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The labor market in the Netherlands, 2001–2024 Updated

The observations point to a marked underlying shift in bargaining power from unions to employers

Wiemer Salverda

University of Amsterdam, the Netherlands

Joop Hartog

University of Amsterdam, the Netherlands, and IZA, Germany

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Elevator pitch

The Netherlands has long been an example of a highly and centrally institutionalized labor market paying considerable attention to equity concerns. Fracturing of the labor force by the rapid demise of the single-earner model and accelerating immigration, falling union density, and reductions in welfare state provisions have shrunk labor’s market power centrally and decentrally. Wages lagged far behind productivity growth, job security strongly declined and wage inequality increased. This comes to the fore with a lack of offensive union power when after 2016 labor demand accelerated and the economy and employment quickly reached new heights after the pandemic crisis.

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Key findings

Strengths

The percentage of people with jobs out of the working-age population (aged 15-74) did not move until 2016 but then shot up from 67.0% to 73.2% indicating that the country’s economy has found an adequate answer to the double whammy of Covid-19 and the Ukraine war.

The Dutch labor market is highly flexible with very large shares of part-time work and flexible labor contracts; but after 2016 the part-time share stalls, as full-time work grows too, and flexible numbers halt while permanent contracts grow.

After 2016, the labor force becomes much more dependent on people with an immigrant background, be they immigrated personally or born in the Netherlands from immigrated parents; employment rates of the latter category now closely resemble those for persons with non-immigrant parents and differ significantly from new immigrants.

The unemployment rate started at 4.5%, rose to 8.3% in 2014 but ends at 3.7% in 2024 while hovering below the vacancy rate since 2022.

Weaknesses

Wages have strongly lagged productivity growth and the wage share in national income has fallen to its lowest level in 2022-2024; the record-high trade surplus (12% of GDP) attained in 2024 signals international imbalances and may rest a good deal on these lagging wages.

Following a modest rise, wage inequality declined after 2016, indicating overall wage moderation - a hallmark of the Dutch economy.

Protection of vulnerable workers has deteriorated as employers shifted more risk onto employees; thus, flex contracts, bogus self-employment, treatment of immigrant workers, and level of the minimum wage have all become the subject of much political debate.

A very strong influx of new immigrant workers since 2016 has complicated their integration and treatment in the labor market and amplified housing problems, with political implications.

The labor force has aged considerably, leading to long debates, followed by substantial adjustments in the pension system and the retirement age.

Author's main message

The institutional structure of the labor market in the Netherlands has remained largely unchanged formally but labor market developments weakening its trade union partners and social policy measures have drastically changed its operation and its embedding in welfare state provisions. Increased competitive pressures and stronger volatility in output markets have motivated employers to shift a growing proportion of financial risk onto workers. With weakened labor unions and governments rolling back social policies, employers have been able to keep wages down and to hire from a more varied and therefore fractured labor force. New contract arrangements have provided workers with more opportunities to engage in flexible and part-time work, but have also raised job and career insecurity. The effects have become clearly visible during the accelerated growth of employment and the economy since 2016. Policymakers should endeavor to provide both specific and general training to workers who no longer receive sufficient training from their employers. A substantial increase in the minimum wage to constrain low-wage sectors that provide only low-skill jobs would benefit workers – and reduce labor immigration.

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