Labour market

Of all 15-64-year-olds, 85% are active in the labour market, significantly higher than the EU average of 75%. Within Europe, the percentage is higher only in certain Scandinavian countries. Nearly 10 million people in the Netherlands are in paid employment. Compared to other countries, we work part-time more often. But because we retire at a relatively old age, we proportionally work more hours than in many countries around us.

Labour market to remain tight

The composition of the population is changing: by 2040, a quarter of the population will be 65 or older. There is not much we can do about this development. We therefore expect the labour market to remain tight in the years ahead. On top of that, an ageing population means a greater need for healthcare, with an associated need for more workers in the healthcare sector.

There were 400,000 vacancies in the fourth quarter of 2023, well above the average of 180,000 since measurements began in 1997. One of the consequences of labour market tightness is that people switch jobs more easily, for example because of more favourable working conditions, including higher pay. At some companies, employees who bring in new coworkers are given a recruitment bonus.

Brake on economic growth

Labour market tightness has implications for the economy and general prosperity. When there is a structural shortage of available labour, companies find it difficult to expand or even maintain production.

The working-age population is expected to grow by about 13,000 people annually on average until 2040. This is considerably less than we have been used to in recent decades. Growth of more than 110,000 workers per year would be needed to keep economic growth and prosperity at current levels. It would be beneficial for economic growth if we all worked more hours than we already do. But people are not always able to do so, for example because they are caring for a friend or family member or because they are studying.

No cut-and-dried solution

We cannot easily increase the number of people employed or the hours they work (the so-called labour supply), but we can try to reduce the demand for labour, for example by learning to work more efficiently, increasing productivity or ceasing to perform certain tasks. This requires investing in education, technologies, employee knowledge and skills or devising smarter ways of working. Leveraging technological innovation such as artificial intelligence (AI) and robots can also help.

With inflation high for two years and the labour market tight, wages have risen sharply because inflation reduces the purchasing power of working people. Higher wages can help to support their purchasing power. In addition to the steep increase in prices, labour productivity (production output per hour worked) has increased and there are many job vacancies. These developments are causing wages to rise. This is especially true for companies that can easily pass on the higher costs to their customers. In response to inflation, many sectors have raised wages since 2022. This is important to maintain household purchasing power. The government has also raised the minimum wage for the lowest incomes.

Wages must be raised in a controlled manner. This is because if wages rise too quickly, companies will have to increase the prices of their products and services to pay for these higher wages. That, in turn, makes workers want additional wage hikes to afford the more expensive products and services. This could lead to a situation in which higher wages themselves become a major driver of inflation. In such a situation, where wage hikes add fuel to the inflationary fire, we speak of a wage-price spiral. It is important to avoid this. At present, there is no such situation and we see enough room for wages to rise. All societal actors can join forces to help prevent a wage-price spiral. Not only wage growth, but also the profit growth of companies must take place in a controlled manner. In addition, DNB is working to prevent a wage-price spiral by influencing inflation. 

Terms of employment involve more than just wages. They also include the type of labour contract: permanent, flexible or self-employed. The labour market has become increasingly flexible in the past few decades. As a result, there are fewer people working in permanent employment and more people working on temporary or on-call contracts or on a self-employed basis. At the end of 2022, the Netherlands had 2.7 million workers in flexible employment and 1.2 million self-employed people. To put things in perspective, employees on a permanent contract numbered 5.3 million.

Flexible contracts can be beneficial because employers can hire people temporarily during peak times or replace staff during illness and parental leave. But workers on flexible contracts also have less security. It is more difficult for them to get a mortgage, for example. We want the gap between permanent and flexible employment to narrow and for flexible contracts to be used only when they are really necessary, and not just because they are cheaper for employers. This requires not only better regulation of flexible contracts, but also changes to permanent contracts regulations.