A System of Governmental Wage Control Experience of the Netherlands, 1945-60
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INFLATIONARY TENDENCIES, resulting in rising wages and prices, have prevailed in most countries since the end of World War II. In certain countries, at certain times, they have been due primarily to a tendency for general demand to exceed potential supply. Many governments have tried to counteract these inflationary pressures by relying on fiscal and monetary policies. In other countries, and at other times, however, inflationary tendencies have been due primarily to the attempt of labor as a whole to secure higher real rewards than correspond to its productivity, or to an attempt to maintain wage differentials that are incompatible with the current distribution of demand between different types of labor. The success of such attempts, which presupposes imperfect competition in the labor market, makes it possible for wages to rise faster than productivity even though the real demand for labor may not be, on balance, excessive in the economy. Prices, as a consequence, also tend to rise. A wage-price spiral comes into existence; wages and prices push each other up.


INFLATIONARY TENDENCIES, resulting in rising wages and prices, have prevailed in most countries since the end of World War II. In certain countries, at certain times, they have been due primarily to a tendency for general demand to exceed potential supply. Many governments have tried to counteract these inflationary pressures by relying on fiscal and monetary policies. In other countries, and at other times, however, inflationary tendencies have been due primarily to the attempt of labor as a whole to secure higher real rewards than correspond to its productivity, or to an attempt to maintain wage differentials that are incompatible with the current distribution of demand between different types of labor. The success of such attempts, which presupposes imperfect competition in the labor market, makes it possible for wages to rise faster than productivity even though the real demand for labor may not be, on balance, excessive in the economy. Prices, as a consequence, also tend to rise. A wage-price spiral comes into existence; wages and prices push each other up.

INFLATIONARY TENDENCIES, resulting in rising wages and prices, have prevailed in most countries since the end of World War II. In certain countries, at certain times, they have been due primarily to a tendency for general demand to exceed potential supply. Many governments have tried to counteract these inflationary pressures by relying on fiscal and monetary policies. In other countries, and at other times, however, inflationary tendencies have been due primarily to the attempt of labor as a whole to secure higher real rewards than correspond to its productivity, or to an attempt to maintain wage differentials that are incompatible with the current distribution of demand between different types of labor. The success of such attempts, which presupposes imperfect competition in the labor market, makes it possible for wages to rise faster than productivity even though the real demand for labor may not be, on balance, excessive in the economy. Prices, as a consequence, also tend to rise. A wage-price spiral comes into existence; wages and prices push each other up.

Governments, in attempting to resist inflation by influencing wages, may have in mind their effects on the demand for final consumer goods or their effects on costs of production. As income received by a factor of production, wages largely determine the level of consumption in the economy. As a payment to a factor of production, wages enter into costs. Anything that keeps down the level of wages will, therefore, tend to moderate the increase in prices both by reducing consumption demand and by reducing costs of production. The effects of wage changes on the balance of payments also operate through the two channels. On the demand side, a reduction in wages will reduce the level of consumption and hence the need for imports, while at the same time it will increase the surplus available for export abroad. On the cost side, wage restraint will tend to improve the competitive position of the country in international markets.

Wage policy may therefore be relevant whether the cause of the inflation is cost pressures or excessive effective demand. Although in a demand inflation it would be possible to control the increase in prices by disinflationary policies other than wage control, these might well involve the scaling down of investment plans and at least a temporary loss of employment, which might be unwelcome. Wage controls might then help to control the inflationary tendencies without sacrificing investment, by reducing the propensity to consume—though at the cost of creating a shortage of labor. Generally, in an inflationary situation that is due to excess demand, the demand aspect of wage policy tends to predominate over the cost aspect. However, cost considerations are generally more relevant when a country strives to maintain its competitive position in international markets. Again, whenever products are priced on a cost-plus basis, a control of wages, by restraining wage increases, may prevent price increases by keeping down costs of production.

Wage policy cannot be effective unless the authorities are in a position to exercise some form of control over, or at least influence on, wages. The present paper deals with the Netherlands where, since the end of World War II, governmental control on wages has been applied, in addition to fiscal, monetary, and price controls. The acceptance of a wage policy in the Netherlands was facilitated by the peculiar circumstances prevailing in the country in the postwar period.

In spite of direct governmental control over wages, collective bargaining between employers and labor has not been suppressed. Individual employers’ and workers’ unions regularly negotiate over wages and other conditions of employment. The agreements so arrived at have to be approved by a state-appointed Board of Conciliators.

The application of wage policy in the Netherlands has been flexible, to suit the economic conditions in the country. In the early years after liberation, wage policy succeeded in controlling real wages in the interests of balance of payments equilibrium and national reconstruction. Following the Korean crisis in 1950, the Government even succeeded in imposing a cut in real wages for balance of payments reasons. In 1957 also, following the payments crisis in 1956-57, a restrictive wage policy was an important part of the over-all anti-inflationary policies of the Government.

Wage policy initially was more important for controlling consumption than for keeping down wage costs. The share of wages in national income, as well as average household consumption as a proportion of national income, declined continuously until 1953. Since 1955, however, with consumption stable at about 65 per cent of national income, the cost aspect rather than the consumption aspect of wage policy would seem to be the more significant.

Labor scarcity probably declined from 1948 to 1952, though the available indices may not be entirely reliable. This was followed by a period of increasing scarcity from 1952 to 1955. After a period of relaxation from 1956 to 1958, the market tightened once again in 1959 and in 1960.

Although most of the permitted wage increases were uniform for all industries, special wage increases were granted in some occupations, and relative wages were affected by the introduction of systems of piece-rate payments and standardized methods of job evaluation. These special wage increases resulted in different rates of change in earnings in different industries, which seem to have been related to the relative labor scarcity in these industries. Lastly, in spite of the spread of job evaluation methods, the wage structure as between workers of different degrees of skill has not changed substantially from that initially fixed in 1946.

