Kingdom of the Netherlands—the Netherlands: Selected Issues

1. Government policies to preserve jobs and households’ income during the pandemic were swift and sizable. As most economies around the world, the Netherlands was hit hard by the Covid-19 pandemic, prompting an unprecedented policy response. Among emergency policies introduced to fight the pandemic, measures to support employment and preserve jobs include: compensation of up to 90 percent of labor costs for companies expecting a reduction in turnover of at least 20 percent (the NOW program);2 income a nd loan support to the self-employed (the TOZO program), workers under flexible contracts (the TOFA program), and for entrepreneurs, start-ups and small innovating companies. The generosity/coverage of these programs have been adjusted as needed by the authorities during the pandemic. In 2020, government emergency spending through these employment support programs cost more 2 percent of GDP, representing a large share of the total (3.5 percent of GDP) additional expenditure to support the Dutch economy during the health crisis. Current estimates and forecast suggest a larger package in 2021, as stricter containment measures were in place at least in the first quarter of the year.

Abstract

1. Government policies to preserve jobs and households’ income during the pandemic were swift and sizable. As most economies around the world, the Netherlands was hit hard by the Covid-19 pandemic, prompting an unprecedented policy response. Among emergency policies introduced to fight the pandemic, measures to support employment and preserve jobs include: compensation of up to 90 percent of labor costs for companies expecting a reduction in turnover of at least 20 percent (the NOW program);2 income a nd loan support to the self-employed (the TOZO program), workers under flexible contracts (the TOFA program), and for entrepreneurs, start-ups and small innovating companies. The generosity/coverage of these programs have been adjusted as needed by the authorities during the pandemic. In 2020, government emergency spending through these employment support programs cost more 2 percent of GDP, representing a large share of the total (3.5 percent of GDP) additional expenditure to support the Dutch economy during the health crisis. Current estimates and forecast suggest a larger package in 2021, as stricter containment measures were in place at least in the first quarter of the year.

The Dutch Labor Market and Resilience to the COVID-19 Pandemic1

A. Introduction

1. Government policies to preserve jobs and households’ income during the pandemic were swift and sizable. As most economies around the world, the Netherlands was hit hard by the Covid-19 pandemic, prompting an unprecedented policy response. Among emergency policies introduced to fight the pandemic, measures to support employment and preserve jobs include: compensation of up to 90 percent of labor costs for companies expecting a reduction in turnover of at least 20 percent (the NOW program);2 income a nd loan support to the self-employed (the TOZO program), workers under flexible contracts (the TOFA program), and for entrepreneurs, start-ups and small innovating companies. The generosity/coverage of these programs have been adjusted as needed by the authorities during the pandemic. In 2020, government emergency spending through these employment support programs cost more 2 percent of GDP, representing a large share of the total (3.5 percent of GDP) additional expenditure to support the Dutch economy during the health crisis. Current estimates and forecast suggest a larger package in 2021, as stricter containment measures were in place at least in the first quarter of the year.

2. Combining features of the short time work schemes and wage subsidies, these measures proved to be effective in limiting the impact of the pandemic on the labor market, although with some disparities across sectors of activity, types of employment, and age groups. The unemployment rate increased moderately to 3.8 percent in 2020, from 3.4 percent in 2019, with significant changes in employment dynamics within the year. Hours worked took a bigger hit, while unemployment increases remained relatively contained and temporary, reflecting policy interventions to protect employment. However, significant disparities could be observed. Younger workers (more likely to be employed under short-term and flexible contracts, and in the catering, retail, and events sectors) were more severely affected compared to prime-age workers, and the unemployment rate increase was about 0.4 percentage point higher for women compared to men, between December 2019 and December 2020. The sectoral impact of the shock was also uneven, with contact-intensive sectors the most affected, while some sectors characterized by employing high-skilled workers expanded.

3. This chapter discusses the impact of the pandemic on the Dutch labor market, as well as the main characteristics of Netherlands’ policy response. Section B discusses key developments in the labor market, resilience across types of employment, job contracts, and other relevant groups, and possible signs of labor market slack. Section C provides details on specific characteristics of the Dutch short-time work scheme deployed to cushion the imp act of the health crisis, as well as take-up rates across sectors of activity. And section D concludes with some policy implications.

