The Dutch economy will grow by 0.8% this year, which is sharply lower than last year's 4.5% growth. While inflation is set to decrease, in part due to the economy cooling down, it remains too high at 4.2%.Read more
The Netherlands has a strong labour market. Many people are employed and labour productivity is high. Unemployment is very low and there is even a shortage of people in many sectors. Read here why this situation is likely to continue for the time being and about other work-related developments.
Labour participation rate is high
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. 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.
Labour market to remain tight
The Dutch labour market is not only strong, but also tight. This means many companies are looking for workers while few people are looking for a job. There is a huge shortage of staff in various sectors such as ICT, construction, healthcare and education. At the end of March 2023, there were 437,000 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 more favourable working conditions including higher pay. At some companies, employees who bring in new colleagues are given a recruitment bonus.
Current demand for products and services is so high that there are not enough workers to meet this demand with today’s 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 are caring for a friend or family member or because they are studying. The population is ageing, and this reduces the number of employable people. 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 in the healthcare sector.
We have studied factors that incentivise people to work more (or fewer) hours. Read more here.
We have also examined the willingness of unemployed people in the Netherlands to move to another region for a job. The results of that study can be found here: The Effect of Unemployment on Interregional Migration in the Netherlands
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 job vacancies. These developments mean there is room for wages to rise. This is especially true for companies that can easily pass on the higher costs to their customers. The government has taken a step for the lowest income earners by increasing the minimum wage by 10.15% with effect from 1 January 2023.
DNB research indicates that low income and job insecurity often coincide with other vulnerabilities such as high housing costs, high energy bills, debt and a lack of financial buffers. Read more about this study and our recommendations here.
In a scholarly study, we take a detailed look at the differences between flexible and permanent contracts: The price of flexible jobs: Wage differentials between permanent and flexible jobs in The Netherlands
No wage-price spiral
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 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. 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.
- Interview with Klaas Knot in De Telegraaf (dnb.nl) (in Dutch): Klaas Knot, President of DNB: 'Companies are making enough profit - higher wages are possible'
- Wage-price dynamics: a negative spiral?
- Strong wage-price dynamics lead to longer-lasting high inflation - ESB (in Dutch)
Terms of employment include more than just wages
Besides wages, other employment conditions 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. To put things in perspective, employees on a permanent contract numbered 5.3 million.
Gap between workers on permanent and flexible contracts
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.
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