The labor market in the Netherlands, 2001–2024 Updated

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.

Key findings

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.

Motivation

The Dutch labor market stands out internationally, with extremely high frequencies of part-time work, flexible contracts, own-account self-employed and a dominant household type consisting of 1.5 labor participants: typically, a well-paid full-time working husband and a part-time wife but next to a still large share of single-earner households. This shows one way of dealing with increased globalization and international competition as well as with the competing pressures of work and family life.

Indeed, the Netherlands are among the top performers with respect to employment and unemployment rates. However, the rate of temporary employment, and therewith labor market insecurity, is by far the highest in the European Union. This contrasts with the very low OECD score below, which is very narrowly defined as expected earnings loss due to unemployment. The annual gender labor income gap as estimated by Statistics Netherlands (32%) would be less than the OECD average shown below; it largely rests on females’ shorter and mostly voluntary working hours and is estimated at 10% for wages on an hourly basis.

Discussion of strengths and weaknesses

General setting

Social dialogue has been a hallmark of the institutional framework in the Netherlands since 1945. This dialogue involves three parties: employer associations, union federations, and the government. It stretches beyond affairs directly concerning employers and employees, extending to such matters as social and labor market legislation, the pension system, and a broad range of economic policy issues, with much explicit attention given to economic equity [1], [2]. Much of the formal institutional framework has been stable for decades, but the balance of power has shifted dramatically over time. The formal structure is particularly important for unions, as they have comparatively little presence in the workplace and face declining density; their organizational coverage is now far below that of employer associations. The model has become known for its tradition of wage moderation and its annual political preoccupation with the effect on inequality of next year’s government budget proposals. Since the liberalization of international capital movements, employers have increased their power. Since the formation of the EU monetary union, the government has also faced increasing constraints on policy making. At the same time, the growth to dominance of dual earners in the labor market while single-earners still retain an important presence among households adds complexity to labor supply and to social dialogue about policy making.

Figure 2 shows the major trends of how this has been playing out since the start of the century: a secular decline in union density and an equally secular rise in immigrant labor, together with a downward trend in the wage share (as explained below its rise in 2020 is a statistical artefact) and an upward one in the operating surplus, which are joined by utter stagnation of the minimum wage and minimum income in real terms.

Figure 3 illuminates the cyclical pattern of activity and the increasing tension in the labor market in recent years, especially after 2014. The economy has developed towards the lowest unemployment rates and the highest vacancy rates of the period. This has evoked comments, e.g. from the Netherlands Central Bank, that the country’s wage level may be too low.

Employment structure 

The population of the Netherlands has grown strongly, mostly by immigration, from 16 in 2001 to almost 18 million. The working-age population (15−74 years) and the labor force grew similarly. The gross participation rate grew from 70.2% to 75.9%, and the employment rate from 67.0% to 73.2% (Figure 4). Note that this presentation generally follows the broad age grouping endorsed by CPB and Dutch policy makers, while ages 15 to 64 would score a significantly higher employment rate (82.3%).

Relatively low average hours per worker are a consequence of the strong growth in part-time work (fewer than 35 usual weekly hours) as depicted in Figure 5. Among employed persons, almost half now work part-time. This may be explained by a combination of (i) individual instead of household taxation of labor income as introduced in the early 1970s, (ii) the traditionally low female employment rate until then, (iii) worker preferences of combining paid work with household care or education, and (iv) last but not least employer pressure to optimize labor efforts by cutting slack hours. Very few part-timers work part-time involuntarily: only 2.2%, which is eight times less than the EU average. But this rate increased fourfold up to 2014 while full-time employment stagnated and decreased equally strongly thereafter. Full-time employment progressed and the largest part-time jobs also grew, most likely aligning better with worker preferences indicated by the declining share of part-timers (from 19% to 11%) who desire longer working hours.

Young employees are integral to the Dutch labor market, with a share of 17% of all employed and little variation over the quarters of the year. Young employees work shorter hours but still contribute 11% of all hours worked.  

Flexibility and employee job security

There was a significant change in definition of flexible work in 2013, as the national Labor Force Statistic (LFS) became better aligned with the European one. It is therefore only possible to rely on observed trends within two separate periods.