Machinery of Wage Control in the Netherlands

The introduction of government wage control in the Netherlands represents a sharp break with previous traditions. Before World War II, government interference in wage matters was limited to the subjects covered by the Labor Disputes Act of 1923, the Collective Agreement Act of 1927, and an act of 1937 which permitted the issue of ministerial decrees extending the terms of collective agreements to unorganized labor not covered by union agreements. However, these statutes were very rarely applied and wages were generally determined by free collective bargaining. The war dealt a severe blow to the Dutch economy. Productive facilities in the country were largely destroyed, and the undernourished population was unable to be as productive as before the war. On the other hand, the demand for consumption and investment goods was at a peak. The problem was to restore production and to distribute the national product in such a way as to ensure a rapid rate of growth in production. It was clear to almost everyone that these problems could not be solved without the introduction of some special measures. The Government was, therefore, given extensive powers to interfere with the production and distribution processes: to regulate imports and exports, to ration goods, to fix prices and wages, and, in general, to determine priorities.

The level of real wages announced in 1946 was purposely set above that justified by productivity at that time. The Government, however, did not wish to risk further increases in wages and prices, and proclaimed that wages would not be permitted to increase unless thoroughly discussed in the Foundation of Labor—a voluntary association of the principal employers’ and workers’ federations. Furthermore, the Government announced that wage increases would never be allowed while a strike was in progress. Apart from a relatively small number of strikes, government wage control has generally been accepted.

The system of wage regulations applied in the Netherlands has combined governmental control with collective bargaining between employers and employees. Governmental control over wages is exercised under the Extraordinary Employment Relations Decree of 1945. Under this Decree, collective agreements reached between employers and trade unions in a particular enterprise or industry are submitted to the Board of State Conciliators for approval. The State Conciliators are appointed by the Minister of Social Affairs and receive directives from him regarding the general level of wages that the economy can afford. The Board of State Conciliators consults the Foundation of Labor before making decisions. The Minister of Social Affairs is, in turn, advised on matters of wage policy by the Social-Economic Council.

Employees and employers in the Netherlands have three main associations each. The employees’ organizations are the Netherlands Federation of Trade Unions, N.V.V. (membership nearly 499,000); the Netherlands Federation of Roman Catholic Workers, K.A.B. (membership about 407,000); and the National Federation of Christian Workers in the Netherlands, C.N.V. (membership about 222,000)1 Together, these three unions represent about 85 per cent of organized labor and 34 per cent of total labor in the country. A fourth trade union federation, under communist control, has a membership of only about 12,000 and is not recognized either by the Government or by other labor or employers’ federations. The non-affiliated trade unions account for about 230,000 members.

The three employers’ associations in industry are the nondenominational employers’ association (C.S.W.V.), the Catholic association, and the Protestant group. There are also associations of employers in agriculture and commerce.

Collective agreements reached between individual employers’ associations and labor unions are passed for approval to the Board of State Conciliators. Under the Royal Decree of 1945, the Chairman and members of the Board are appointed by the Minister of Social Affairs. Apart from the Secretary of the Board, who is a full-time employee, the members of the Board are not civil servants but are independent, giving only part of their time to its work. The Minister issues directives for application by the Board of State Conciliators in connection with decisions affecting wages. The Board is legally vested with extensive powers. It has to approve all collective wage agreements before they are implemented by the employers. It can also determine wages and conditions of employment where no collective agreements exist, decide on requests for deviations from the collective rates, and establish general principles by which collective wage agreements should be established. Since 1950, penal provisions in cases of default by employers’ or employees’ organizations have been applicable under the Act on Economic Delicts.

A reading of the powers theoretically vested in the Board by the Decree of 1945 may give the wrong impression that the Board is the focal point of the entire system of wage fixation in the Netherlands. In practice, however, the Board, on the one hand, is subject to general directions from the Minister of Social Affairs, and, on the other, works in close cooperation with the Foundation of Labor.

The directives of the Minister of Social Affairs deal only with the more important matters regarding the general level of wages that the country can afford, having regard to the balance of payments, investment needs, and other criteria of broad economic policy.

The Foundation of Labor, set up in May 1945, had its basis in the wartime cooperation between labor and employers. After some minor changes, it now consists of an equal number of representatives of workers and employers and is financed equally by the two groups. The controlling body is the Board of Directors, consisting of 20 members.

As originally conceived, the Foundation’s sphere of activity was to be primarily in the social field. In practice, wage policy has been one of the most important concerns of the Foundation. As stated above, the Decree of 1945, which lays down the functions of the Board of State Conciliators, provides that the Board shall consult the Foundation on matters of more general importance before making decisions on any proposal. To meet this specific function of advising on wage matters, the Foundation has set up a special permanent Joint Committee on Wages. All the collective agreements submitted to the Board for approval are sent to this Committee before the Board gives its decision. It is in this Committee that centralized bargaining between employers’ and employees’ unions is carried on. The Committee meets once a week and is attended by the parties concerned in whatever collective bargaining is under consideration,2 and usually by representatives of the Board, to ensure that, as far as possible, the government point of view is taken into account before the agreements are returned to the Board for approval. On the whole, the Board and the Foundation have worked in close cooperation.

In 1950, a new institution, the Social-Economic Council, was established. One of the main functions of the Council is to advise the Government on economic and social questions. The Council had its origin in the manifesto issued at the time of the establishment of the Foundation of Labor, in 1945, suggesting the creation of such a council; it was created under the Law on Public Industrial Organization—Publiekrechtelijke Bedrijfsorganisatie (PBO). Unlike the Foundation, the Council is a tripartite official body with 15 members from various fields of social research appointed by the Crown and 15 members appointed each by the trade unions and by employers’ organizations. Under Article 41 of the PBO, the Minister of Social Affairs is to ask the Council for advice concerning all important measures that he intends to take in the social or economic field unless, in his opinion, it is contrary to the public interest.3 The Council, if requested, is to give advice to the Minister, and may, on its own initiative, advise him in connection with the present law and other matters of a social and economic nature.

