IMF executive director urges caution with wage increase in the Netherlands

The Dutch Executive Director at the International Monetary Fund (IMF), Paul Hilbers, warns of the possibility of excessive wage growth in the Netherlands. According to him, trade unions and employers should be aware during wage negotiations that an excessive wage increase is not in either party's interest.

In line with the President of De Nederlandsche Bank (DNB), Klaas Knot, Hilbers considers the wage demand of 7 percent announced by the FNV trade union for next year to be “quite high”. After all, inflation has weakened considerably and is nowhere near as high as it was shortly after the Russian invasion of Ukraine.

The IMF executive director believes the situation is a reason to remain alert, he says in an interview with the ANP. Because if wage growth turns out to be too high, there is a risk of a new series of price increases and life will become more expensive for everyone. No one would benefit from that, he says.

"The employer has no interest in this, because he will then have to incur more costs. But the employee also ultimately has no interest in a wage increase that is so high that his employer is, as it were, automatically forced to increase prices to compensate for the higher wage costs."

Hilbers continues: “If you get a wage increase whose growth only trickles away in the form of higher inflation, then you actually get very little out of it.”

Hilbers currently does not see a wage-price spiral, a phenomenon in which wage growth drives inflation. However, Statistics Netherlands (CBS) recently reported a record increase in Dutch collective labor agreement wages, averaging 6.8 percent. The statistics agency also noted that some services had increased in price after wages in that sector had been increased significantly.

The latter is not yet a direct cause for concern in Hilbers' eyes, he says. "A wage-price spiral is really something that just continues on its own. It reinforces itself. We do not see that in the data yet."

What kind of wage increase is acceptable in the larger economic picture, according to the IMF executive director, cannot be captured in one answer. "There are sectors where things are going very well. There is more financial room there and you can let employees share in that good state of affairs," he indicates. "But you also have sectors where things are going badly and you have to watch out for that. Before you know it, companies there will get into trouble."