According to the new definition, about one third of the employees now have a flexible job (e.g., temporary contracts, flexible hours, probation periods, temporary agency work). Among flexible jobs, there was a shift toward the most flexible contracts, so-called “on-call” contracts. The LFS revision had a major effect on the measured share of these on-call contracts. 

The most traditional type of flexible contract, namely temporary agency work, characterized the early stages of growing flexibility and was the prime subject of regulation under the “flexicurity deal” concluded by the social partners in 1996 and enacted literally by the government in 1999. 

The number of self-employed workers without personnel (i.e. single self-employed or own-account workers) has expanded rapidly. The self-employed can compete with employees at reduced prices as they enjoy preferential tax treatment and are not covered by mandatory social welfare arrangements (pension plans, disability, sickness leave, and unemployment insurance) and do not pay the contributions. In 2023, more than one third of individuals with a self-employment income received also a wage income. The average annual income from labor for the self-employed was at best half as large as for an employee.

This has made hiring (so-called) self-employed attractive for firms, naturally together with the ease of ending the contract. Flexible contracts are obviously attractive for employers and there is clear evidence of employer pressure to push workers into these cheaper contracts. But many individuals are also drawn to these contracts for the greater individual freedom and the higher income in the short run, as they do not have to contribute to social insurance and pension plans. As of 2025, hiring self-employed people, instead of offering an employment contract, will be scrutinized more strongly by the tax authorities.

Employment heterogeneity 

Gender

The gross labor force participation rate has essentially remained constant for men, but increased for women from 58% in 2001 to 72% in 2024 (including a 2.5 percentage points leap in 2016 due to LFS revision). The female employment rate increased from 54% in 2001 to 69% in 2024 (with a 1.6 percentage points leap in 2016), while for men it first fell from 74% to 72% in 2016 (in spite of a 1 percentage points leap) and then increased to 77% in 2024. The prevalence of part-time work grew more rapidly for men than for women (2.96% versus 1.78% annually), but remains vastly more important among women (accounting for 75% of all employed females in 2024) than for men (only 29%). For many years, women actually employed have on average been higher educated than employed men [3].

Age

The age composition of the labor force has changed dramatically in the Netherlands since the turn of the century. The share of older workers (55−74) among the employed increased from 9% in 2001 via 19% in 2016 to 23% in 2024. The share of the prime aged workers (25−54) decreased from 75% to 60%. Older workers have also shown a substantial increase in labor force participation. The aging of the labor force led to discussions about the pension system and the retirement age. The institutionally determined retirement age has been increased from 65 to 67 and is now related to expected longevity (increasing by 2/3 of the increase in expected duration of life after age 65). The basic state pension is now increasingly financed by taxes rather than by social contributions. Additional employee pensions are under reconstruction from defined benefit to defined contributions. 

Education

The level of education of the working-age population (15−74) has increased since 2001, as the share of lower-educated individuals fell (from 40% to 26%) while that of higher-educated individuals doubled (from 18% to 37%), leaving a small decline for the middle (41% to 37%). This development was much stronger for women than for men.

Immigrants

The share of the population with a foreign background continues to increase. In 2003, 8% of the employed labor force (aged 15−74) had an “immigrant background” from a Western origin country (mostly OECD countries) and 9% from a non-Western origin country, such as Turkey, Morocco, Netherlands Antilles, and Surinam. In 2016, both had increased to 10%. This immigrant background includes those born in the Netherlands as second or third generation from foreign-born immigrants. Currently, 26% have this background (Figure 7, columns 2 and 3): 10% born in the country and 16% actual immigrants over the years. Those from Western backgrounds are more often tertiary educated (46% of second generation, 49% of first generation) compared to Dutch-born (37%) but nonetheless show lower employment rates. By contrast, fewer non-western Netherlands-born are tertiary educated but they attain a higher employment rate (88%); non-western foreign-born concentrate on primary education (30%) but face a lower employment rate (43%) at the same time. 

Employment growth since 2016 largely rests on increased immigration of foreigners (i.e. excluding those of Dutch nationality). Gross working-age immigration flows exceeded working-age population growth, by 24%; net immigration was responsible for virtually all working-age population growth and close to half of total employment growth. 