The Council took over from the Foundation the task of advising the Government on matters of wage policy. Until 1958, the wage policy questions in the Social-Economic Council were handled by its Committee on Wages and Prices. However, in 1958, the Council set up, on its own initiative, a Committee on the Development of the National Economy and considerably broadened its own scope on problems of wage policy. For instance, in 1958, when the Government asked for the Council’s advice regarding the abolition of the milk subsidy and the increase in controlled rents, the Council sent the request not to its Committee on Wages and Prices but to the Committee on the Development of the National Economy. This Committee went deeply into the outlook for the Netherland’s economy, including the Government’s future policy regarding expenditure and taxes, before submitting its advice to the Government.

The establishment of the Social-Economic Council does not mean that the Foundation of Labor makes no independent analysis of wage problems and policies. The Foundation’s Committee on Wages still exists, and one of the secretaries of the Social-Economic Council works as a secretary of this Committee. Many committees of the Foundation and the Council have some members in common. At times, when the Council may fail to arrive at any conclusive recommendations to be forwarded to the Government, a compromise may be effected through the deliberations of the Foundation.4

Wage Controls in Operation

In the immediate postwar period, the Netherlands Government instituted over-all measures, including price and wage controls, designed to achieve rapid economic growth while promoting balance of payments equilibrium. Most of the direct controls then introduced were abolished gradually after 1948, but controls over prices, wages, and rents were retained. A brief description of the various measures is given below as a prelude to a description of the measures taken to control wages.

The Government had at its disposal a variety of legal instruments to implement an active stabilization policy. In order to mop up excess liquidity, the Government enacted in 1945 a severe monetary purge, by which monetary balances were blocked and two capital levies imposed to wipe out at least some of the blocked accounts. Simultaneously, the Netherlands Bank began to exercise strict supervision over the credit policies of the commercial banks.

Apart from these general measures, rents and dividends were controlled, and rationing and strict controls over prices were maintained. All price increases which producers proposed had to be approved by the Government. Increases in prices were allowed only if they were justified by increases in costs. However, not all increases in costs were allowed to be passed on in increased prices. For example, prices were not allowed to be raised when higher wages were granted to compensate for the increased cost of living brought about by a partial abolition of government subsidies in 1948. Instead, the producers had to absorb these increased wages in their existing profit margins. At other times, e.g., during the Korean boom, an increase in prices because of higher costs was not permitted, but the higher costs were partly offset by increased government subsidies.

From about 1949 onward, there was a gradual relaxation of these controls. This was made possible by the substantial rise in national output and productive capacity and by the trend toward external equilibrium. By the middle of 1950, rationing had almost disappeared. However, wage and rent controls were retained. The Price Control Act of 1939, whereby the Government has the power to fix maximum prices for various commodities in case of emergency, was also retained. Otherwise, a greater reliance was placed on monetary and fiscal policies.5 Dividend limitation was abolished in 1954, and rent increases were gradually permitted. Subsequently, producers were even allowed to raise prices following a rise in wages. However, with the renewed threat to price stability in 1956, price-control measures were tightened to some extent. The Price Control Act of 1939 was invoked to control the prices of certain raw materials and of paper. The Government ordered the dissolution of a number of price cartels and put a ceiling on profit margins in retail trade in order to make sure that the change in turnover taxes that had been introduced in 1955 did not result in an increase in prices. For the rest, the authorities relied mostly on voluntary agreements by the employers to submit all intended price increases to the Minister of Economic Affairs for approval. In principle, price increases were permitted only if the employer concerned could show that costs had increased correspondingly. In the middle of 1958, when the pressure on prices had almost disappeared, the Netherlands authorities further relaxed price controls. In those sectors where competition is satisfactory, entrepreneurs are now allowed to increase prices without first obtaining the approval of the Government. However, where cartels and trusts dominate, prior approval is still required. This applies also to increases in prices of food and fuel.

Development of wage controls

In the development of wage control in the Netherlands since World War II, five phases may be distinguished. From the liberation until 1950, the wage policy attempted to guarantee to labor certain minimum standards of consumption while directing the increase in national output to national reconstruction. Following the devaluation of the guilder in September 1949 and a serious deterioration in the Netherlands’ balance of payments in 1950, the Government reinforced its vigorous anti-inflationary monetary and fiscal policies by an intensification of the policy of wage restraint. In March 1951, a tripartite agreement was reached between the Government, the organized employers, and labor to limit the compensatory increases in wage rates in such a way as to bring about a 5 per cent decrease of real wages from the level in September 1949. The balance of payments surpluses on goods and services account achieved in 1952 and 1953 encouraged the authorities to sanction large increases in real wages during the next three years. This expansionary policy, however, was reversed in 1957, following an upward pressure on prices and a deterioration in the balance of payments. Finally, in 1958, the Government adopted a more flexible wage policy under which the determination of wages in each industry is left as much as possible to collective bargaining between labor and employers, subject to over-all supervisory control by the Government.


Immediately after the liberation, there was agreement that the wage policy, within the very narrow limits set by the need to overcome the economic emergency, should be guided by the principle that wages must guarantee each wage earner a minimum standard irrespective of his productivity. In 1945, minimum wages were accordingly fixed at a level sufficient to purchase all rations for a family of four consumers and to pay for rent and for a few other essentials. Wages at this level were granted to all unskilled workers while wages of semiskilled and skilled workers were fixed at levels 10 per cent and 20 per cent, respectively, above the wage level for unskilled workers.

In October 1946, the Government announced a wage freeze. There were two exceptions, however. Increases would be allowed in wage rates that were considered too low in relation to the general wage level. New incentive wage systems, which without changing basic wage rates would stimulate production, could also be introduced and to some extent were encouraged.

