Rising labour productivity does not result in higher remunerations for employees

30/12/2015 12:30

Adjusted for inflation, the average remuneration per employee has decreased after the outbreak of the credit crunch in 2008, although labour productivity increased. This means that the higher labour productivity level of employed persons has as yet not resulted in a higher remuneration level for employees (after adjustment for inflation). According to Statistics Netherlands (CBS), the high unemployment rate and the growing number of flex workers and self-employed may have played a part in this respect.

Labour productivity employed and remuneration employees

Productivity growth slows down compared to the pre-recession era

In the period 2002-2008, the labour productivity of total Dutch economy, excluding the sectors public administration and education, annually grew by an average of 1.6 percent. The real remuneration, i.e. adjusted for inflation, also rose during this period, but the rise was less substantial than anticipated on the basis of labour productivity. In the latter half of 2008, the recession kicked off, resulting in a sharp fall in labour productivity caused by the fact that the input of labour and capital could not be adjusted soon enough to the reduced demand. This appears to be a recurrent pattern at the onset of a crisis. After 2009, labour productivity grew by an average of 0.8 percent annually. At the same time, the real remuneration per employee (including social contributions paid by employers) declined by 0.1 percent annually. In 2014, however, the situation began to change.

Unemployment and flexibility of the labour market keep wages down

Real remunerations decreased and simultaneously labour productivity increased. This is caused by the fact that tension on the labour market declined considerably after 2008. In 2013 and 2014, the number of unemployed rose significantly and far exceeded 600 thousand. When such a situation occurs on the labour market, employees are not in a position to make demands and there is no real pressure on employers to raise wages.

Unemployed and flex workers

Another reason for the fact that wages are falling behind is the growing number of flexible employment contracts. The number of permanent employment contracts is being reduced and replaced by more flexible types of employment contracts. Since 2009, wages of flex workers have been lower than wages of employees working on permanent contracts. The number of self-employed, especially self-employed without personnel, may also have had a negative effect on the wage level of employees. Incomes of self-employed are not included in remunerations. To what extent the growing number of self-employed affects the remuneration level of employees remains unclear.

In a report published today, CBS provides more elaborate information on labour productivity developments in the Netherlands between 2002 and 2014.