Why does the Netherlands have such a serious worker shortage?

If you’ve been in the Netherlands for some time already, you’ll surely know that the country’s labour market is suffering from some serious problems, the core of which often lies in a lack of staff to fill available positions. But why is this?

The Dutch labour market has many flexible positions

One of the unique things about the Dutch labour market is the strong growth of flexible working hours. If you’ve ever had the fortune of walking around any Dutch city on a sunny Friday afternoon you’ll likely notice that all the bars and pubs are already full - that’s in large part due to the popularity of the four-day week at many Dutch companies, as well as other flexible working policies. 

Though this is great for many employees - especially for parents, and older people who are not ready to retire but are not able to work for 40 full hours a week - it also means that lots of people are on temporary work contracts or are self-employed, therefore leaving vacancies for jobs just a few days a week. 

Can workers just take on more hours?

Despite these flexible working hours, the Netherlands still has an unusually high participation rate. Of all 15-64-year-olds, 85 percent are active in the labour market which is significantly higher than the EU average of just 75 percent. 

This means that simply encouraging more people to work, or encouraging workers to take on more hours is unlikely to improve the situation, as the worker participation rate is already so high. What’s worse is that given the Netherlands’ ageing population, this situation is set to worsen, especially in the health and care sector, which will need to serve more patients than ever before. 

Highly skilled workers come at a cost

One of the other contributing factors, which when combined with the ageing population becomes even more significant, is the number of years young people remain in education. Many young people in the Netherlands take the time to further their studies by undertaking a Bachelor’s degree, and possibly even a Master’s degree.

There are also a number of young people undertaking multiple degrees, in order to shore up their qualifications before entering the labour market, or taking a placement or board year to enrich their experience. While this provides young people with a solid basis to enter the labour market, and means that the Netherlands has one of the highest-qualified workforces in the world, it also increases the demand for teachers, lecturers and professors, while reducing the supply of young people that enter the labour market each year.

Higher tuition fees for second Master’s degrees aim to tackle this issue, but with more people choosing to further their education in the Netherlands, the worker shortage in areas that do not require degrees, such as in some parts of the care sector as well as the hospitality industry and other key fields, has become worse. 

Can foreign workers fill the gaps?

The million-dollar question is how to solve the worker shortage in the Netherlands. While foreign workers can fill in the gaps in shortage industries, the housing shortage in the Netherlands remains, so new workers find themselves unable to find a home when they arrive in the country. 

According to social security agency UWV, the Netherlands is still in need of migrant workers to fill Dutch vacancies and stop reductions in service caused by labour shortages. 

Increasing productivity means increasing wages

Increasing productivity to reduce the demand for labour is also a suggestion made by many economists and experts in the field. This strategy has important implications for workers’ salaries though, and could trigger a wage-price spiral if not controlled.

At a time when the Netherlands has faced several years of high inflation following the peak of the COVID-19 pandemic and market side-effects from the war in Ukraine, many workers and unions have demanded higher wages to cover the increased price of rent, buying houses and even simple goods from the supermarket. Many companies have also pushed for greater productivity, especially with more of the workforce working at home after the pandemic.

Though this strategy can serve as a partial solution to the labour shortage, by getting more things done in the same amount of contracted work hours, it has implications for pay, since more productive workers want their pay to reflect their hard work. Eventually, this could lead to a situation where if wages rise too quickly, companies are forced to increase the costs of the goods and services they offer to cover their employees’ higher wages.

If this goes out of control, the increase in wages followed by prices can repeat itself, creating a strong cycle of inflation. 

No single solution is likely to fix the Netherlands’ worker shortage

In reality, asking people to work more hours, encouraging students to take up work and recruiting foreign workers to fill roles are unlikely to work alone, and would rather stand as part of a package of measures to help the Netherlands tackle its worker shortage. 

De Nederlandsche Bank, the Central Bank of the Netherlands, advocates a mixed approach to tackling the country’s worker shortage. Reducing the demand for labour - for example, by increasing productivity, or cutting out certain tasks - as well as leveraging AI technology and automated processes are part of their proposals. 

For the Netherlands to continue growing and maintain the standard of key services such as healthcare and education, the worker shortage needs to be prioritised by the government and Dutch companies. Large international companies such as Phillips and ASML have expressed concern about how the government may approach the worker shortage, particularly with regard to election pledges to curb immigration.

Many elements of the Dutch parliament are keen to tackle the problem in the next parliamentary sitting, but how they will choose to go about it remains to be seen.