The Dutch non-work experience

OECD Observer

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How is it that the booming Netherlands, with its traditional social regulations and its sophisticated welfare system, manages to keep its unemployment so low? In mid-1999 joblessness was just over 3.2%, compared with 4.2% in the United States, for example, or over 10% in several other OECD countries.

But the interpretation of this impressive Dutch job performance has been much debated. Here is a strong economy which independent surveys consistently rank as having one of the world’s most attractive business environments, and yet the overall Dutch labour market could hardly be described as the most deregulated in the OECD. The quality of Dutch regulation is clearly good on the whole, otherwise business would not be so interested. Indeed, regulatory policies have had a strong market orientation for several years now. There has been an acceleration in market-oriented reform too, particularly in the 1990s, which may even have helped to bring down inflation.

But those reforms have mainly affected transportation and some traded services, like telecommunications, and not yet sheltered sectors, such as construction, or much of the public sector. Rather, it is in the private sector where employment has soared in recent years – only slightly slower than the US rate, but faster than most other European countries. In fact, net private sector jobs rose by 25% between 1984 and 1997, cutting unemployment in half. That growth more than offset an effective freezing of government employment, which had expanded rapidly in the 1970s.

So is there more to the Netherlands’ labour market performance than meets the eye? Yes, there is. Although unemployment has fallen, and manufacturing employment declined more slowly than the OECD average, with services employment growth well above average, the Netherlands does have an unusally large proportion of its working age population actually outside of the employment market. In fact, the Dutch employment rate is among the lowest in the OECD (see chart).

Declining unemployment has been offset by increases in disability benefits, early retirement and subsidised employment programmes, and labour force participation rates among men aged 55-64 are low. Well over half of the jobs created have been part-time, and most have been in the service sector. Dutch workers on average have the lowest annual average working time per employee of any country. This may be because of a preference for leisure, which probably to some degree reflects high marginal income tax rates. The fact is the Dutch economy, while good at producing employment, is not very good at generating full-time jobs. The overall result is that a large share of potential labour resources is not utilised. Moreover, within the workforce, more than half of the Netherlands’ unemployed have been out of work for over a year, a high proportion by OECD standards. A strong reminder that Dutch reforms should continue. End

* Article based on the recently published Regulatory Reform in the Netherlands, OECD, Paris, 1999.

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©OECD Observer No 219, December 1999

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