The wage freeze depended for its success on stability of the cost of living to protect the already meager real standard of consumption of the wage earners. At first, the financing of reconstruction created fresh liquidity in the economy and threatened price stability. However, the Government was able to keep the monetary circulation stable from 1947 until the Korean conflict intervened in 1950. The Government also tried to stabilize the price index by controlling rents at their 1939 level and by paying subsidies on consumption goods amounting to f. 450 million in 1946 and f. 528 million in 1947. These subsidies were partially abolished in 1948, resulting in a 3 per cent rise in the cost of living. The index then remained stable until September 1949 when the devaluation of the guilder, and later the Korean war, disrupted price stability. The price increase which then occurred was moderated by a temporary increase in subsidies; these were discontinued in part when wage increases were granted in January 1950.

Wage rates were not formally pegged to the cost of living index. In practice, however, increases in living costs were generally followed by government-sanctioned wage increases. Wage rates increased by 4 per cent in 1947 and the cost of living by about 3 per cent.6 In 1948, wage rates increased by about 5 per cent, partly because of a general wage rise granted in November to compensate for the increase of about 3 per cent in the cost of living (which, as mentioned above, was attributable to the partial abolition of subsidies) and partly because of a 6 per cent increase in agricultural wages, which were considered low in relation to wages in rural industries.

Prices were not permitted to rise on account of higher wages. As a result, wage increases did not lead to secondary increases in prices. During 1949, wage rates in industry showed little change. However, an increase of more than 3 per cent occurred in agricultural wages, owing to the establishment of the agricultural pension fund, and the general wage index rose by 1 per cent.


Immediately after the devaluation in September 1949, when a considerable increase in the cost of living was generally expected, the Foundation of Labor took the initiative in submitting proposals for a postdevaluation wage policy. After lengthy consultations with the Foundation, the Government decided to allow a maximum increase of 5 per cent in wages, effective January 1, 1950. The Foundation agreed, however, that the increase would be considered as an advance against increased productivity and that it (the Foundation) would stimulate measures to make increases in production feasible and the wage increases economically justifiable.

An increase in industrial productivity of over 5 per cent was, in fact, achieved in 1950, so that price stability would have been possible in that year had not other factors making for price increases intervened. However, the Korean conflict affected the price level from September onward, raising the cost of living by 4½ per cent during the second half of 1950. The rise was confined to this magnitude by increases in government subsidies on a number of raw materials and foodstuffs. To offset the rise in the cost of living, wages were raised further by 5 per cent from September 1950. In contrast to the January increase, which was in the nature of an authorization to employers, the September increase was declared compulsory.

Strong inflationary pressures revived in 1951. The trade liberalization in the first half of 1950 and the Korean conflict induced heavy buying, resulting in a large import surplus. A rise in import prices further accentuated the external position. The cost of living rose by 8 per cent during the first four months of 1951. In March of that year, the Government launched a strong anti-inflationary policy. Food subsidies were reduced from f. 450 million for a twelve-month period to f. 175 million. Both direct and indirect taxes were raised. To lessen investment demand, direct controls were imposed on investments, and the building program was substantially reduced.

These measures were reinforced by a tripartite agreement between the Government, organized management, and labor to limit the compensating increases in wage rates to 5 per cent, with a maximum of f. 200 a year. The rise was calculated in such a way that, barring unforeseen circumstances, real wages could be expected to fall by about 5 per cent in relation to the September 1949 level. This was in fact achieved. Average real wages in 1951 fell by 4 per cent, compared with 1949.

Wage rates remained almost stable during the next two years. In 1952 there was a recession. The average number of unemployed was greater than in 1951 and constituted 3.4 per cent of the total labor force. Although wholesale prices fell by about 4 per cent during the year, the cost of living was fairly steady. In July 1952, wages were raised by 2 per cent, corresponding to the premiums which the workers had to pay toward compulsory unemployment insurance under the new Unemployment Act. The wages of farm workers again rose in September, partly to compensate for a rise in their pension fund contributions and partly as a result of the change in their occupational category. No wage increases were granted in 1953.7


The Netherlands had a favorable trade balance in 1952 and 1953. Also, the cost of living was stable during these two years. This induced the Government to relax its restrictive policies and to allow a certain expansion in domestic consumption and investment. In January 1954, controlled rents were allowed to increase by an average of 22 per cent. The Government authorized two general increases in wages, one in January and one in October 1954. The January increase was of the order of 5 per cent and was intended partly to compensate for the rent increases and partly to offset the reduction in real wages to which the trade unions had agreed in early 1951. Over and above this general increase, semiskilled and skilled workers and certain other categories of labor received extra increases. The over-all index of hourly wages rose by about 9 per cent.

In contrast to the January increase, the October increase was a result of an acute shortage of labor—especially skilled labor. The trade unions, helped no doubt by the leniency of governmental policy, pressed for higher wages. Entrepreneurs, who had been allowed to increase prices following the January increase in wages, were earning larger profits and, to some extent, were already paying higher (black) wages. The trade unions based their case mainly on the argument that the position of labor was lagging behind the advance in per capita national product. The Social-Economic Council estimated that the divergence was about 3-4½ per cent, compared with 1949, and about 2-3½ per cent in relation to 1951. The Government approved an increase in wages of not more than 6 per cent. Although the increase was not compulsory, a fairly general use was made of the authorization, especially as a result of the scarcity of labor.

The pressure for rising wages continued to be exerted in 1955 and 1956. Unemployment declined from 1.8 per cent of the total labor force in 1954 to 0.9 per cent in 1956, and job vacancies increased from 1.7 per cent to 2.5 per cent of the labor force during the same period. Although wage rates remained stable in 1955, extra fringe benefits equivalent to a maximum of 3 per cent of the wage rates were granted to the workers. At the same time, the discussions centered on the over-all level of wages, i.e., on the question whether wages had kept pace with the general increase in national product. The Social-Economic Council, to which the problem was referred by the Government, could arrive at no decisive conclusion. The Council maintained that if the years 1951-54 were taken as the basis for comparison, and if an allowance was made for the already negotiated increase in wages and for the expected rise in national income during the then current year, wages (including social charges) per worker had kept pace with the rise in per capita national income and that, therefore, there was no lag in wages. But the workers’ representatives insisted on taking as the basis the agreement reached in October 1954, which they argued should be regarded as having brought the wage level into proper relation with the level of national income in 1954. The workers, therefore, insisted that every rise in national income since 1954 must lead to a rise in wages and that, accordingly, wages lagged behind by 6 per cent. The employers, however, did not agree with this contention.

