Dutch researchers warn of declining productivity threat
The Netherlands faces significant economic challenges as labor productivity growth continues to stagnate, according to a new report from TNO, the Dutch research and innovation organization. Without urgent action, the country risks a decline in wealth and a weakening competitive position compared to other economies, the organization states.
"The average worker will increasingly feel the strain of unfilled rosters and labor shortages," said TNO researcher Thijmen van Bree. Labor productivity, the output per hour worked, is a crucial driver of economic growth, especially as the Dutch working population shrinks and the aging population demands more care.
Labor productivity growth in the Netherlands has slowed for years, with only five EU countries showing weaker growth in 2023, according to the CBS.
The TNO report attributes this decline to several factors, including an overreliance on labor-intensive sectors. "In recent decades, more people have worked more hours, but productivity hasn't kept pace," Van Bree explained. Sectors like personal care—such as salons and massage businesses—have expanded, contributing less to productivity growth compared to industries reliant on technology or machinery.
The Netherlands has consistently underinvested in research and development (R&D), a key driver of innovation, TNO noted. In 2023, the country spent just 2.2 percent of its gross domestic product (GDP) on R&D, falling short of the EU's 3 percent target set at the Lisbon Summit in 2000. Dutch R&D spending lags behind neighboring countries like Belgium, Germany, and Denmark.
The surge in flexible employment contracts over the past few decades has further contributed to the problem. Employers are less inclined to invest in training temporary workers, which limits productivity growth. Additionally, the Netherlands' historically moderate wage policies have attracted low-productivity businesses reliant on cheap labor.
Van Bree also questioned whether the Netherlands is using its workforce efficiently. "Take meal delivery couriers cycling through cities while most people have supermarkets within walking distance," he said. "That same labor could be redirected to sectors like healthcare, but retraining would be necessary."
To reverse the trend, TNO recommends several measures, including reducing dependence on flexible, low-paid labor and increasing investment in R&D and labor-saving technologies like robotics.
"The government must encourage the development and adoption of these technologies," the report stated. Companies, meanwhile, need to ensure their employees are equipped to use new technologies, which will require upskilling and ongoing education.
Small and medium-sized enterprises (SMEs), which often lack resources to innovate, should focus on sharing knowledge and expertise to bridge gaps, TNO advised.
TNO also urged companies to prioritize skills over formal qualifications during recruitment. "Employers still place too much emphasis on diplomas, which are earned at the end of a study and often don't reflect current skills," Van Bree said. "Shifting the focus to skills would make it easier for workers to navigate the job market and incentivize both employers and employees to invest in training."
With labor participation already nearing its maximum, the Netherlands has limited options. "We have to make do with the people we have," said Van Bree. While labor migration is often proposed as a solution, neighboring countries are also competing for highly skilled migrants, and the current Dutch government is less favorable toward migration. "The only viable solution left is to boost labor productivity growth," Van Bree concluded.
