Wage moderation and low productivity under debate

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After several years of prosperity, the Dutch economy seems to have run into difficulties in late 2002, falling behind the rest of the EU in indicators such as growth. To address the problems, there have been calls to revert to the familiar recipe of wage moderation but, increasingly, the focus appears to be on the lagging labour productivity and innovative power of the Dutch economy.

In the third quarter of 2002, Dutch gross domestic product (GDP) grew by only 0.1%. This was the fifth consecutive quarter during which the Dutch economy displayed little or no growth. As such, the Netherlands is the poorest performer of all EU Member States. The Netherlands has also dropped from eighth to the 15th position in the latest list of the most competitive countries drawn up by the World Economic Forum. While the former successful Dutch 'recipe' of wage moderation has since been adopted by several other EU countries, wages in the Netherlands have risen sharply over the past few years, partly as a result of labour shortages (NL0107137F). The Netherlands has also been rated poorly in terms of innovation.

Labour productivity in the Netherlands dropped by 0.4% in 2001, the first decline since 1987. Initial figures for 2002 show a further decline.

Jobs, vacancies and unemployment

Compared with the same period in 2001, the total number of jobs in the Netherlands rose by 63,000 in the third quarter of 2002. This rise is entirely accounted for by the care and government sectors. In the second and third quarters, the number of jobs available in the market sectors diminished for the first time since 1994.

Despite the decrease, the level of labour participation in the Netherlands is relatively high from an international perspective. In 2001, more than 74% of the overall population aged between 15 and 64 were in paid employment. Compared with 1995, labour participation has risen by almost 10 percentage points. Particularly amongst women, labour participation has risen sharply: from 53.2% in 1995 to 65.3% in 2002. It should, however, be noted that the number of part-time jobs in the Netherlands is relatively high, making up 33% of all employment in the Netherlands against an EU average of 14%. Of all women workers in the Netherlands, 58% have part-time employment.

After years of falling, unemployment is now on the rise: during the first half of 2002 it rose by an average of 6,000 a month, totalling 184,000 in September 2002. In the third quarter, the increase seemed to accelerate. Unemployment increased particularly amongst men. Compared with the same period a year earlier, unemployment amongst men rose by 23,000 and amongst women by 8,000 in the third quarter of 2002. The rate of unemployment amongst women is still higher than for men: 2.1% of the male and 2.6% of the female workforce are unemployed. These figures are converging gradually.

In conjunction with rising unemployment, the number of job vacancies is falling: during the second quarter of 2002, the number of vacancies dropped by 56,000 to 162,000. This trend started during the third quarter of 2001, representing the first time in seven years that this has occurred.

For 2003, the Central Planning Office (Centraal Planbureau, CPB) forecasts zero or perhaps even slightly negative employment growth in the Netherlands. The CPB also forecasts that unemployment figures for 2002 will rise to 300,000 with an additional rise in 2003 to 395,000 (4% and 5% of the workforce respectively).

For the first time since 1994, the ratio of active/non-active people will once again display an increase in 2003. However, the ratio will be less than in the Netherlands' neighbouring countries. Nonetheless, within this ratio, the proportion of individuals in the Netherlands who are unable to work because of an illness or disability is far higher than in the other EU countries. Expectations are that by the end of 2002, 1 million people will be claiming disability benefits.

Wages, wage costs and spending power

Wage costs rose by 5% during the first half of 2002, as they did in 2001. By contrast, collectively agreed wage increases decreased from 4.8% in the third quarter of 2001 to 3.4% in the third quarter of 2002. Expectations are that wage increases will decline as a result of lower inflation and growing unemployment. In the meantime, the social partners have reached a central agreement on a moderate wage increase of at most 2.5% for 2003 (NL0212101N). This percentage will be insufficient for the average employee to maintain purchasing power, largely due to rising premiums for medical expenses and pension schemes.