The Government referred the problem back to the Foundation and, after difficult negotiations, an agreement, based on the idea of differential wage increases, was reached in March 1956. Pursuant to the agreement, the Government sanctioned a retroactive wage bonus for 1955 not exceeding 3 per cent of the annual wages paid in that year. This payment was to be made entirely out of profits and was not to lead to a rise in prices. In addition, an optional maximum increase of 6 per cent in wages and various improvements in the conditions of employment were permitted in 1956. In this latter authorization, a clause was introduced, under which prices might be raised to cover the cost of wage increases that did not exceed 3 per cent and could not be paid out of a preceding rise in productivity. This led to wage increases being confined to 3 per cent in farming and some other occupations, together accounting for about 17 per cent of the employed persons. But elsewhere a full increase was allowed, so that, in fact, the maximum permissive increase of 6 per cent was almost uniformly granted.

The large increases in wages were a symptom of the excessive demand that characterized the Netherlands in 1956. Household consumption increased from 64 per cent of national income in 1955 to 66 per cent in 1956. Net investment rose from 17 per cent to 19 per cent of national income between 1955 and 1956. As a result of these and other factors, such as the Suez crisis, there was a serious deterioration in the balance of payments.


The deterioration in the balance of payments in 1956 induced the Government to introduce restrictive policies in 1957. The sugar subsidy was abolished, public utility rates were increased, indirect taxes and taxes on corporate profits were stepped up, and public consumption and investment expenditures reduced. Most of the wage increases granted during 1957 were of a compensatory character. The entrepreneurs were not permitted to offset, by increases in prices, the wage increases that were granted as a compensation for increased old age insurance premiums and for increased rents. At the same time, the voluntary agreements of employers’ associations to cooperate with the Government in a price stabilization policy were made more strict, and the employers were required not to increase prices without prior approval from the Minister of Economic Affairs.

The restrictive measures introduced in 1957 were partly responsible for the sudden emergence of a large amount of unemployment in the fourth quarter of 1957. However, in view of the deficit in the balance of payments, the restrictive policies were continued and no wage increases were granted in 1958. In that year, the upward pressure on prices disappeared, and the Netherlands had a surplus in its payments balance. In the autumn of 1958, the authorities moved toward relaxation of controls in the economy. Under the revised policy, price increases in the competitive sectors were to be allowed without prior sanction from the Government.

In 1959, the Government revised its policy with a view to allowing employers and employees to work out individual wage increases subject to over-all supervisory control by the Government. Under the revised policy, wage changes in any sector are guided by (1) the productivity principle and (2) the principle of coordination. According to the first principle, wage increases in each enterprise or industry would be limited by the increases in productivity in that enterprise or industry instead of, as between 1954 and 1959, by a global (average) increase in productivity. According to the second principle, the Government would attempt to maintain proper wage differentials and, in particular, to prevent the appearance of unduly large wage differentials between different industries or occupations.

Although, under the revised policy, productivity would seem to be the guiding principle for wage negotiations between employers and labor, the Board of State Conciliators, to which all agreements have to be submitted for approval, may, in order to prevent the emergence of undue wage differentials, not allow the full rise in wages in those industries where the rise in productivity is unusually large. Similarly, in industries where the rise in productivity is unusually low, wage increases in excess of productivity increases may be allowed.8

Insofar as increases in wages equal increases in productivity, the price level may be expected to remain stable. In industries where wages increase more than productivity, prices are likely to rise. The Government expects such increases in prices to be offset by a fall in prices in those sectors where the wage increases do not offset the full increase in productivity, and thereby to maintain an over-all price stability. Theoretically, the Government can enforce such decreases in prices under the Price Control Act of 1939 which is still on the statute book. Whether such powers will, in practice, be used, or whether the Government will rely on competitive forces to ensure a price decrease, is difficult to predict, however.

The course of wage negotiations under the new policy late in 1959 and in 1960 confirms the foregoing observations. During this period, wage increases varying from 4 per cent to 11 per cent were agreed upon. The increase amounted to between 4 per cent and 7 per cent for about 75 per cent of all employees and between 7 per cent and 8½ per cent for another 15 per cent. In the metal industries, the increase in wages amounted to nearly 11 per cent during the same period.

In order to maintain proper wage differentials, the Government allowed, in December 1960, a 4 per cent increase in wages in those industries where no increases in wages on the basis of increases in productivity had taken place since the introduction of the new policy. In agriculture, the building industry, and services, the permitted increases exceeded the increase in productivity. On the other hand, the wage increases in the metal industries were not permitted to be as high as the increases in productivity.

Prices were allowed to rise in those industries in which the Government allowed an increase in wages larger than the increase in productivity. However, prices do not seem to have declined in the metal industries, where productivity increased more than wages. In 1960, the cost of living rose by 3 per cent while labor costs declined by 2 per cent.

This experience has led the Government to look for criteria for wage increases other than increases in productivity. The Government has accordingly asked the Social-Economic Council for advice in this respect.

An Appraisal

At the end of World War II, the productive capacity of the Netherlands was so much destroyed that it could not even produce the minimum requirements of the population. Although the Government, in 1945, fixed real wages at a level at which the workers could satisfy only their minimum consumption needs, the total requirements of the economy for both consumption and investment purposes exceeded its domestic productive capacity. As a result, the Netherlands had a payments deficit in the immediate postwar period. The problem the country faced, therefore, was twofold: (1) to generate enough exports, and (2) to promote enough savings to satisfy its investment needs. This made it necessary for the export price level to be kept on a basis competitive with other countries and for further increases in consumption to be restrained.

