lower degree of disability.” Changes in the eligibility and in the benefit rates have stopped the continuous increase in the number of disabled workers in the labor market. This decision led to the significant negative effects on the level of social expenditures.

The old-age pension model in the Netherlands is based on citizenship model. The features of citizenship model are those: basis for entitlement of the pension is citizenship. The model covers all the population not only the elderly people in need or the working population. Flat-rate is the criteria for the setting benefit levels. The function of the pension is to maintain the living standards. At the same time, large proportions of the work force are covered by labor market pensions negotiated through collective industrial agreements. “The proportion of previous earnings derived from compulsory pensions is relatively high for low-income groups and proportionally low for high-income groups.”

After the WWII, developments in the health care system came into picture. The significant development was the Act of 21 December 1950, by which obligatory insurance was extended to the following categories of persons: “those entitled to benefits by virtue of the (Emergency Act for provision for the elderly), seafarers, military conscripts who were breadwinners, those who by virtue of the Invalidity Act received a minimum benefit of € 57 per annum, those with at least 50 per cent disability and people who received a benefit or payment due to an accident.” However, with the Emergency Act for the Elderly, the group of permitted remained limited to those who were less financially well off. In 1956, the Emergency Act was replaced by the State Old Age Pensions Act (AOW). This resulted in the most recent important development in the context of the Health Insurance Decree. As a consequence of this Act all Dutch people of 65 years and older, irrespective of their income, were entitled to benefit. One of the most important changes in health care system was the Health Insurance Decree in 1964 which was the obligation for health insurance funds to admit anyone who complied with the criteria of the voluntary insurance funds. This made it possible for everyone with an income below a certain level to insure him adequately against the costs of medical care. In 1968 Exceptional Medical Expenses Act is accepted which covers the grave medical risk: case of chronic illnesses, physical mental handicaps.

In the beginning of the 80s it was seen that the previous policies had encountered increasing financial problems. The competition with the private medical expenses insurance was disadvantageous for the voluntary insurance that was bound by statutory laws. In order to solve this problem, Access to Health Insurance Act bill in 1986 was accepted by the parliament. “A section of the insured became eligible for the obligatory health insurance fund, the others switched to private medical expenses insurance.” The objective of the Dutch health care system is to guarantee access to quality health care for everyone. The system has evolved in response to social changes over the last several decades. Almost 70% of the population is covered by national health insurance and the remaining 30%, typically of higher income, have opted for private insurance. Insurance contributions are required from employer and employee, with the latter covering a far larger portion. From 1994, the organization of the care insurance system is based on three sections. In the first section there are long-term care and uninsurable risks which has no competition or operation of market forces. The government is responsible for cost control. The second section concerns medicinal care. This is a care package determined by the government and insured via the health insurance fund or private insurance. A limited market operation by means of insurers budgeting and the freedom of care insurers to contract care providers apply to this section. The third section involves all the care that is not covered by the first two. Care insurers offer this care in supplementary policies. Controlling the cost and monitoring the quality are in the hands of the care insurers themselves. In the collation government which is in power, it was decided that introduction of a new healthcare system in 2006. From the 2000 the share of public expenditure represented by healthcare has risen to 9.3% in the Netherlands, against a European average of 8.1%. It is also thought the ageing population will put forth additional pressure on expenditure in the years ahead. Therefore, the Dutch healthcare system is not free of problems; reforms are needed in order to solve them.

There is a service of last resort if people younger than 65 years appear to be unable to find a job that fits their capacities and are not eligible for any social arrangement. In 1965 ‘the Law on Social Assistance’ was adopted. The levels of the benefits are linked to the level of the official minimum wage, namely 70% of this level. The number of recipients has increased slightly through time. Especially divorced women with children have become highly dependent on this service. “In contrast to most social security services, there is a means test, to leave people with other sources of income and with particular amounts of wealth out of the eligible group.”

It can be seen two problems can be faced in the near future. Firstly, the relatively high numbers of long term unemployed, which problem worsens when increasing numbers of people will be declared not being disabled anymore. In the second place, the group of pension benefit recipients will grow. This development is partly one of the consequences of the success of the welfare state. More and better education and health care has a positive effect on the average length of a human life, leading to increasing costs, in terms of pension incomes as well as in terms of health care costs.

BIBLIOGRAPHY

• Bax E. H., (1995), Cleavage in Dutch Society: Changing Patterns of Social and Economic Discrimination, (presented at the Conference on Political, economic and Social Racism, Thessalonica, Greece, May 14-18, 1995)

• Dixon J, (1999), Social Security in Global Perspective, Praeger: Connecticut

• Gonnot J. P, Keilman N and Prinz C, (1995), Social Security, Household and Family Dynamics in Ageing Societies, Kluwer Academic Publishers: Dordrecht

• Keizer P. K, (1998), Recent Trends in Targeting Social Welfare in the Netherlands

• Ploug N and Kvist J, (1996), Social Security in Europe, Kluwer Law International: The Hague

INTERNET SOURCES

• http://www.zn.nl/international/english/about-zn/dutchhealthcare/background.asp#6
• http://www.childpolicyintl.org/countries/netherlands.html#socialprotection
• http://64.233.183.104/search?q=cache:3q4q5FnN84gJ:www.eiro.eurofound.eu.int/2003/03/feature/nl0303103f.html+healthcare+system+in+netherlands&hl=tr