Netherlands lags behind other OECD countries on labour productivity gains

© ANP / Marcel Berendsen
Labour productivity growth has slowed more sharply in the Netherlands than in other high-income countries over the past decade, as a result of which the country has fallen in the ranking of gross domestic product (GDP) per hour worked. This trend is largely explained by the movement of labour towards less productive sectors of the economy and the scaling down of gas production in the province of Groningen. These are the conclusions of an article entitled ‘Background to the slowing down of labour productivity growth in the Netherlands’, which is published (in Dutch) by Statistics Netherlands (CBS) today.

Labour productivity is not measured directly, but is calculated by dividing total gross value added by the number of hours worked for the respective added value. Labour productivity growth is calculated by correcting for developments in value added for changes in prices.

Structural effects are having a more adverse effect in the Netherlands

Labour productivity growth in the commercial sector can occur in two ways. Firstly, when a given economic sector becomes more productive in its own right: this is known as autonomous growth. Secondly, there may be structural effects, whereby labour shifts between economic sectors. If employment in more productive sectors increases in relative terms, labour productivity will improve for the commercial sector as a whole. The opposite is also true: if employment in less productive sectors increases relative to other sectors, labour productivity will decline at the macroeconomic level.
In the 2013-2019 period, these structural effects reduced labour productivity growth by around 0.5 percentage points per year. Such effects also played a negative role in many other high-income countries too, but to a lesser extent than in the Netherlands.

 

Largest declines in mining and quarrying, manufacturing, and transportation and storage sectors

Labour productivity growth in the Netherlands was mainly held back by lower autonomous growth. In 2004-2008, the contribution of autonomous growth was almost 2.5 percentage points per year, but this fell to 1 percentage point in the period 2013-2019, despite stable economic growth in both periods. Almost every sector played a role in this slowdown, but mining and quarrying, manufacturing, and transportation and storage have contributed the most.

The deceleration in labour productivity growth in manufacturing and the transportation and storage sector was similar to that seen in other countries and therefore does not explain why the Netherlands has fallen behind. By contrast, the slowdown in mining and quarrying was unique to the Netherlands. Although the mining and quarrying industry is a relatively small sector, it has a significant impact on macroeconomic labour productivity trends. Over the past decade, macroeconomic labour productivity growth would have been 0.3 percentage points higher if the mining and quarrying industry had been excluded from the calculations.

The productivity slowdown in the mining and quarrying industry was the result of unique political decisions made in the Netherlands because of the risk of earthquakes. No other high-income country saw the same adverse effect from the mining and quarrying industry as the Netherlands. In the United States, this industry actually made a positive contribution. Another factor is that this industry is relatively large in the Netherlands, due to a large gas field located in the province of Groningen.

 

Labour productivity growth has rebounded slightly in recent years

Labour productivity growth in many high-income countries has been relatively slow in recent years compared to previous decades, including in the Netherlands. However, labour productivity growth in the Netherlands was slightly higher in the 2020-2023 period, on average, than it was in 2013-2019.

This was mainly due to structural effects, which have helped to lift labour productivity in recent years. More employment (in relative terms) in sectors with above-average productivity (such as banking, IT and information services, legal and management consulting, and the wholesale trade) has had a positive structural impact. Less productive sectors, such as the accommodation and food services sector, for example, were also hit harder by lockdowns during the coronavirus pandemic.

At the same time, however, autonomous growth in most sectors slowed further in the 2020-2023 period. Mining and quarrying still made a significant negative contribution at around 0.3 percentage point per year. Financial institutions, particularly banks, made the largest contribution to the slowdown in autonomous growth.