The unemployment rate among Western immigrants used to be about 1.5 times that of natives, with mild fluctuations over time. Among non-Western immigrants, the ratio was about 2.8, with somewhat larger fluctuations. Among people active in the labor market, Western immigrants compared well, with incomes close to or above those of native Dutch people. By contrast, non-Western immigrants fared much worse. Second-generation Non-Western immigrants had a markedly better relative position in 2001 than in 2014, with an average personal income at 63% rather than 51% of the native Dutch average when standardized for size and composition of the household. The decline may be due to a composition effect, by origin country and also by age. Non-Dutch unemployment rates are almost two times higher than for Dutch and they have not necessarily come closer. (For more details on the development of immigration to the Netherlands and an analysis of economic effects, see [4]. For an extensive analysis of the effect of immigrants on government finances, see [5].)

Job content

Among respondents in the Netherlands Working Conditions Survey (NEA), almost a third deem themselves overqualified and another 6% to 7% underqualified, in terms of matching to required skills. Over-qualification is above average for young workers, and in the branches of trade, transport, hotels and catering, as well as recreation. Outcomes are virtually the same for 2016 and 2024. Earlier research points to above-average overqualification for elementary jobs and also for the highest educated [3]. Eurostat measures over-qualification as the percentage of the tertiary educated who are employed in lower-level jobs. It has been hovering between 14% and 16.5% for the last two decades.

A recent study finds that between 1996 and 2015, employment growth was significantly lower in occupations with high shares of routine tasks, especially for those that are primarily routine manual [6].

Wages

Evolution levels

Collective labor agreements (CLAs) cover more than 70% of employees. CLAs stipulate seniority wage scales (so-called “contract wages”) and are mostly bargained at the industry level. Regular wage bargaining covers adjustment of nominal wage levels to the evolution of prices and productivity. For many workers, this is the only source of pay increase [1]. Union demands in the bargaining process depend on economic projections of the Dutch Central Planning Bureau (CPB), the government’s main economic advisory body [7]. The index of contract wages per hour of work determines bi-annual adjustment of the statutory minimum wage and social benefits. Strikingly, on balance, there has been no increase in real contract wages over the half century since the early 1970s, leaving trade unions empty-handed over long years of wage negotiations [8].

Figure 8 shows the recent development of the CLA wage index. It is closely followed by the statutory minimum wage, but not fully as it was not indexed by the government from July 2003 to July 2005. In 2023, it was additionally increased by 8% to remedy its enormous fall due to the 10% price increase of 2022.

No index exists of wages actually earned by employees covered by CLAs [7]. Only  the average “compensation of employees” is available, based on National Account data. It includes employer contributions to social insurance and occupational pensions, and as a running average it incorporates all pay changes of both CLA and non-CLA employees as well as shifts in the employment structure. Though the time patterns of the two series in Figure 5 are rather similar, it is systematically unknown to what extent labor contracts effectively showed continued wage moderation and lagged actual average earnings. However, incidental data (2006-2019) indicate an increase in the contract index number by 1.6% while the running average of actual CLA earnings increased almost twice as fast by 3.0%. This may be interpreted as wage drift of CLA-covered employees, due to individual wage payments on top of negotiated scales and changes in the distribution of employees over the wage scales and over CLA’s, all unknowns. Next to this, non-CLA earnings increased almost two times faster by 5.8% [9]. This points to a clear process of labor market change which would make it inappropriate to simply incorporate it in the concept of wage drift.

As Figure 8 shows, real hourly compensation of employees rose by 11% from 2001 to 2009, and largely stayed there until 2019. The steep rise in 2020, the first year of the pandemic, is a statistical curiosity as compared to 2019 hours worked declined (-3.6%) while persons mostly retained their jobs and pay (Figure 3) so hours actually paid remained unchanged (-0.1%). This was the result of immediate and generous government assistance [10], [11]. The subsequent fall in 2022 of both contract wages and actual earnings reflects the sudden rise of prices by 10% provoked by the Russian war against Ukraine. Ultimately, actual earnings rose by 13% from 2001 to 2024, six times the 2% rise of contract wages.

