2014-01: The bite and effects of wage bargaining in the Netherlands (reprint)

*Introduction* The period since the mid-1990s has been a highly interesting one for the Netherlands and important questions can be asked about the role of wages and wage bargaining.1 First, after creating a furore in the 1990s the Dutch Miracle quickly lost its shine in the new century as employment growth faltered and GDP performance tumbled to become among the worst of all EU countries. Figure 1 shows the strong decline in the annual growth of GDP per capita and the downward shift of the employment rate. In the two consecutive years 2002 and 2003 Dutch GDP actually fell. The employment rate started to decrease in the same years and continued in 2004 and 2005: over these four years it declined by 2.8 percentage points from a peak of 76.1 per cent in 2001. Can this radical downturn be blamed on immoderate wage growth, as some have suggested? The opposite evolution of unit labour costs depicted in Figure 1, which grew considerably in these same years, seems to support the view. In Section 2 we shall look more deeply into that issue, in an international perspective. But even if labour costs can be blamed the role of wage bargaining is still an open question – did the Dutch trade unions end their traditional policy of wage moderation or are other factors at play? How important is wage bargaining for actual wage earnings? Wage bargaining is a core institution in the labour markets of most Continental countries, including the Netherlands, and it is highly relevant to consider its effects. However, as I have argued elsewhere (Salverda 2008b) it is essential not to take such institutions at face value, deducing their effects from how they look on paper, but to go beyond that and look at what can be called their ‘bite’, that is, the way they are actually applied in practice. In other words, it is crucial to see how collective wage agreements work out in terms of actual pay. These questions will be addressed in Section 3, with a focus on the aggregate, national level. Section 4 will add some detail to see whether the bite and effects differ, especially across the wage distribution. Section 4 presents conclusions.