B. Labor Market Developments During the Pandemic

4. The pandemic has had a comparatively limited and temporary impact on unemployment in the Netherlands, although the Dutch labor market has not yet reached the tightness seen before the pandemic. Although unemployment rose significantly in the second and third quarters of 2020, as of August 2021, the unemployment rate had reverted to its historically low pre-pandemic level of December 2019 (3.2 percent). In fact, the Netherlands has had one of the lowest overall increases in unemployment among EU countries. Also, the sharp increase of inactive people in the labor force in the first half of 2020 was subsequently gradually reversed. However, some signs of labor market slack remained visible as of the first quarter of 2021. For example, the number of workers willing to work more hours without being able to do so has remained high compared to pre-pandemic levels (which were unusually low). In addition, the number of people available to work but not looking for a job has also increased and has not reverted to the levels that prevailed before the health crisis.3

5. Important differences across age groups and education levels have been visible during the pandemic, while the unemployment gap across gender has been more moderate. The unemployment rate increased from the low 3 percent in March to the high 4.6 percent in August 2020. The subsequent resumption and adaptation of activities brought the unemployment rate down to 3.2 percent in June 2021. However, younger workers (aged 15 to 24 years old) have suffered a larger and more persistent impact, with their unemployment rate swinging more markedly, and remaining still some 1.5 percentage points above the pre-pandemic value. 4 In contrast, prime-age workers have recovered their pre-pandemic unemployment rate. The less educated workers also suffered a larger increase in unemployment than their more educated counterparts did. From similar levels before the pandemic, women unemployment rate increased 0.5 percentage point above that of men at the peak of the recession. Since then, the gap has closed again a long with the decline in unemployment rates across the two groups.

Figure 1.
Figure 1.

The Netherlands: Labor Market Slack

Citation: IMF Staff Country Reports 2021, 244; 10.5089/9781616355289.002.A002

6. Important differences across age groups and education levels have been visible during the pandemic, while the unemployment gap across gender has been more moderate. The unemployment rate increased from the low 3 percent in March to the high 4.6 percent in August 2020. The subsequent resumption and adaptation of activities brought the unemployment rate down to 3.2 percent in June 2021. However, younger workers (aged 15 to 24 years old) have suffered a larger and more persistent impact, with their unemployment rate swinging more markedly, and remaining still some 1.5 percentage points above the pre-pandemic value.5 In contrast, prime-age workers have recovered their pre-pandemic unemployment rate. The less educated workers also suffered a larger increase in unemployment than their more educated counterparts did. From similar levels before the pandemic, women unemployment rate increased 0.5 percentage point above that of men at the peak of the recession. Since then, the gap has closed again along with the decline in unemployment rates across the two groups.

Figure 2.
Figure 2.

The Netherlands: Unemployment Disparities Across Different Groups

Citation: IMF Staff Country Reports 2021, 244; 10.5089/9781616355289.002.A002

7. The sectoral impacts of the shock on employment were also uneven, reflecting the nature of the pandemic and the need for social distancing. Contact intensive sectors were the hardest hit. Especially trade, travel and food services; and professional, science, technical activity; and art and recreation (which accounted for more than 50 percent of total employment before the pandemic) were the main contributors to the decline in employment. These contact-intensive sectors employ a comparatively higher share of younger and low-skilled workers, and of workers under temporary contracts: the groups that appeared to be most affected by the health crisis. On the other hand, some sectors, including information and communication, financial and insurance services, and public administration, education and social services, registered a significant increase in employment (above 3 percent) as of 2021:Q1 compared to the pre-pandemic level. Those expanding sectors tend to employ high-skilled workers and have a lower share of temporary job contracts (see appendix I).

uA002fig01

Change in Employment by Sector

(percent)

Citation: IMF Staff Country Reports 2021, 244; 10.5089/9781616355289.002.A002

Sources: Eurostat, Haver and IMF Staff Calculations.

8. Flexible workers and the self-employed faced higher employment volatility and losses during the pandemic, compared to those with permanent contracts and employed workers, respectively.

