Unemployment at 3.7 percent - a Dutch miracle?

Like elsewhere, unemployment in the Netherlands is on the rise. Still, the current level of 3.7 percent is the envy of other nations. How does the Netherlands do it?

NRC International, by Patricia Veldhuis, 9 December 2009 12:32

In Rotterdam, two women scour job listings looking for work. Photo Peter Hilz

At first glance, the numbers seem to speak for themselves. The number of unemployed people in the Netherlands grew by 110,000 last year and currently totals 400,000. Compared to almost all other countries however, the Netherlands is doing just fine with unemployment at just 3.7 percent.

Consider the United States, where 10 percent of the workforce is unemployed. Or the European Union as a whole, where unemployment has reached a similar level, leaving 15.5 million people without work, according to data collected by the European statistical agency Eurostat.

Latvia and Spain are leading the pack, with unemployment rates running close to 20 percent. Austria and the Netherlands are doing the best, with 4.7 and 3.7 percent respectively. (Note that the figure cited by Eurostat is slightly lower than the 5 percent rate estimated by the Dutch statistics office CBS.)

Many explanations for Dutch success

Granted, Dutch unemployment will grow in the year to come in the wake of the recession, perhaps reaching 600,000 by the end of 2010, but even then the Netherlands will remain well below the European average.

The fact that 35,000 people are currently in "partial unemployment," a Dutch system which allows for people to remain partially employed while supplementing their income with benefits, is not the only thing propping up Dutch employment rates. Nor are the 30,000 young people who are staying in school or college longer because they want to delay entering a dismal job market.

To explain the huge difference in numbers, "one has to consider the past," says Erik de Gier, a professor who teaches comparative job market research in Nijmegen. "We were in great shape when the crisis hit home. Our job market was incredibly tight. Unemployment was at an historic low and businesses were having a very hard time finding new staff. Now that times are hard, they are hesitant to fire the staff that they have worked so hard to find in the first place. Particularly because they will need these people even more when the baby boomers start to retire en masse."

This psychological effect might be temporary, De Gier warns. "No one can predict how the economy will recover. We might have left the recession behind us officially, but if growth slows down, or if a second recession follows, the job market will experience further fallout. Even if only because of government cutbacks coming up in the next few years.”

According to De Gier, the firmly entrenched Dutch part-time job culture also explains why unemployment rates run so low. Nowhere is part-time employment as popular as it is in the Netherlands, De Gier says. "That has a huge effect on unemployment, simply because we need more people to do the same amount of work."

Part-time paradise

In combination with the relatively high number of temp workers, this also makes for a very flexible job market, says Michiel Vergeer, an economist for the Dutch statistical office CBS. "Flexibility is key here, because it enables us to match supply with demand."

According to Professor Jan van Ours, who teaches labour economy in Tilburg, the large number of part-time workers is a left-over from the 80s.

"Back then, unemployment was skyrocketing and politicians called for a better division of the few jobs that remained," he says.

The unions initially opposed part-time jobs, which they saw as second rate employment. Van Ours: "Only later, when unemployment rates really got out of control did they change their stance on the issue. Since then, part-time work has rapidly gained in popularity. But in the countries surrounding us, the unions still oppose part-time work, mostly because it pays very little. There, a lot of part-time jobs consist of poorly paid unskilled labour. Here we have full-fledged part-time employment. People can do fulfilling and rewarding work for three or four days a week. In most other nations that is out of the question."

The Dutch lack of a large industrial base offers another explanation for low unemployment rates. "Industry is always hit the hardest in a recession," says Ruud Muffels, a professor of labour markets and social security in Tilburg. "Ours is mostly a service economy, with a lot of jobs in health care, education and government, sectors that are generally less prone to cyclical effects."

Van Ours also point to the Dutch social security system, which has seen drastic reform since the 70s and 80s, further expanding the workforce.

"Unemployment benefits have been reduced and qualifying for them has become harder," Ours says. "While our social security system still pays a fair amount, especially compared to other countries, you can only draw on it for a limited time. The unemployed are also required to actively seek new jobs. If they don't apply for jobs, or refuse work they are offered, they are penalised and receive less money. Other countries have less effective stimuli or none at all," Van Ours said.

Still, Muffels predicts that unemployment in the Netherlands will slowly continue to rise to 8 percent.

"The job market is always slow to respond to economic shifts because Dutch law makes it hard for employers to lay people off," he warns. "We shouldn't count our chickens before they hatch."