Contract wages lag far behind productivity growth. Actual wages follow more closely, but still have fallen some 10% behind in 2024. The rise in hourly labor productivity exceeds the growth in contractual wages twelvefold and in actual earnings almost twofold. The wage share in national income shows a drop of some five percentage points from 2001 to 2024. It had fallen to 61% in 2023, well below 64% at the time of the global financial crisis, before it recovered somewhat to 63% in 2024. The zero-difference indicated between 2020 and 2001 apparently does not correct for the generous government support mentioned above. The adjusted labor share (AIQ) is calculated for the private sector and includes attributed labor income for the self-employed, this has followed almost the same pattern as the NNI wage share.  It keeps the current level equal to that during the financial crisis – which likely mirrors the significant growth of self-employmen

Wage inequality

Figure 9 presents the evolution of the 90-10 ratio, the ratio between wages at the 90th and the 10th percentile; for hourly wages over all employee hours worked during the year.  The general impression is a rise in inequality up to 2016 and some decline thereafter. Some of the increase after 2005 reflects improved observation. Upper-half (90-50) and lower-half (50-10) inequality ratios, not presented here, show the same rise to 2016. The 50-10 ratio bears responsibility for the volatility of the 2000s while the 90-50 ratio declines robustly after 2021.

Shares of low-wage and high-wage employment are measured as hourly pay below two-thirds of the median wage or above 1.5 times the median respectively. Both increase to 2016 while low-wage employment subsequently declines and high-wage employment remains stable.  

Similarly, the employment share of hours worked paid up to the adult minimum wage shows some increase up to 2017 and then a decline. The decline is partly due to reduction of the adult minimum-wage age from 23 to 21 years in 2017-2019. A decline also shows for 2024, when the legal minimum wage was redefined on an hourly basis using 36 weekly hours uniformly across the economy. That lifted anyone above the minimum wage who was working longer hours than 36.

Note, finally, that the expansion of part-time employment will have increased wage inequality as hourly pay in part-time jobs is substantially less than in full-time jobs. (57% for 12 weekly hours, 91% for 30 to 35 hours). 

Over the period 2006-2019, CLA coverage declined from 75.5% to 71.0% of total hours worked and from 72.5% to 67.0% of total wages, thus increasing overall inequality. Of the 5.5% decline 3.6% concentrates in high-wage employment which underlines the importance of the labor market change which is kept separate from wage drift. The CLA decline is almost entirely located among enterprise CLAs whose coverage shrank from 12.5% to 8.3%. 

Sectoral agreements need to be declared binding by the Minister of Social Affairs for all enterprises in the industry. This requires at least 55% to 60% of all employees in the industry to be represented by the CLA partners. Given low union density it is often the employer association who can provide this. It may give them some edge in the negotiations that has contributed to long years of wage moderation. There is very little union presence at the work floor that can check non-complying employer behavior. This may particularly have created havoc on flexible contracts, as individual firms massively concluded flexible arrangements with individual employees despite the social partners’ national flexicurity agreement of 1996 that aimed to prevent this [12].

Assassment

In the post-war period, until the 1980’s, the Netherlands had a corporatist structure: a highly institutionalized system where labor unions, employer associations and the government have intense interaction on the terms of labor contracts and complementary labor market and social policies [1]. Labor relations were essentially co-operative, wage developments were moderate, wage inequalities were deliberately kept modest. The government took responsibility for welfare state provisions to protect the worker against all kinds of negative shocks; social partners had a strong say in administering unemployment, disability and sickness insurance which were financed from wages. 

The neoliberal ideology that came up in the 1980’s inspired dramatic institutional changes. The power balance shifted drastically toward employers and labor lost the backing of the central government, with drastic reductions in social security provisions and the minimum wage. This has gone hand in hand with a growing fracturing of the labor force along dimensions of immigration, wages, educational attainment, and the allocation of employment over households. This has complicated policy making and contributed to the shifting of power away from unions to employers. 

The shift in bargaining power towards employers is visible in several results. First, wages were kept low. This is not just due to increased international competition in product markets. Profits were not squeezed but increased: between 2019 and 2023, wages increased by 24% and profits by 32%. Profits, as a share of value- added, for non-financial companies increased from 39.3%  in 2001 via 39.8% in 2016 to 41,3% in 2023. More generally, the (relative) operating surplus grew ever higher after 2014. The index of the Amsterdam stock exchange, base 100 in 1988, stood at 689 in 2022 and at 892 in August 2025. 