  • Data suggests that employment grew at a stable rate for employed workers in 2020:Q1, but contracted by about 1.5 percent in 2020:Q2 as the recession deepened, and continued to decline until the first quarter of 2021. Such decline in employed workers was mainly driven by layoffs of employees under flexible contracts, whose total numbers shrunk by about 14 percent in the second and third quarters of 2020, and by almost 10 percent in the last quarter. While permanent contract jobs have continued to grow, the more moderate pace of increase was not enough to compensate for the layoff of workers under temporary contracts, suggesting that most of the latter became unemployed or perhaps self-employed. Past experience also suggests that employment under the flexible contracts tends to grow faster than permanent contracts when economic activity recovers from a downturn. Flexible jobs are more likely to serve as an adjustment variable when businesses cope with a shock., Such disparities in the outcomes for workers under different contracts is exacerbated by labor market regulations which impose less restrictions on dismissals of employees under temporary contracts.

  • For the self-employed, employment grew significantly in 2020, surpassing the pace of increase that prevailed before the pandemic. However, different dynamics emerge when looking at self-employed with employees versus solo self-employed. Employment continued to grow in both groups in the second and third quarters of 2020, although at a much slower pace for self-employed with employees. In the latter group, employment contracted in 2020:Q4 and 2021:Q1, while continuing to grow in the group of solo self-employed. A possible explanation for such divergence could be that self-employed entrepreneurs with employees laid off their employees because of the reduced economic activity due to the pandemic, and thus became solo self-employed. The large increase in the number of solo self-employed during the pandemic may also reflect a broader shift across types of employment in the labor market (e.g., previously employed workers converting into self-employed after being laid off). A similar dynamic was observed during the global financial crisis.

Figure 3.
Figure 3.

The Netherlands: Employment Across Status

Citation: IMF Staff Country Reports 2021, 244; 10.5089/9781616355289.002.A002

Figure 4.
Figure 4.

The Netherlands: Employment Protection – Regular vs Temporary Contracts

Citation: IMF Staff Country Reports 2021, 244; 10.5089/9781616355289.002.A002

9. Employment losses were larger among full-time workers compared to those working part-time. Employment in full-time contracts declined by about 1 percent in the second and third quarters of 2020, compared to a contraction of only 0.1 percent for part-timers. While part-time employment grew above 1 percent in 2020:Q4 and 2021:Q1, full-time employment contracted further by 2.5 and 2 percent respectively. The still limited economic activity since the second half of 2020, due to the persistence of the health crisis and associated (although more limited) containment measures, may partly explain the shift of employment from full-time to part-time jobs. Also, many part-time jobs are found in sectors that were less (or not) affected by the pandemic, including the health sector. With more than 60 percent of women working part-time in the Netherlands, the increase in part-time jobs has mostly benefited women employment. Indeed, as the economy emerges from the pandemic, latest available data suggest labor participation has increased slightly more rapidly among women compared to men.

Figure 5.
Figure 5.

The Netherlands: Employment Across Type of Contracts

Citation: IMF Staff Country Reports 2021, 244; 10.5089/9781616355289.002.A002

C . Employment Support Scheme Coverage by Economic Sector

10. The pandemic prompted unprecedented government responses, including several policies to preserve jobs and household’s income, while allowing businesses to jump-start their activity at lower costs when the health crisis eases. Virtually all European countries deployed several labor market measures to support employment, including job retention schemes, hiring subsidies, reduction and suspension of social contributions, and enhancement of unemployment benefits. Job retention schemes (JRS), either in the form of short-time work scheme (STW) or a wage subsidy (WS) played a predominant role. Employment support accounted for a sizable share of the overall fiscal response across Europe.

Figure 6.
Figure 6.

