Purchasing power erodes further in 2013

Statistics Netherlands announced today that the purchasing power of the Dutch population was reduced by 1.1 percent last year. Purchasing power fell for the fourth year in a row. This is consistent with the economic recession and climbing unemployment figures, which have dominated the past years. The continuous loss of purchasing power is in sharp contrast with the period 1985-2009, when purchasing power grew continuously (by an average of 1.8 percent annually). Only 2005 showed a dip. 

Purchasing power

Self-employed face substantial loss of purchasing power, employees gain purchasing power

Most categories in the Dutch population faced loss of purchasing power in 2013, as the recession continued. Only employees gained purchasing power (0.4 percent). Self-employed were hit hardest, losing 3.3 percent of their purchasing power, but the loss was spread unevenly across this category. Nearly a quarter of self-employed lost at least 16 percent of their purchasing power, while another one quarter saw their purchasing power grow by 10 percent or more. 

Pensioners also suffer substantial loss of purchasing power

Benefit recipients also faced dramatic loss of purchasing power. Pensioners lost purchasing power for the fourth time in a row (3.0 percent in 2013), as many supplementary pensions were not indexed and in some cases cut. The age at which people are entitled to old age pension has been raised and as a result of this measure, some people have a pension gap.

Purchasing power developments when income source remains unchanged, 2013*

Those in the lowest income brackets suffer most

If the population is divided into four equally-sized income groups, it turns out that half of the low incomes lost more purchasing power in 2013 than the higher incomes. With 1.5 percent, the loss of purchasing was most dramatic for the one quarter of people in the second lowest income group. Proportionally, this group includes many pensioner, who lost a substantial part of their purchasing power. Because employees are overrepresented in the higher income brackets, the loss of purchasing power in this category was not so dramatic.

Purchasing power by income category

Changes in personal circumstances also play a part

Purchasing power partly depends on circumstances that cannot be changed, e.g. the outcome of negotiated wage agreements, inflation or changes in tax regulations. This is the so-called static purchasing power. An employed person can lose his/her job and - reversely - an unemployed person can find a job. Such factors seriously affect their purchasing power. Incomes are also affected by the amount of hours worked in overtime or the receipt of a performance-related bonus.  These factors affect the so-called dynamic purchasing power.

Generally, changes in people’s personal situation have a positive effect on their purchasing power. Since 1997, the positive effect on purchasing power has averaged nearly 1 percentage point annually. In times of economic hardship, for example in the period 2009-2013, the effects are much more insignificant.

Dynamic and static purchasing power

Reinder Lok and Wim Bos