In spite of the weak economy in the Netherlands, Dutch companies have been able to maintain their level of profit in recent years. Most of them managed to do this by saving costs, partly by cutting back staff and implementing wage restraints.
Smaller share for labour in enterprise income
The share of profits in value added for the market sector rose from 19.6 percent in 2003 to 20 percent in 2004; the share of labour fell from 80.4 to 80.0 percent in the same period. This 0.4 of a percent point decrease in the labour share in enterprise income in the market sector was mainly the result of a strong increase in market sector labour productivity (4.3 percent).
Labour share in enterprise income by sector of industry
Strong improvement in profitability for manufacturing
The labour share in enterprise income fell in the sectors manufacturing, construction, and transport, storage and communication in 2004. Companies succeeded in increasing profitability in the sectors manufacturing and construction in particular. In manufacturing, which depends strongly on orders from abroad, the lower labour costs more than compensated for the effects of the strong euro on the sector’s competitive position.
Cost savings and rise in labour productivity
In manufacturing and construction the improved profitability was the result of extensive cost savings. Employment dropped sharply in these sectors, and labour productivity rose by 5 percent. In transport and communication, too, labour productivity increased substantially. Transport by road and by water benefited from the strong increase in exports and re-exports, as did the wholesale trade sector, illustrating once again the importance of its distribution function for the Netherlands. The telecommunication sector benefited from the increased demand for mobile telephone and Internet communication.
Labour share in enterprise income, retail trade and agriculture
No profits for farmers
Profitability differed widely between sectors of industry in 2004. There was an improvement in most sectors, but there were some exceptions. Including an imputed wage for the self-employed, the share of labour in enterprise income has even been above 100 percent in agriculture since 2002. This means that on average farmers earn less than their employees. Although production rose in this sector, partly pushed up by good crops, profitability decreased because of lower prices. The labour share in enterprise income in the retail sector rose strongly in 2004. Among other thongs this was the result of the supermarket price war between. Shop prices were clearly lower in 2004 than in 2003.
Frederik Heinsius, Hermanus Rietveld and Michiel Vergeer