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OECD Economic Surveys: Netherlands 2008

image of OECD Economic Surveys: Netherlands 2008

This 2007 Economic Survey looks at how, after a long stagnation during the first half of the decade, the Dutch economy has made a successful comeback. Living standards in the Netherlands are among the highest in the OECD, and over recent years growth has strengthened and unemployment has fallen.

This most recent survey focuses on labour utilisation, which has been the main source of growth in the past decade, but which is likely to slow sharply with the ageing of the Dutch population. Improving work incentives is therefore a key imperative. Although labour-market participation rates are high, there are several groups who continue to be less active.

This survey looks at the challenges threatening the prosperity of the Dutch economy, which include: addressing the effects of population ageing on the sustainability of the public finances; boosting the labour market involvement of under-participating groups; helping parents reconcile work and family responsibilities; and improving the immigration policy and the integration of migrants.

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Challenges facing the Dutch economy

The Netherlands is well out of its economic stagnation in the first half of the 2000s and is now once again in good shape. The recovery of the past years has been robust, helping to maintain GDP per capita in the OECD’s top league. The very open Dutch economy has benefited from the supportive international environment and investors have continued to be attracted by its business-friendly environment. The country has also benefitted from past structural reforms, notably reforms of pension systems, health care and disability benefits, which have contributed to putting public finances on a sounder footing and have encouraged labour market participation. Productivity growth, however, has remained sluggish, which may be partly due to the relatively high weight of traditional industries in the economy and a lack of innovation activity. Labour utilisation has therefore contributed to growth more than in most other countries. So far, this has been made possible by the availability of under-utilised labour resources, but employers are running into increasing difficulties in hiring workers. This is largely because the working-age population has virtually stopped growing. Large groups of baby-boomers are reaching retirement ages, a trend that will accelerate from 2010 onwards and persist for the following three decades. In addition, net migration flows have turned negative, as less foreign migrants are entering the country and more natives are leaving it, a rare occurrence in a high-income nation. Furthermore, labour utilisation is being reduced by the relatively short working week and the high incidence of parttime employment. If unaddressed, these hurdles will impose a constraint on growth in the medium-term. Hence, the present coalition government has decided to encourage labour market participation. The 2008 budget introduces several welcome measures in the tax-and-benefit system for this purpose. Nevertheless, more ambitious and broad-based reforms will be needed to keep growth on a strong trend in the medium-term.

English

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