The Netherlands: Fiscal Cost of Support Measures and JRS Take Up

Citation: IMF Staff Country Reports 2021, 244; 10.5089/9781616355289.002.A002

11. The Dutch employment support program combines features of STW and WS. The Netherlands replaced its existing STW scheme (werktijdverkorting) with a new Temporary Emergency Bridging Measure for Sustained Employment, known as NOW (Noodmaatregel Overbrugging Werkgelegenheid). The new scheme is a temporary wage subsidy where employers continue to pay employees their full usual wage and receive a subsidy that is proportional to the reduction in turnover: the subsidy could cover up 90 percent of labor costs at the beginning of the pandemic, for businesses expecting revenue loss of 20 percent or more. Employers receive a subsidy they can use for hours worked, but in contrast to other countries with WS schemes, the size of the subsidy is proportional to the decrease in revenue, rather than the reduction in working hours. In this sense, the Netherlands’ scheme can be seen as a hybrid case.9 As in all job retention schemes, employers have an obligation to keep their worker employed even if their work is suspended. A lower wage bill would result in a reduction in the subsidy (usually the difference between reference and actual wage bill, not corrected for the actual decrease in revenue).

12. lt in a reduction in the subsidy (usually the difference between reference and actual wage bill, not corrected for the actual decrease in revenue).

13. The JRS coverage varied significantly across sectors reflecting the heterogeneity of the corresponding output contraction. The take up rates (as a share of total employees) declined in 2020:Q4 compared to 2020:Q2 and the distribution shifted even more towards Services from Industry sectors (primarily manufacturing), especially to hospitality and other services.10

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14. The JRS helped to preserve jobs by reducing labor costs. Similar to other European countries, in the Netherlands hours worked contracted significantly more than employment, and the difference was larger for sectors with higher JRS take up rates. 11

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15. Workers on temporary contracts and low-skilled workers (the less educated) have been particularly affected by the pandemic. The Netherlands has larger shares of both temporary and low-skilled employment compared to the euro area averages (also see section B, and the Selected Issues Paper on education expenditure and outcomes in the Netherlands). Furthermore, those shares tend be larger in the sectors most affected by the pandemic, such as hospitality. Due to their higher revenue losses, sectors with larger shares of temporary and low-skilled workers had higher take up rates of the employment support program. The self targeting mechanism in the design of the NOW program therefore allowed the workers in hardest hit sectors to utimately benefit most from the support afforded to their employers.

16. The sectors set to be most affected in the post-pandemic tend to have a relatively higher share of lower-skilled workers, with many working under temporary contracts. The share of lower – skilled workers is particularly high in contact-intensive service sectors, which are expected to contract or grow less strongly in many post-pandemic scenarios.12 These sectors also tend to rely more on temporary contracts, especially for younger workers , putting this group at a higher risk of prolonged unemployment. The expanding sectors (relative to pre-pandemic trend) may be able to absorb some of the displaced workers, but mostly those with higher skills.13

uA002fig02

Netherlands: Workers characteristics by age groups, 2019 (percentage of employees)

Citation: IMF Staff Country Reports 2021, 244; 10.5089/9781616355289.002.A002

Figure 7.
Figure 7.

The Netherlands: JRS Take Up and Employment by Sector Activity

Citation: IMF Staff Country Reports 2021, 244; 10.5089/9781616355289.002.A002

Figure 8.
Figure 8.

The Netherlands: JRS Take Up, Types of Employment Contracts and Workers’ Skills

Citation: IMF Staff Country Reports 2021, 244; 10.5089/9781616355289.002.A002

D. Summary and Policy Implications

17. The Dutch labor market has coped comparatively well with the shock from the pandemic thanks in large part to an unprecedent policy response. The unemployment rate rose by much less than might have been feared given the abrupt reduction in activity in the middle part of 2020 and has been on a strong and persistent declining trend since August 2020, converging toward pre-pandemic lows. The swift and strong policy response to the crisis contributed to moderate the negative impact of lockdowns and other mobility and activity restrictions on the labor market. However, reflecting the structure of the Dutch labor market, the adverse impacts on employment, especially at the peak of the pandemic, were unevenly distributed across different groups of workers, with those workers on temporary contracts and/or less skilled being disproportionately affected.