The Government, uncertain about the future developments of world market prices, tried to solve the first problem by keeping down domestic prices. These prices were fixed at or even below international prices, and wages in turn were fixed in relation to domestic prices. The stabilization of the domestic price and wage levels was attempted through a series of strict and, in the long run, successfully applied measures of monetary and budgetary policy. In addition, the Government made use of rent and price controls, price subsidies, and officially sponsored drives for productivity increases. Thus it should be clear that wage policy was not the main weapon in the Government’s arsenal, although its contribution toward the reconstruction and development of the Netherlands economy was very significant.

Wage policy in itself contributed toward the recovery and stabilization of the economy in several ways. Since it was accepted by both the employers and labor, it helped constantly to smooth out the differences between the two and thus avoided losses in production through strikes.9 In the earlier period after the war, the wage policy, by restraining wages and limiting consumption, helped to release extra production for investment and export purposes. Finally, on several occasions, employers were not allowed to offset wage increases by raising prices. Employers then necessarily offset these wage increases out of increases in productivity or existing profits. The wage and price policy, therefore, helped to break the wage-price spiral which has been a prominent feature of postwar inflation in other countries.

Between 1946 and 1960, hourly earnings in the Netherlands rose by 137 per cent, and the cost of living by 74 per cent. The increase in real earnings, therefore, was only 37 per cent during the 14-year period. The annual changes in hourly earnings and the cost of living are shown in Table 1 and Chart 1, along with some other basic data.

Table 1.

Netherlands: Some Basic Data, 1938 and 1946-601

(1958 = 100)

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Sources: The following publications of the Netherlands Central Bureau of Statistics: Zestig Jaren Statistiek in Tijdreeksen, 1899-1959; Maandschrift, March 1961; Sociale Maandstatistiek, March 1961; and Maandstatistiek van de Industrie, March 1961.

Figures in parentheses indicate annual percentage changes since the preceding year except those for 1946-53, which represent percentage changes between 1946 and 1953.

Column 1 divided by column 2.

Column 1 divided by column 4.

Data for 1960 are provisional.

Chart 1.
Chart 1.

Netherlands: Earnings and Cost Indices and the Export Surplus, 1946-601

Citation: IMF Staff Papers 1961, 002; 10.5089/9781451929850.024.A002

1 Based on data in Tables 1 and 2.

As will be seen, there was an upward trend in both the cost of living and money earnings. Real earnings, however, declined between 1948 and 1951 and regained their 1948 level only in mid-1954.

The course of real earnings reflects the direction in which the wage policy was exercised by the Government. Broadly speaking, until 1953 the Government sought to prevent a rise in wages in order to restrain consumption, in the interests of economic reconstruction and of equilibrium in the balance of payments. Wage increases were not allowed to absorb the full increase in productivity until 1953. Labor costs, in consequence, fell almost continuously between 1946 and 1950; they then increased in 1951 and 1952, but declined again in 1953 (Table 1 and Chart 1). After 1953, on the other hand, when the initial objectives of the wage and price policies had been successfully achieved, the consumption aspects of the wage policy were less important, and the purpose of the policy was not to restrain wage increases but to keep them within the limits given by increases in productivity.

Table 2 shows the distribution of national income between consumption, investment, and the export surplus in the Netherlands since 1946. The impact of the restrictive wage policy is evident from the table. The ratio of household consumption to national income declined gradually from 84 per cent in 1947 to 67 per cent in 1953. Until about 1950, a large part of the yearly addition to income was diverted to investment, which increased from just over 8 per cent in 1946 to 19 per cent in 1950, and to exports. After 1950, investment as well as consumption had to be curtailed to restore equilibrium in the balance of payments. Net investment was only 7 per cent of national income in 1952 and 11 per cent in 1953. At the same time the contribution of exports of goods and services to national income increased from 17 per cent in 1946 to 39 per cent in 1949 and to 58 per cent in 1952. Following the large payments surpluses in 1952 and 1953, however, the wage policy was made less restrictive, and real wages were allowed to rise in relation to increases in national income.

Table 2.

Netherlands: Distribution of National Income, 1946-601

(In billions of guilders)

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Source: Netherlands Central Bureau of statistics, Nationale Jaarrekeningen.

Data for 1946 and 1947 are not comparable with those for later years.

At market prices.

Figures in parentheses indicate percentage distribution.

Figures in parentheses represent percentage contribution to national income.

Equals excess or shortage (−) of savings.

The contribution of exports to national income fluctuated around 55 per cent between 1953 and 1960. The share of household consumption in national income was about 65 per cent, and that of net investment about 18 per cent.

In spite of success in controlling wage increases, the Netherlands could not avoid price increases. But for such a country, where exports and imports are large in relation to national income, the internal price level cannot be isolated from changes in international prices. If, for example, there is inflation in the world as a whole, the reasonable goal for a wage policy in a country like the Netherlands is not absolute price stability but a rate of price increase which will enable the country to maintain its competitive position in international markets. A comparison of the unit value of exports for the Netherlands, the United Kingdom, and some other European countries in Table 3 shows that the Netherlands succeeded in keeping its export prices in line with those of its main competitors.

Table 3.

Indices of Unit Value of Exports in Dollars, Selected Countries and Years

(1953 = 100)

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Source: United Nations, Statistical Yearbook, 1960.

However, the experience with wage policy during the years 1953-57 has not been encouraging. The investment boom, coupled with large foreign demand for the Netherlands’ products, created conditions of labor scarcity which encouraged the labor unions to press successfully for large increases in earnings. Since these increases (45 per cent between 1953 and 1957) were larger than the increases in productivity (15 per cent between 1953 and 1957), labor costs per unit of product rose by 26 per cent and prices also tended to rise.10 Since other countries also experienced inflationary price increases during this period, the rise in prices in the Netherlands did not reduce the relative competitiveness of the Netherlands’ export products. Between 1953 and 1957, the Netherlands’ exports of manufactures rose by 35 per cent in volume, compared with a rise of 33 per cent for the world as a whole. But since imports increased even more, the balance of payments rapidly deteriorated and the Government had to resort again to a more restrictive application of its monetary, fiscal, wage, and price policies.