The government intends to cut the state’s contribution under the National Health Insurance Act (Ziekenfondswet, ZFW) by EUR 700 million. Because of this, national health insurance funds will have to raise their premiums. Furthermore, compounding matters, medicine prices are also increasing sharply. At present, expectations are that the average health insurance contribution will rise to a figure of some EUR 325 in 2003. Private health insurers have also announced sharp premium increases for 2003; estimates vary between 15% and 20%. The Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV) has criticised the government's intention to reduce the state’s contribution.

Across the board, occupational pension premiums will be going up because the share portfolios managed by most pension funds have shrunk by billions of euros (NL0210102F). Sharply increasing premiums are also expected for the two largest pension funds in the Netherlands, ABP (civil servants) and PGGM (healthcare) - a staggering 70% increase is even anticipated for the latter.

Different recipes for recovery

In debating the most desirable approach towards combating the Netherlands' current economic stagnation, two factors reappear: wage moderation and productivity enhancement.

Employers, the government and, more recently, the Organisation for Economic Cooperation and Development (OECD) - in its World Economic Outlook for 2003 - are all calling for wage moderation. However, the Dutch economist, Alfred Kleinknecht, is avidly opposed to this approach. He states that two consecutive decades of wage moderation have already had a damaging enough impact on both the innovative potential of the Dutch economy and labour productivity. This effect would be further reinforced by cutbacks in education and diminished research and development (R&D) investment.

Among employers too, the relationship between wage trends and productivity is under examination. In fact, Hans van der Steen, collective agreement coordinator at the General Industrial Employers' Association (Algemene Werkgevers-Vereniging VNO-NCW, AWVN), proposes offering employees a one-off bonus if certain targets are achieved, such as increased productivity or a lower rate of absence from work. By way of illustration, Mr Van der Steen points to the agreements reached at cigarette manufacturer Philip Morris, where employees have been offered a bonus of EUR 200 for each percentage that production increases per employee. Jacques Schraven, the chair of the VNO-NCW employers’ confederation, emphasises the importance of both wage moderation and innovation. In September 2002, the chair of the tripartite Social and Economic Council (Sociaal-Economische Raad, SER), Herman Wijffels, also criticised the 'one-sided' focus adopted by the government towards wage moderation.

Professor Luc Soete, who acts as an adviser to the Ministry of Economic Affairs, points out that at the end of the 1960s and start of the 1970s the relative efforts of the Dutch business community in the field of R&D were way above the average figures for Europe, Japan and the USA. In contrast to other countries, this percentage has hardly risen since then. At present, the figures for the Netherlands are way below average. In autumn 2002, Ericsson and Lucent announced that they would be closing down their R&D departments in the Netherlands. The findings of a PricewaterhouseCoopers survey published in November 2002, indicate that Dutch companies also display relatively little enthusiasm for tendering their own projects in a bid for European research subsidies.

More training agreements reached by social partners

It is striking to note that the sharp decline in R&D investment seems to go hand in hand with an equally sharp increase in investment in 'human capital'. For example, it appears that 5% of total labour costs are invested in training and education. A report published in October 2002 by the Labour Foundation (Stichting van de Arbeid, STAR), the national consultation body involving employers’ organisations and trade union federations, cites a twofold increase in such investment in comparison with the previous period. This picture is to a certain extent confirmed by the autumn report on collective agreements published by the Labour Inspectorate (Arbeidsinspectie) in November 2002. This report shows that all the main collective agreements now include provisions on the employability of employees, covering training, training leave, career development etc.


Within Europe, the Netherlands has often been cited as an example of good practice over the years, in areas such as wage moderation, vastly reduced unemployment, increasing labour participation especially amongst women and a relatively flexible labour market. In the meantime, however, the economic performance of the Netherlands appears to have fallen far below the EU average.

Although greater attention is gradually being paid to moderate labour productivity and the absence of innovative potential, it would appear that the familiar recipe of wage moderation is produced as an elixir for most economic ailments. It remains to be seen if this approach will indeed bear fruit in the long run. As far as the other familiar ingredient is concerned - training - doubts can be raised as well. More money for training and more agreements at central level appear to have done little to boost labour productivity so far. (Robbert van het Kaar, HSI)

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