18. The NOW program was particularly successful. The program was well fit to the unique nature of the crisis that accompanied the pandemic: as its name in Dutch says it, it was a bridge for firms and workers to the other side of an exogenous and deep crisis. It was a program designed to preserve firms and their employees through a period of major demand and supply disruptions. In normal times a program of this kind would interfere with the usual process of business exit, which releases resources to the economy that can find better opportunities in expanding sectors and firms. Normal unemployment insurance programs are well suited to deal with the corresponding transitional demand for support. For that reason, it is natural that, as the pandemic crisis wanes, the NOW program should be discontinued. But the design behind NOW, perhaps with some modifications, can again be useful if another major shock were to affect large portions of the economy in the future.

19. Going forward, policies should focus on keeping the most vulnerable groups at risk of drifting out of the labor force attached to the labor market, while addressing some of longstanding challenges. Policy options to consider:

  • Subsidies for training costs to reduce the overall cost of training for firms which may be particularly relevant for financially constrained firms. The subsidies could be differentiated to facilitate the training of lower-skilled workers as there is evidence that firms generally prefer to involve in their training programs better educated workers who are less at risk and are involved in more complex jobs. To address this problem and extend training opportunities to non-standard workers, subsidies for training could also be provided to individuals (and not only to firms). The training could be combined with other ALMPs (to facilitate diffusion of information on training opportunities and on their quality) and market-led (firms decide based on their needs) and thus potentially better targeted-Policies to reduce labor market duality will also contribute to increase resilience to future shocks. Ensuring appropriate social protection including a mandatory disability insurance and some basic pension insurance for the self-employed, as currently planned, are steps in the right direction. Continuing realigning tax and other incentives across different types of employment, e.g., gradually reducing the tax credit for self-employed once the pandemic has been left behind, would contribute to reducing labor market duality. Improving employment protection for workers in flexible contract arrangements could enhance the resilience of the labor market to adverse shocks, and support wage growth. Given the high prevalence of part-time employment among women, improving availability and affordability of childcare (currently, its cost exceeds EU and OECD averages) would better enable women to work full-time. Ongoing reforms of parental leave, including the expansion of paternity leave, would also facilitate full-time female labor participation.

Appendix I. Workers’ Characteristics in the Dutch Labor Market

References

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1

Prepared by Armand Fouejieu and Koralai Kirabaeva

2

Initially, under the NOW program, employers receiving compensation for labor costs were subject to a fine in case of dismissal of employees. This restriction was subsequently lifted (although dismissals remained limited to a certain number of employees, under conditions, or subject to agreements with the unions) to facilitate needed adjustments for businesses.

3

To an extent, this reflects the role of government support programs which provide sources of income to a significant share of the labor force currently inactive. It is also worth noting that the Netherlands entered the pandemic with historically strong labor market conditions.

4

While younger workers took the largest blow at the pick of the crisis, youth employment also recovered more rapidly (although not fully as of now) as economic activity resumes, the phenomenon is driven by the flexible nature of job contracts in this groups, as noted earlier.

5

While younger workers took the largest blow at the pick of the crisis, youth employment also recovered more rapidly (although not fully as of now) as economic activity resumes, the phenomenon is driven by the flexible nature of job contracts in this groups, as noted earlier.

9

OECD (2020). Job retention schemes during the COVID-19 lockdown and beyond, Paris: OECD.

10

2020:Q2 marked the peak of the economic impact of the pandemic on the economic activity, including due to voluntary and mandatory lockdowns. Although more severe mobility restrictions were imposed in early 2021, the economy was more resilient, owing to better adaption of businesses. The STW scheme coverage limit was reduced to 80 percent of labor costs by 2021:Q2.

11

In a forthcoming IMF Departmental Paper “Labor Market Fallout of the Covid-19 Crisis and Associated Policy Options”, we showed in a broader sample of 31 European countries during 2020:Q2 – 2020:Q3, the job retention scheme take- up rates (and fiscal costs of employment support) were found to statistically significant in explaining (i) difference between employment and GDP contractions, controlling for stringency of containment measures, intensity of the pandemic, shares of temporary and of low-skilled workers.

12

The scenarios are discussed in the forthcoming IMF Departmental Paper “Labor Market Fallout of the Covid-19 Crisis and Asso ciated Policy Options.”

13

See Appendix I for charts on potential skill and occupational mismatches.

Kingdom of the Netherlands—the Netherlands: Selected Issues
Author: International Monetary Fund. European Dept.