In 1958, a surplus in the balance of payments was again achieved. In the second half of that year, the Government relaxed its control of prices, permitting price increases in the competitive sectors without the manufacturers having first to obtain approval from the Government. In the middle of 1959, this was followed by the introduction of a wage policy that permitted labor and employers relatively greater freedom to determine wage changes in each industry. So far the increases in wages, unlike the increases in the period 1953-57, have not exceeded the increases in productivity and the price level has remained almost stable.

Wage changes, consumption, and wage costs

It was remarked earlier that a wage policy is relevant both to the control of consumption and to the prevention of wage-push inflation. In this section, an attempt is made to see how far wage increases in the Netherlands have led to a change in the share of wages in national income and, hence, in the average propensity to consume and how far they have affected costs and prices since 1948.

The share of wages and of profits in the national income, the ratio of average household consumption to national income, and wage costs for the years 1948-60 are shown in Table 4. The wage-control policy led to a continuous decline in the share of wages in national income between 1948 and 1953. Following the two general wage increases in 1954, the wage share increased slightly, but it fell again in 1955. During the boom period 1956-57, when large wage increases were granted, the wage share reached 49 per cent. The reintroduction of an anti-inflationary policy and of wage controls in 1957 led to a fall in the share of wages in 1958 and 1959. The movements in the profits share were in the opposite direction to those in the wage share. The profits-wages ratio increased almost continuously to a peak of 0.87 in 1955; it declined thereafter to 0.74 in 1957. The wage-restraint policy brought this ratio up to 0.83 in 1959. In 1960, this ratio may have increased further, since prices increased while labor costs declined.

The movements in consumption have broadly followed the movements in the wage share in national income. Household consumption as a percentage of national income declined until 1955. In 1956, following the two general wage increases, consumption increased to 66 per cent of national income. The decline in the wage share after 1957 resulted in a decrease in the consumption ratio to 63 per cent of national income in 1959 and 62 per cent in 1960.

The effect of wage changes on labor costs is less clear. This is partly because labor costs are affected by changes not only in wages but also in productivity. Thus, although the share of wages in national income declined between 1949 and 1951, labor costs rose. The rise in labor costs was influenced more by the small average increase in productivity compared with other years. On the other hand, the influence of wage changes on costs was clearly marked in 1956 and 1957, when the rise in wages affected not so much the volume of consumption as labor costs. One would expect that, with consumption stable at about 65 per cent of national income, the cost aspect rather than the demand aspect of wage changes would be more dominant in the Netherlands in the future.

Wage controls and labor scarcity

It is of interest to see to what extent, at different times, wage control in the Netherlands has kept the price of labor artificially low, thus giving rise to a shortage of labor and a distribution of income favoring profits relative to wages.

Movements in the above two indicators of underpricing of labor, however, do not always agree. In particular, from 1948 to 1951, when the ratio of profits to wages increased from 0.71 to 0.82 (Table 4), the net supply of labor, as measured by unemployment less job vacancies, appears to have increased (Table 5). This discrepancy may be explained in various ways. There are indications that the increase of the profits-wages ratio may have been due in part not to increased pressure of demand but rather to an increase in profits margins resulting from a less stringent application of price control; product prices were not forced down as costs fell on account of increased productivity. On the other hand, the net supply of labor, as an index of over-all labor scarcity, was vitiated by the emergence of local and structural unemployment caused by such factors as the decline in the demand for the products of those industries which had benefited in the immediate postwar period from a general shortage of goods, the repatriation of more than 60,000 troops from Indonesia in 1950, etc. The prevailing housing shortage in all parts of the country during the period created obstacles in the way of labor mobility which delayed the absorption of such local pockets of unemployment. Until 1951, therefore, it is difficult to rely on any over-all indicator of labor scarcity in the Netherlands. Thereafter, both of our indicators would seem to show an increase in the underpricing of labor in 1952, a decline from 1952 through 1955, and an increase again in 1957, following the application of anti-inflationary measures taken that year. In 1959 and 1960, there was an increased scarcity of labor as the ratio of profits to wages increased.

Table 4.

Netherlands: Hourly Earnings, Profit and Wage Shares, Consumption, and Labor Costs, 1948-60

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Source: Netherlands Central Bureau of Statistics, Statistische on Econometrische Onderzoekingen.
Table 5.

Netherlands: Net Supply of Labor, 1948-60

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Sources: Netherlands Bank, Annual Reports.

The index is relied upon only to show the trend and not the absolute relationship between supply and demand.

Data for 1960 are estimates.

Wage differentials and wage drifts

An important function of wage policy is to coordinate the wage levels of different industries, as well as the wage levels of different types of labor. In general, in order to promote the most economical use of manpower, relative wage changes should reflect the relative scarcity of the different categories of labor—wages increasing faster in those industries and occupations where demand for labor is higher in relation to the supply.

In the Netherlands, until the introduction of the differential wage policy in 1959, most of the increases in labor’s earnings were granted through awards that were uniform for all categories of workers and branches of industry. However, labor in some occupations and industries also obtained special wage increases as a result of changes in collective agreements in these industries, the introduction or expansion of systems of piece-rate payment, changes in methods of job evaluation,11 and changes in the amount of nightwork performed.

The magnitude of these special wage increases in comparison with total increases in labor’s earnings in the Netherlands is shown in Table 6. Most of these special increases were granted by the Board of State Conciliators only when justified as being conducive to increases in productivity, or as leading to a better coordination in the interindustry wage levels. Since, however, employers and employees occasionally contrive to convert illegal black wages into officially accepted wage increases, and since it is difficult for the Board to test accurately the proposed wage increases vis-à-vis the productivity increases, there is reason to believe that wage rates have, to some extent, been successfully pushed beyond the Government’s intentions.

Table 6.

