Diminishing gains in labour productivity over past 50 years

© ANP / Paul van Riel
Gains in labour productivity have slowed down in recent years compared to the gains seen in previous decades. Labour productivity has more than doubled over the past 50 years, but most of that increase was achieved between 1974 and 2013, when labour productivity increased at an average annual rate of 1.5 percent. Over the past decade, gains in labour productivity have slowed to an average annual rate of 0.4 percent. This slowdown in productivity improvements is affecting most sectors of the economy. These are the findings of a new analysis by Statistics Netherlands (CBS) to mark the 125th anniversary of CBS as an organisation.
Labour productivity fell by more than 1.3 percent in 2023, compared with the previous year. That was the second-largest decline in labour productivity in 50 years. The only year that saw a larger decline was 2009, during the financial crisis, when there was a fall of 2.2 percent.

Labour productivity is an indicator of the economic value added per hour worked. Factors that can improve productivity include innovation, the use of more machinery, and better trained or more experienced staff. Improvements in labour productivity are generally lower in the services sector because of the relative difficulty of introducing new technology and innovation in that sector. Services have been growing as a share of the economy over the past 50 years in the Netherlands.


Smaller productivity gains across most sectors

Declining labour productivity growth has affected almost all sectors of the economy. In mining and quarrying, gains in labour productivity have turned into declines. This is related to the phasing out of natural gas extraction in the northern province of Groningen. In the decade since 2014, labour productivity in this sector has declined at an average annual rate of nearly 16 percent, compared with an average gain of 0.7 percent in the period prior to 2014. Within the government and healthcare sector, labour productivity has also declined since 2014.


Lower labour productivity growth has also affected agriculture, financial services and manufacturing, in addition to mining and quarrying. By contrast, in construction, business services and cultural and recreational services, labour productivity gains have actually accelerated since 2014, compared to previous decades.

Economic growth mainly attributable to an increase in hours worked

The economy can grow either because more hours are worked or because more value is created per hour worked. Economic growth over the past decade has been achieved primarily through an increase in the number of hours worked.


In the decades that followed World War II, improving labour productivity was the main factor behind growth in the Dutch economy. The tail end of that growth was seen in the period between 1974 and 1983. In more recent decades, productivity gains have declined steadily. In the post-2014 period, productivity growth was well below the levels seen in the preceding decades.

In the ten years prior to 2014, the number of hours worked grew at a much slower rate because of the financial crisis, which led to a rise in unemployment. Starting in 2014, however, there was an increase in the number of hours worked which exceeded the increase seen in the decades between 1984 and 2004.

Gains in labour productivity in the Netherlands lagging behind other EU countries

Over the last decade, labour productivity in the Netherlands has improved by less than the European Union average. Five countries had a lower rate of labour productivity improvement than the Netherlands (and in one case a decline in labour productivity). The remaining countries saw larger gains in labour productivity than the Netherlands. Ireland saw the largest improvement in labour productivity, averaging 5 percent every year. In Luxembourg, by contrast, labour productivity declined by an average of 0.4 percent per year.

Sources

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