Low-wage workers gain most from tight Dutch labor market, research shows

The tight labor market has mainly benefited workers with low hourly wages, according to research by the Netherlands Bureau for Economic Policy Analysis (CPB). Between 2015 and 2023, wages in this group were the only ones to outpace inflation.

Experts from the government’s main advisory body investigated whether staff shortages across various sectors are linked to wage increases. They found that wages rise faster in industries and provinces facing the biggest shortages, but this effect is largely limited to lower-wage employees. Higher earners often see little impact from the tight labor market.

The CPB finds that low-wage workers benefit most from an improved bargaining position. Staff shortages could therefore contribute to a more equal distribution of wages.

Higher earners tend to see noticeable gains only when changing jobs; the study indicates that employees moving to a new position in a tight labor market experience roughly 1 percentage point more wage growth than those who remain with their current employer.

The CPB’s findings echo research from the Netherlands Institute for Social Research (SCP) published earlier this year. That study found that companies respond to labor shortages by offering employees more hours and permanent contracts more quickly, which the SCP interpreted as an opportunity for improved working conditions.

Recently, the pressure on the labor market has eased somewhat. Last week, Statistics Netherlands reported that, for the first time in four years, there are more unemployed people than job openings.

Statistics Netherlands economist Peter Hein van Mulligen suggested that the Netherlands may be approaching the limits of the labor market’s capacity. Companies seem to be posting fewer vacancies, believing suitable candidates are scarce, though the overall demand for staff remains historically high.