Netherlands: Annual Percentage Increases of Wage Earnings in Enterprises, 1950-58

(Millions of U.S. dollars)

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Source: Netherlands Central Planning Bureau, Centraal Economisch Plan 1969.

It is difficult to analyze the influence of the above factors on wage changes in each industry. However, over-all changes in earnings in different industries seem to have been related to relative labor scarcity. Average annual percentage changes in earnings of labor, and average annual unemployment as a percentage of employed labor, in various industries are given in Table 7.

Table 7.

Netherlands: Average Annual Unemployment and Change in Hourly Earnings, 1948-53 and 1953-58

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Source: Netherlands Central Bureau of Statistics, Maandschrift.

Average annual unemployment as a percentage of employed labor.

It will be seen from the table that, in the period 1948-53, industries like chemicals, paper, and textiles, which had less than average unemployment, were also those in which labor obtained a more than average increase in earnings. During the same period, woodwork and clothing, which had more than average unemployment, were industries in which the rise in labor’s earnings was less than average. The rise was the least in the clothing industry, which showed the second largest increase in unemployment during the period. In the period 1953-58 also, changes in earnings were once again inversely related to unemployment. In the printing, chemicals, paper, and food industries, which experienced greater than average labor scarcity, labor obtained a greater than average wage increase. In industries such as clothing and metal manufacture, on the other hand, higher than average unemployment was accompanied by lower than average wage increases. Under the wage policy introduced in 1959, the dispersion in the rates of changes in wages in different industries has probably increased further.

The gradual extension of job-evaluation criteria in the postwar period might have been expected to lead to a modification of the initial wage differentials between workers of different degrees of skill. In Table 8 are shown indices of the average weekly earnings of adult male workers, classified according to their skill. The table reveals no change in the wage structure as initially fixed by the Government immediately after the liberation. The elaborate wage differential techniques have made little or no imprint on the actual wage structure as between broad categories of labor.

Table 8.

Netherlands: Indices of Average Weekly Earnings of Adult Male Workers in Industry, 1948-59

(1947 = 100)

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Source: Netherlands Central Bureau of Statistics, Statistisch Bulletin.


The system of governmental wage controls in the Netherlands was initiated in the postwar period within the general framework of direct controls by the Government over various sectors of the economy. As the country returned to more normal conditions, these controls were gradually abolished. In wage policy also, the Government has recently aimed at giving greater freedom to employers and employees to work out individual wage increases, subject to over-all supervisory control by the Government.

This revised policy will perhaps induce some changes in the wage-fixing machinery. In 1954, the Foundation of Labor, as well as the Social-Economic Council, recommending a greater freedom for labor and employers in fixing wages, suggested a greater delegation of powers by the Government to a tripartite national wage council, which, subject to general supervision by the Government, should take decisions regarding the general level of wages. This would presumably mean winding up the Board of Conciliators and replacing governmental control of wages by centralized bargaining. No action on these lines has been taken so far. The crisis of 1956-57, during which the Government had to assert its influence on wage bargaining, may possibly induce the Government to leave the present machinery unchanged, to be used in such emergencies.

It is more likely that, in the near future, concern may be with the criteria determining increases in wages, rather than with the machinery of wage control. As pointed out above, the Government has asked the Social-Economic Council whether it is desirable to supplement the principle of productivity with any additional criteria for determining wage changes.

In spite of the modifications that may be introduced, neither the Government nor the employees nor the employers wish to see the system of wage controls come to an end, which in itself may be a proof of its importance.


Mr. Bhatia, economist in the African Department, is a graduate of Bombay University and of Oxford University. He was formerly a member of the staff of the Indian Ministry of Finance and has contributed several articles to economic journals. Mr. Bouter, economist in the Research and Statistics Department, is a graduate of the Netherlands School of Economics. He was formerly on the staff of the Central Planning Bureau in the Netherlands and Head of the Bureau of Statistics in the Netherlands Antilles.


Membership figures as at October 1, 1960.


See P. S. Pels, “The ‘Labour Foundation’ in the Netherlands,” International Labour Review, Vol. LXXV (1957), pp. 437-49, for a more detailed account of the origin and functioning of the Foundation of Labor.


The Government has not asked the Council for advice on all matters. For example, advice was not requested on the increases in subsidies in 1956 and 1958, or on the rent increases in 1955 and 1957. However, the Government has generally asked for advice on matters of wage policy. See Dr. W. Drees, Jr., “Centraal Planbureau, Sociaal-Economische Raad en democratie,” Economisch-Statistische Berichten, March 11, 1959, pp. 184-87.


During 1955-56, when the Council did not succeed in making any positive recommendations as to the increase in wages to be granted, the Government referred the problem back to the Foundation of Labor for further discussion. After difficult negotiations, in which the Government acted as a mediator, an agreement was reached between the parties.


The outbreak of the Korean conflict in 1950, which greatly disturbed the newly established internal equilibrium, could have been the occasion for the country to reinstate the system of direct internal controls. Instead, the Government embarked in March 1951 on a vigorous policy of disinflation by reducing food subsidies, increasing taxes, and raising the official discount rate.


These and the following figures represent the increases between January and December.


The rise of about 4 per cent in the average wage index for 1953, compared with 1952, was due to the fact that the increases in 1952 were effected in the latter half of that year.


The productivity criterion may be especially difficult to apply in service industries.


The annual average of working days lost in industrial stoppages during 1946-59 amounted to about 150,000 in the Netherlands and about 3,000,000 in the United Kingdom. Thus, the United Kingdom (with a labor force about six times as large as that of the Netherlands) lost about twenty times as many working days as the Netherlands through industrial strikes.


The entire increase in prices and wages between 1953 and 1957 cannot be attributed to conditions of labor scarcity. A part of the increase during this period was to compensate for the increase in controlled rents and the abolition of consumers’ subsidies.


Under this method, each job is graded according to the number of job evaluation points applicable to the particular kind of work. A standard money value per point is fixed by the Board of State Conciliators for each of the five groups of townships, based on regional price differentials for consumer goods.