Productivity growth remains remarkably stable in much of the Dutch business sector

This is according to a DNB calculation of productivity growth in what is known as the relevant market sector – a collective reference to sectors in which labour productivity growth can be accurately measured. Sectors with specific measurement problems were excluded, such as the public sector and mining and quarrying, in which gas field closures distort the picture.

Labour productivity growth in relevant market sector remains stable

Labour productivity growth in the relevant market sector averaged 1.1% per year between 2013 and 2023, well above the 0.4% for the overall economy (see figure).

This is just above the labour productivity growth in the euro area (1.0%), but below the growth in the US relevant market sector (1.7%). It is remarkable that labour productivity growth in the relevant market sector has remained fairly stable over the past decade.

Difference with US largely driven by technology companies

The notion that the Netherlands and Europe are lagging behind the United States in terms of prosperity growth is frequently voiced. A key factor in this discrepancy is productivity growth in technology sectors. Between 2013 and 2019, productivity growth in the US technology sectors was 5.6% per year, against 1.6% in the euro area and 0.6% in the Netherlands. This echoes the findings of the Draghi report, which also points out the strong growth the US technology sector has enjoyed in recent decades.

A more nuanced representation of labour productivity

By employing the definition of 'the relevant market sector', excluding sectors afflicted by measurement difficulties and alternative distortions, a more refined representation of productivity trends is obtained.  

Measurement issues mainly occur in public sectors, where goods and services are not freely traded, in contrast to the private sector. This makes it difficult to determine their value accurately. After all, what is the value of an hour of lessons in primary school? Therefore, productivity growth in the public sector cannot be compared to that in private sectors such as trade, which distorts the macroeconomic picture.

Further measurement problems exist in mining and quarrying. The value of gas production depends on how much gas is extracted. The closure of the Groningen gas fields has significantly reduced that value, which in turn has depressed labour productivity in the statistics. This distorts productivity figures for the Dutch economy, which is why we also disregard this sector.  

Labour productivity is the key to prosperity...

The Dutch economy will grow when we work more hours or when our labour productivity increases. With more and more people retiring and fewer young people joining the workforce, our economy will rely mainly on labour productivity growth as the key driver of economic growth in the years ahead. 

The government, companies and workers must work together to achieve this increase in labour productivity growth. Companies can enhance their productivity levels by allocating resources to technological investments and automation. However, they should also develop employees' knowledge and skill sets, optimise work processes and cultivate robust management practices.

The government can contribute towards increased productivity by investing in education and science, reducing the regulatory burden for companies and enhancing business dynamics. This encompasses the facilitation and oversight of the appropriate pricing of scarce factors of production, including the enforcement of labour laws and regulations. Removing barriers and distortions to economic dynamism is crucial, as it gives new and productive businesses room to grow.

... while completion of the European single market bolsters productivity growth.

In addition to taking action domestically, productivity growth requires close European cooperation, especially in the present uncertain geopolitical environment. The Dutch economy relies heavily on trade. Intra-EU trade is particularly important, with 70% of Dutch exports remaining within Europe. At the same time, there are still barriers within the EU that make it difficult to trade and that hinder innovation. Removing these barriers could boost innovation and trade, potentially leading to a 7% increase in labour productivity, as the IMF suggests. It is therefore important to work on the recommendations of the Draghi report and complete the single market.