Second, employers shifted much of the risk of output volatility and slack hours in production to workers, with a dramatic increase in flexible labor contracts. Increased flexibility matches to some extent the increased demand from a part of the labor force that prefers more individual freedom. But flexibility has also been imposed on workers who would prefer a secure regular job. 

Third, employers got their way with massive immigration [4]. Hiring high skilled foreigners, above a threshold wage, was essentially unconstrained. Low skilled and undocumented workers facilitated the survival of low-wage industries. Immigrants, students, and increasingly participating women gave employers access to an alternative labor supply.

Fourth, employers secured a radical overhaul of the worker pension system, from defined benefit to defined contribution. With defined benefit, the premium had to be set in annual negotiations. Employers prefer a fixed rate. And they were not happy about the high premiums induced by the very conservative solvency requirements enforced by the Central Bank. The overhaul was only accepted by the unions when the government agreed to restrict future increases of the age of mandatory retirement.

The power shift could also occur because union strength diminished. Union membership declined from some 35 to 40 % in the 1980’s to 16% in 2022. Unions cover both workers and retirees. In 2018, 18% of employees between ages 15 and 75 were a member, in 2023 this has declined to 15%. 

The neoliberal ideology also strongly influenced government policies. One study details: “the “radical transformation of the Dutch welfare state” between the 1980’s and the early 2000’s [13]. The author relates them to virtual unanimity of politicians, top-level civil servants, and academics on the need for this fundamental reorientation. Disability compensation and unemployment payments were lowered. Social partners were constrained to advisers rather than rulers over these insurances. Government policies shifted to emphasis on market mechanisms and financial incentives and privatization, cutbacks on social security expenditures and the real and relative lowering of the statutory minimum wage were much larger than in comparable countries, liberalization of the labor market was more fundamental than in neighboring countries.

The political debate in the country gets increasingly serious on the question whether these developments have gone too far. Substantial increases in the minimum wage are contemplated and curbing low-wage employment and corresponding immigration, and so are better regulatory checks on bogus self-employment (including in the platform economy) regarding the employment contract, income taxation, and (obligatory) disability insurance. A sense of urgency is growing to actually implement necessary policies.

Limitations and gaps

Due to data and other limitations it is not possible to cover all dimensions of risk allocation, such as job and employment instability, and individual earnings variability. Some are not even found in standard statistical records.

The dynamics of household formation complicate the assessment of wage inequality for the inequality of welfare [14], [15]. Most working-age households receive more than one income from labor. Dual-earner households often combine higher paid full-time jobs with lower paid part-time ones. These part-timers may undercut the position of single-earners in low-wage markets.

Conditioning economic outcomes on the increasingly complex household situation becomes more important, while, at the same time, the reverse relationship should not be ignored.

Summary and policy advice

At the macro level, the Dutch economy has performed quite well. But below the surface there is much heterogeneity with many interacting features. Properly assessing the welfare effects of these features has become more difficult. A major policy challenge is to ensure investment in human capital for the growing share of part-time and flexible workers.

In addition, a broader reflection on education is recommended as well as to aim for higher supply of labor market entrants with educations that contribute to productivity growth, to combat shortages of craftsmen (and craftswomen), and to discourage demand for immigrants by generating more domestic supply in excess demand sectors. A significant rise in the statutory minimum wage may reduce the need for low skilled immigrants, as low-wage-based industries would shrink and domestic labor supply might be forthcoming, and at the same time combat the rise in earnings inequality.

Acknowledgments

The authors thank the anonymous referee(s) and the IZA World of Labor editors for many helpful suggestions on earlier drafts. An earlier contribution contains a larger number of background references for the material presented here and used intensively in all major parts of this article. Version 2 of this article updates all figures and adds new Key references [2], [3], [4], [5], [7], [8], [9], [10], [11], [12], [13],and [15]. An extensive version of this article, with more details, caveats, and data sources, has been published as IZA Discussion Paper: https://docs.iza.org/dp18211.pdf.

Competing interests

The IZA World of Labor project is committed to the IZA Guiding Principles of Research Integrity. The authors declare to have observed these principles.

© Wiemer Salverda and Joop Hartog