Going for Growth 2021 – Netherlands

Netherlands

The pandemic highlighted job insecurity of non-standard work contracts, which represent a considerable share of employment. To prevent a long-lasting impact on workers, the top policy priority should be to improve the targeting of active labour market policies. Increasing resilience and inclusiveness of the labour market will necessitate rebalancing the employment protection on various types of contracts in the longer term.

Performance prior to the COVID-19 crisis

Economy: Percentage gap with respect to the population-weighted average of the highest 18 OECD countries in terms of GDP per capita (in constant 2015 PPPs).

Inequality: The Gini coefficient for disposable income measures the extent to which the distribution of disposable income among households deviates from perfect equal distribution. A value of zero represents perfect equality and a value of 100 extreme inequality. The latest available data for the Netherlands is 2016.

Environment: Greenhouse gas (GHG) emissions include emissions or removals from land-use, land-use change and forestry (LULUCF). A high exposure to air pollution refers to above 10 μg/m3 of PM2.5.

Source: Economy: OECD, National Accounts, Productivity and Labour Force Statistics Databases; Inequality: OECD, Income Distribution Database and World Bank, World Development Indicators Database; Environment: OECD, Environment Database and United Nations Framework Convention on Climate Change (UNFCCC) Database.

Improving resilience of the labour market

To facilitate reallocation from sectors hit hard by the pandemic but also to cope with skill-biased technological change, automation and digital advances in the longer term, targeting of active labour market policies should improve, focusing on low-skilled and disadvantaged workers, including individuals already in work who are less likely to receive training. Despite still being above OECD average, active labour market policies have been scaled down significantly (Panel A), which at the current juncture could be felt disproportionally by disadvantaged groups, who have greater difficulties finding work and have been hit hard by the pandemic.

Pre-existing structural challenges of the Dutch economy accentuated the impact of the pandemic: workers on temporary work contracts, contingent workers and freelancers have been affected disproportionally, exacerbating income inequalities (Panel B). Employment protection between different types of contracts should be rebalanced to encourage the use of permanent contracts. This can make growth and the labour market more inclusive and resilient. Such measures should align tax and social security contributions between contract types, create more flexibility for employers to adapt jobs, workplace and working hours of regular employees, lower further the cap on severance payments for regular workers and ensure that the dismissal system works efficiently. Such measures can lead to increased layoffs as well as hirings, so should be conditional on recovering labour market and coupled with efficient support of people moving in between jobs.

Vulnerabilities and areas for reform

The current housing market may hinder labour mobility, in particular that of middle-income households – thereby slowing down the post-COVID-19 recovery, generating congestion and hampering productivity. To support the supply of market rental housing, the size of the regulated rental social housing sector should be reduced by abolishing the points system and targeting social housing to those most in need. Further reduction of tax subsidies on owner-occupied housing and moving towards tax neutrality between owner-occupied housing, rental housing and other wealth can free capital to more productive uses, curb housing price growth and boost the non-regulated rental sector.

Fiscal stimulus and investment programmes in response to the COVID-19 crisis should also focus on green transition. Further, proposed measures in the Climate Act (2019) should be fleshed out in detail and quickly advanced.

Netherlands: Summary of Going for Growth priorities and recommendations

Recent progress on structural reforms

At the end of 2019, the Dutch Supreme Court ruled that the government must reduce emissions immediately in line with its human rights obligations. Subsequently, the government introduced several measures, including a reduction and phasing out of coal-powered electricity production. In addition, the COVID-19 crisis reduced greenhouse gas emissions, mainly through lower mobility and transport, industry, and to a lesser extent also in electricity generation. To address structural challenges in the labour market, the government set up a commission (Borstlap commission), which has provided recommendations to level the playing field for regular and irregular work contracts in its final report in 2020. When and whether the recommendations will translate into law remains to be seen.

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