The Netherlands has a strong labour market. Many people are employed and our labour productivity is high. Unemployment has fallen and there is even a shortage of people in a number of sectors. On other words, we have a tight labour market. Read here why this situation is likely to continue for the time being and about other work-related developments.
At the beginning of 2023, nearly 10 million Dutch people have paid work. 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. Three quarters of the Dutch population aged between 15 and 75 are working or looking for work. This is an all-time high for our country, and within Europe this percentage is higher only in some of the Scandinavian countries.
The Dutch labour market is not only strong, but also tight. This means many companies are looking for workers and the number of unemployed people is low. There is a huge shortage of staff in various sectors such as ICT, construction, healthcare and education. By the end of 2022 there were 442,000 vacancies, well above the average of 181,000 since records began in 1997. One of the consequences of labour market tightness is that people switch jobs more easily, for example because of favourable working conditions such as higher pay. At some companies, employees who bring in new colleagues are given a recruitment bonus.
There is so much demand for products and services that there are not enough workers to meet this demand with current production techniques. It would be beneficial for economic growth if we all worked more hours than we already do. But people are not always willing or able to do so, for example because they have caring responsibilities or because they are studying. The population is ageing, and this reduces the number of people working. We therefore expect the labour market to remain tight in the coming years. On top of that, an ageing population means that more care needs to be provided, which means we also need more workers.
Inflation is high and the labour market is tight. This means wages are likely to rise more 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 vacancies. We are therefore of the opinion that wages can – and should – go up more. This is especially true for companies that can easily pass on the higher costs to their customers. The government has taken an important step for the lowest income earners, by increasing the minimum wage by 10.15% with effect from 1 January 2023.
Wages must be raised in a controlled manner, however. Because when wages rise, companies have to increase the prices of their products and services to pay for these higher wages. That, in turn, makes workers want higher wages to afford the more expensive products and services. This could lead to a situation in which higher wages themselves become a major source of inflation. Then wage increases would add fuel to the flame of inflation. When that happens, 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. There are several parties in society that can help prevent a wage-price spiral. For example, we, as the central bank, can influence inflation.
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Besides wages, other employment conditions include the type of labour contract: permanent, flexible or self-employed. The labour market has become increasingly more 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. To put things in perspective, employees on a permanent contract numbered 5.3 million.
We believe the gap between flexible and permanent contracts should be reduced. Flexible work has its advantages. For example, employers can hire people temporarily during peak times or replace staff during illness and maternity or paternity 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.
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One in three working people in the Netherlands is prepared to work more hours if it means a higher salary. People would also be willing to work more hours if their work were more fun, if remote working were easier and if they could spend less time caring for their children.
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People with low incomes and insecure jobs are also more likely to be vulnerable in other areas, such as their housing situation and asset position. About a quarter of this group seems unable to escape their vulnerable position.
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If Dutch households are vulnerable, they are often vulnerable in several areas at once. For instance, households with high housing expenses relative to income are also more likely than average to have a poor position in the labour market and limited financial buffers, according to a new study by DNB
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Faced with soaring inflation that is eroding purchasing power, workers will try to compensate by negotiating higher wages. As the resulting pressure on profit margins grows, employers will in turn try to pass on higher wages in the prices they charge their customers.
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